Economy - Investor's Business Daily23:28 Текст источника в новой вкладке

 
 
1. Why Dow Jones, S&P 500 Stocks May Not Love Trump-China Trade DealПт., 18 мая[−]

News reports, subsequently disputed by China, say Beijing is prepared to meet President Trump's request of ramping up American imports to the tune of $200 billion a year to avert a trade war. A deal could hit Friday with Chinese and U.S. negotiators meeting in Washington. But if that happens, don't expect an extended Wall Street celebration.

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Putting to rest the risk of a China trade war would be great news. Both sides have detailed plans for 25% tariffs on $50 billion worth of imports. U.S. multinationals like Dow Jones stocks Boeing ( BA), Caterpillar ( CAT) and Apple ( AAPL) face even bigger risks from possible nontariff hurdles to China's market. Boeing staged a low-volume breakout Friday while Caterpillar rose modestly. Apple edged lower, still near record highs.

Yet Trump has been signaling for the past month that he has little interest in a trade war with China. If financial markets aren't really bracing for one, no big Dow Jones relief rally is likely. The bigger issue is that the trade deal that Trump is talking about appears likely to exacerbate all the concerns that have been pouring cold water on the stock market's latest rally attempt.

The Downside Of A U.S.-China Trade Deal

A big increase in American exports to China — even one less than half the size of the supposed $200 billion deal — would be like yet-another injection of stimulus into an economy that's already at risk of overheating. A Trump-China trade deal would put more upward pressure on the dollar, on interest rates, on wages and on inflation.

To dramatically cut its U.S. trade surplus, China would have to shift purchases from other foreign countries, economists say. Already the dollar has been rising because U.S. economic prospects and interest rates have firmed relative to those of other economies. Steering more business to the U.S. and less to other nations would hasten the trend.

Trump's priorities appear to be focused on shrinking the China trade deficit and delivering near-term benefits to the U.S. economy. He also may be prioritizing the increasingly uncertain negotiations with North Korea, in which Beijing is seen as a key partner, over trade concerns.

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2. 4 Reasons Why Soaring Treasury Yields Hit Stocks TodayВт., 15 мая[−]

Treasury yields jumped Tuesday morning with a solid retail sales report, but the rout for both bonds and stocks gathered steam. The 10-year Treasury yield vaulted to 3.09%, the highest since 2011, while the Dow Jones, S&P 500 index and Nasdaq composite fell 0.7%-0.8%. Yet better economic growth should mean better earnings, so why did stock investors join in the sell-off?

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Here are 4 reasons why the market reaction raises concern about the outlook for stock investors:

Rising Treasury Yields Signal More Fed Rate Hikes

First, the obvious: Higher rates are a negative for interest-rate sensitive stocks, notably housing and autos. Big homebuilders Lennar ( LEN) and D.R. Horton ( DHI) were among the biggest losers on the S&P 500 on Tuesday.

Next, the Fed: The rise in 2-year Treasury yields came as markets began to price in more-hawkish Fed policy. Now markets see a roughly 55% chance of a fourth 2018 Fed rate hike coming in December, up from less than 40% odds a month ago. San Francisco Fed President John Williams said Tuesday that he sees three or four rate hikes in 2018 as the "right direction."

No Lift For Bank Stocks

On Tuesday, 10-year Treasury yields rose even more than 2-year yields, steepening the slope of the yield curve. That's good for bank net interest margins and explains why Bank of America ( BAC) and Wells Fargo ( WFC) bucked the stock market downtrend and rose modestly on the stock market today.

But, in general, banks have lagged the broader market in recent months as the yield curve has been getting flatter. The flat yield curve seems to reflect concerns that the Fed will overreact to strong growth fueled by a surge in federal tax-cut and spending stimulus this year. The Fed is seen as setting policy too tight once fiscal stimulus starts to wane, setting the economy up for a letdown in the second half of 2019.

Rising Dollar Hits Profits, Emerging Markets

Third, rising U.S. interest rates have been accompanied by an upsurge in the value of the dollar vs. other major currencies. The U.S. dollar index rose about 0.5% on Tuesday, hitting a new high for 2018. The greenback is up about 5% from February lows. That's a pretty big negative for U.S. multinationals that derive much of their sales overseas, because those foreign sales are now worth less in dollar terms.

A strengthening dollar is also a negative for the global economy because emerging-market economies often borrow in dollars. As the dollar rises relative to their home currencies, servicing dollar-denominated debt becomes more difficult. A higher dollar has added to Argentina's mounting problems.

Global Bond Yields Rise

Fourth, higher U.S. interest rates are sapping demand for overseas debt at a time when U.S. borrowing needs are surging due to spiraling deficits and the Federal Reserve's unwinding of financial-crisis-era bond purchases. On Tuesday, bond yields rose across the world, not just in the U.S., which also crimps growths.

The bottom line: Higher U.S. interest rates are tightening financial conditions around the world, a negative for earnings prospects at home and abroad.

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3. Fed Rate-Hike Odds, Treasury Yields Keep Rising On Solid Retail Sales; Stocks FallВт., 15 мая[−]

Retail sales rose 0.3% in April from the prior month, with a 0.3% gain excluding autos, the Commerce Department reported on Tuesday.

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Wall Street economists expected a 0.3% overall gain but a stronger 0.5% rise ex-autos. Factoring out both gas and autos, sales rose 0.3% vs. the 0.4% increase expected.

