Trade War Puts Markets on Edge… President Trump seems to have settled in for the long haul, and a Chinese trade official said the time wasn’t right for a meeting. The markets dropped more than 400 points on Thursday.
What it means – This is getting tiresome. Yet another down week in the equity markets, driven by the trade war with China. Just because the Middle Kingdom appears to be feeling more pain than the U.S. doesn’t mean we’re not hurting. With China raising tariffs on $60 billion worth of U.S. goods, and Americans paying tariffs on $250 billion worth of Chinese goods, we’re getting smacked in the pocketbook. And now Chinese companies are asking/telling their employees to avoid patronizing American brands such as Starbucks, KFC, and McDonald’s.
But it’s not the economic pain that’s hurting the markets; it’s the lack of clarity surrounding the situation. At this point, we’re not sure how, or when, it will end, and that’s what gives investors the jitters. The longer it goes, the more people will move to the sidelines.
Fed Minutes Show Wait and See Attitude… Minutes from the latest meeting show Fed members skeptical of rising inflation, and generally positive on the economic front.
What it means – The biggest takeaways from the Fed minutes were that the group was comfortable doing nothing on rates because inflation remains tame, but they aren’t sure what to do with their balance sheet. After they finish allowing bonds to roll off, they’ll still have just under $4 trillion worth of bonds. The members discussed, but did not decide, how much they should hold in different maturities to be able to address the next economic downturn.
Existing Home Sales Fell 0.4% in April, Down 4.4% Over Last Year… The median sale price improved 2.9% and is now up 3.6% over last year.
What it means – You know the numbers must be ugly because analysts are talking about the three-month average instead of the monthly figures. The three-month average is the best since last September, but that’s not saying much. Housing has been in a funk for about a year as sales stalled even as prices continued to creep higher. We are seeing a bit more inventory, which is now up to 4.2 months from 3.8 months. That’s not very encouraging, since it means fewer units are moving.
New Home Sales Drop 6.9% in April… Even though April was ugly, the numbers for March were revised higher by 4.4%.
What it means – Just as with existing home sales, we’re being told to watch the three-month average, which is up 2.4% from March. That’s cold comfort considering the size of the drop in April. On the bright side, the median sales price jumped 11.9% to $342,200, which is 8.8% higher than last year. Still, new home sales are just 10% to 11% of overall sales, so the marginally good news on price won’t have much effect on the overall market.
Purchasing Managers’ Index (PMI) drops to 50.9… Any number over 50 implies growth, but the PMI is now at the lowest level in three years.
What it means – The PMI is a combination of surveys across a range of industries, up and downstream, that focus on business conditions. Given the current environment and trade war with China, it’s no surprise that the managers responding expect things to get a little harder in the months ahead. The biggest warning sign of weakness head was new orders, which came in at less than 50, implying outright contraction. It could be a very difficult summer.
Durable Goods Orders Down 2.1% in April… The fall almost matched the estimate for a 2.2% decline. Excluding transportation, orders were flat.
What it means – The bad news masked worse news. While the headline number fell, so did core capital goods, a proxy for business spending, which declined 0.9%. But that’s not the worst of it. The heady 1.3% increase in this category for March was revised down a full 1% to just a 0.3% gain. That takes a lot of sunshine out of last month’s report. Primary metals orders were lower by 1.9%, and new vehicle orders dropped 3.4%. All of this will give investors hope that the next Fed move will be lower, which should keep interest rates down for at least the summer, if not longer.
Texas to Ban Red Light Cameras… The legislature in the Lone Star State passed a bill that will outlaw red light cameras. Jurisdictions with current contracts will be allowed to complete, but not renew contracts with providers.
What it means – Red light cameras have proven effective at reducing right angle crashes, the kind where someone pulls out in front of you to turn right, and you hit them. That makes sense. But the cameras have also been shown to increase rear-end crashes, where someone stops short at a right turn, and the person behind them slams into them. The cameras have proven inconclusive at intersections with little traffic.
But none of that really matters. Whether they stop or cause accidents, the cameras bring in a ton of revenue, which makes them dear to police forces but the anathema to drivers. Getting rid of the cameras means that law enforcement in Texas will have to generate revenue the old-fashioned way, with flashing lights and very terse conversations with drivers.
Data supplied by Dent Research/Delray Beach Publishing
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