An
eye-for-eye and tooth-for-tooth would lead to a world of the blind and
toothless.
Attributed
to Gandhi.
We open the weekend
edition with yet another red flag for US stocks, and the US economy in general.
Has the Trump trade war on friend and foe alike already done serious damage to
the US economy? The Dow Jones Transportation Average (DJT) is signalling that
it has, bearing in mind many importers front ran shipments before the start of
the US tariffs.
Add in the bond rout,
rising interest rates, a rising oil price, and even higher tariffs set to start
on January one, and the DJT’s early warning signal just might be the start of
crash season.
Are transportation stocks the market's canary in a coal mine?
October
5, 2018 / 12:18 PM
NEW
YORK (Reuters) - The U.S. transportation sector, which many see as a proxy
indicator of the economy’s health, has retreated 3.1 percent from its Sept. 14
record, hinting to some analysts that the longest bull market on record has
entered its late stages.
Railways,
freight carriers and package deliverers get less attention than heavy-hitting
momentum stocks like Apple Inc and Amazon.com, but the sector could be showing
cracks in what analysts and the U.S. Federal Reserve characterize as a robust
economy.
Several
constituents of the Dow Jones Transportation Average (DJT) have provided
disappointing guidance in recent months. As the third-quarter reporting season
approaches, investors will watch to gauge whether trade, fuel and dollar risks
are affecting the sector’s bottom line.
The
20-company DJT has recently diverged from the broader market after a strong run
since late June, suggesting these headwinds could be taking a toll.
As the DJT
has retreated, the broader Dow Jones Industrial Average has moved in the
opposite direction. The Dow reached its most recent all-time high on Tuesday,
13 trading days after the DJT’s Sept. 14 record.
Diverging
highs between the two indexes can signal growing market instability. Similar
divergences occurred leading into the recessions of 2001 and 2008-2009, and
most recently heading into the market correction that began in late January.
“The
transports have been going sideways and haven’t confirmed the new highs in the
industrials,” said Michael O’Rourke, chief market strategist at JonesTrading in
Greenwich, Connecticut. “If the transports were to break down further from
these levels, if you saw them declining another 2 or 3 percent in the near future,
you would call that a bearish non-confirmation.”
On Friday,
both indexes closed lower, with the DJT slipping 0.8 percent and the Dow Jones
Industrial Average dropping 0.7 percent.
More
Up next, the US
commerce Secretary all but declares all out economic war on China. A subject we
touched on before.
I doubt we will have
to wait long for a Chinese response if Mr. Ross actually tries to hit China
with the US nuke option. Expect China to try to nuke back, possibly in rare
earths.
Exclusive - U.S. Commerce's Ross eyes anti-China 'poison pill' for new trade deals
October
5, 2018 / 9:21 PM
WASHINGTON
(Reuters) - U.S. Commerce Secretary Wilbur Ross signalled on Friday that
Washington may flex its muscle with additional trading partners in order to
exert pressure on China to open its markets, saying that a “poison pill”
provision in the recently completed pact with Canada and Mexico could be
replicated.
Ross said in
an interview that the provision was “another move to try to close loopholes” in
trade deals that have served to “legitimize” China’s trade, intellectual
property and industrial subsidy practices.
The United
States is now in the early stages of talks with Japan and the European Union to
lower tariff and regulatory barriers and try to reduce large U.S. trade
deficits in autos and other goods.
If the EU
and Japan signed on to provisions similar to the one in the new
U.S.-Mexico-Canada Agreement (USMCA), it would signal that they are fully
aligned with Washington in trying to increase pressure on China, the world’s
No. 2 economy, for major economic policy changes.
The
provision in USMCA, which is expected to replace the North American Free Trade
Agreement, effectively gives Washington a veto over Canada and Mexico’s other
free trade partners to ensure that they are governed by market principles and
lack the state dominance that is at the core of President Donald Trump’s tariff
war against China.
Under the
provision, if any of the three countries in the USMCA enters a trade deal with
a “non-market country,” the other two are free to quit in six months and form
their own bilateral trade deal.
“It’s
logical, it’s a kind of a poison pill,” Ross said.
----
He added that with a precedent now set, it will be easier for the provision to
be added to other trade deals. “People can come to understand that this is one
of your prerequisites to make a deal,” he said.
German economy minister says he is willing to discuss equal auto tariffs with U.S.
October
5, 2018 / 10:06 PM / Updated 8 hours ago
VIENNA
(Reuters) - German Economy Minister Peter Altmaier is willing to discuss equal
tariffs on cars to ease trade tensions with the United States, he told Austrian
public broadcaster ORF on Friday.
“We are
ready to talk about low, equal duties on cars,” Altmaier said in an ORF
interview after an EU trade ministers meeting in Innsbruck.
“This would
be the best solution for everyone.”
Finally, Reuters
looks into its crystal ball for next week’s action. India goes it own way
despite Trump threats.
Take Five - World markets themes for the week ahead
October
5, 2018 / 1:40 PM
LONDON
(Reuters) - Following are five big themes likely to dominate thinking of
investors and traders in the coming week and the Reuters stories related to
them.
1/HOME SWEET HOME IN AMERICA
U.S.
bond yields have jumped in the wake of stunningly strong economic data and
hints from Federal Reserve officials that interest rates could rise for a
fourth time this year in December.
That
rate-hike cycle may be about to take another bite into the already softening
U.S. housing market, as rising mortgage interest rates weaken home
affordability. Mortgage application volumes are lower on a year-over-year basis
and refinancing activity continues to decline — fewer borrowers can benefit,
given today’s higher interest rates.
So next
week’s data by the Mortgage Bankers Association on home loan applications will
be closely scrutinised, after 10-year benchmark borrowing costs leapt to their
highest since May 2011. If 10-year Treasury yields stay near their seven-year
peaks, borrowing costs on U.S. 30-year mortgages would increase 10 to 15 basis
points by the upcoming week, Freddie Mac’s chief economist Sam Khater
estimates.
2/MIND THE GAP
The divergence between depressed European stocks and their buoyant American counterparts seems to be here to stay.While some investors hope that a strong third-quarter earnings season on the old continent might revive a stock market stuck in negative territory, there is in fact little chance Europe will play catch-up.
Third-quarter earnings for the pan-European STOXX 600 are expected to increase 13.9 percent from the third quarter of 2017, according to data from Refinitiv I/B/E/S. Sounds like a good quarter, right? But look at what is expected of the S&P500 — 21.5 percent earnings growth.
Then contrast Europe’s sluggish growth with the U.S. economy, which is not just firing on all cylinders but appears on the verge of overheating. German retail and manufacturing data shows Europe’s biggest economy is likely to have lost steam over the summer. The U.S. manufacturing PMI meanwhile has surged to its highest since May.
More
India quietly seals missile deal with Russia despite U.S. warning
October
5, 2018 / 10:47 AM
NEW
DELHI (Reuters) - India agreed a deal with Russia to buy S-400 surface to air
missile systems on Friday, the two sides said, as New Delhi disregarded U.S.
warnings that such a purchase could trigger sanctions under U.S. law.
Although
there was no public signing, the deal was sealed during President Vladimir
Putin’s ongoing visit to New Delhi for an annual summit with Indian Prime
Minister Narendra Modi.
“The
deal was signed on the fringes of the summit,” Kremlin spokesman Dmitry Peskov
told Reuters. The contract is estimated to be worth more than $5 billion and
gives the Indian military the ability to shoot down aircraft and missiles at
unprecedented ranges.
The United
States has said countries trading with Russia’s defense and intelligence
sectors would face automatic sanctions under a sweeping legislation called
Countering America’s Adversaries Through Sanctions Act (CAATSA).
A State
Department spokesperson said this week that the implementation of the sanctions
act would be focused at countries acquiring weapons such as the S-400 missile
batteries.
Last month,
the United States imposed sanctions on China’s military for its purchase of
combat fighters as well as the S-400 missile system it bought from Russia this
year.
India is
hoping that President Donald Trump’s administration will give it a waiver on
the weapons systems which New Delhi sees as a deterrent against China’s bigger
and superior military.
“The (two)
sides welcomed the conclusion of the contract for the supply of S-400 long
range surface to air missile system to India,” India and Russia said in a joint
statement at the end of the talks.
The two
countries also signed eight agreements covering space, nuclear energy and
railways at a televised news conference. “We always arrive to India with great
pleasure as we know that we are surrounded here in the environment of very
frank friendship, business cooperation,” Putin said.
Russia will
also help India in its plans to mount a manned space mission by 2022.
“India gives
the highest priority to ties with Russia, in fact in a changing world, our ties
have become more important,” Modi said.
More
"We
feel that fundamentally Wall Street is sound, and that for people who can
afford to pay for them outright, good stocks are cheap at these prices."
Goodbody
and Company market-letter quoted in The
New York Times, Friday,
October 25, 1929
The monthly Coppock Indicators finished September.
DJIA: 26,458 +199 Down. NASDAQ:
8,046 +261 Down. SP500: 2,914 +166 Dow in August.
All
three slow indicators moved down in March, but the S&P and NASDAQ turned up in August. September will be critical for confirmation
of this change. All 3 slow indicators failed to confirm August’s positive
change making October very vulnerable to a sell off.
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