But the mixed data look stronger when you factor in an upward revision to March's gain, which was bumped up to 0.8% from 0.6%.

After soft retail spending picked up at the end of the first quarter, the data show consumers started the second quarter with fairly solid momentum. After the report, the 2-year Treasury yield rose to 2.56%, the highest since before the financial crisis, while the 10-year Treasury approached 3.05%.

The Dow Jones, S&P 500 and Nasdaq all opened lower.

Odds of four Fed rate hikes in 2018 rose to 55%, according to CME Group's FedWatch page.

In April, nonstore retail sales rose 0.6% on the month and 9.6% from a year ago. Sales at food service and drinking places slipped 0.3% from March while rising 3.8% from a year ago in April.

Sales at building material and garden supplies dealers rose 0.4% in April and 4.4% from a year ago. But shares of home improvement retailer Home Depot ( HD) fell early Tuesday after quarterly sales came in on the light side.

Meanwhile, auto sales rose 0.1% and 4.3% on the year. Sales at clothing and accessory stores rose 1.4% on the month and 4.1% from a year ago.

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4. Bond Markets Send These 2 Gloomy Signals On Fed Rate HikesВт., 15 мая[−]

While President Trump's apparent China trade-war detente grabbed all the headlines on Monday, Treasury yields and Fed rate-hike odds quietly continued their recent surge.

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That may explain why stocks, which rallied early after Trump's Sunday tweet called for a rescue of Chinese telecom gear giant ZTE, had trouble staying positive. The S&P 500 briefly turned negative before the blue-chip index clawed out a 0.1% gain. The Dow Jones and Nasdaq composite also settled with slim advances.

The two-year Treasury yield, which hit a new post-financial-crisis high of nearly 2.55% on Monday, has kept marching higher despite some market-friendly economic data. Meanwhile, the 10-year Treasury yield rose to 3.0%, a level first breached in late April.

Two data points this month had seemed to set Wall Street up for a monthlong reprieve from Fed rate-hike worries. First, average hourly wages grew a disappointing 2.6% vs. a year ago in April. Then core consumer price inflation unexpectedly held steady at 2.1%.

Perhaps even more important, the Federal Reserve began to send a more forceful message that it won't overreact when inflation creeps above its 2% target, as most expect it will.

Bond Market Sends Two Grim Messages

Nevertheless, odds of a fourth rate hike this year climbed to 51%, up from less than 40% a month ago, according to the CME Group FedWatch page.

The message from the bond market is that there will be no reprieve about Fed concerns anytime soon. One possible contributor to the steadily rising market rates is spiraling federal borrowing needs, even as the Federal Reserve reverses some of its financial-crisis-era bond purchases in a move dubbed quantitative tightening.

The bond market is sending a second message: Even if the Fed doesn't overreact to inflation data, its current rate-hike trajectory may be too aggressive. And some economists think the Fed's current rate-hike intentions already are. The Fed is pulling away monetary stimulus amid a surge in fiscal stimulus this year. But as federal stimulus starts to wane, the economy is due for a letdown in the second half of 2019.

The expectation of strong growth now and a soft patch around the corner explains the narrow gap between the 10-year Treasury and two-year Treasury yields of about 45 basis points.

Yield Curve Bad For Banks

The flat yield curve is bad for banks' net interest margins, since banks borrow at long-term rates and lend at short-term rates. That's why both homebuilders, which thrive on low interest rates, and banks, which can benefit from rising rates, are among the market's biggest laggards.

IBD's Building-Residential/Commercial industry group has sunk to 182 out of 197 industries based on stock performance. Shares of Lennar ( LEN), the largest U.S. homebuilder, have tumbled 25% from their January high. Meanwhile, the Banks-Money Center group — which includes JPMorgan Chase ( JPM), Bank of America ( BAC), Citigroup ( C) and more — has slid to No. 148.

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5. Trump Gave Up His Best Leverage In China Trade Talks — For Beans?Пн., 14 мая[−]

President Donald Trump's No. 1 rule for making deals is to always come to the table with leverage. But on Sunday, Trump tweeted that he would give up perhaps his biggest leverage in trade talks with China: sanctions on Chinese telecom equipment giant ZTE that amounted to a death sentence.

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So what did Trump get in return for letting ZTE off the hook for violations that included defying a ban on sales to Iran and North Korea? Far from hacking $100 billion to $200 billion from the U.S. trade deficit with China, as Trump had demanded, the deal reported to be emerging would mostly restore the status quo before trade tensions erupted in March.

Since then China has put the brakes on purchases of U.S. soybeans, even before it was set to impose 25% tariffs in retaliation for Trump's threatened tariffs on $50 billion worth of mostly high-tech imports from China. Meanwhile goods from pork to Ford ( F) cars have piled up at Chinese ports amid tighter inspections meant to punish U.S. producers.

China Calls Trump's Trade Bluff

Beijing made a bet that the U.S. wouldn't be able to endure tariffs aimed at U.S. farmers, with an eye on punishing Republicans at the polls in November. It appears, at the moment, that Beijing's calculation was on the money. When China first detailed its plan to match Trump's tariffs blow for blow, Trump threatened to impose tariffs on an additional $100 billion worth of Chinese goods, but that now looks like mere bluster.

Stock Market Rallies As Trade War Fears Ease

Stock market investors viewed the trade developments as good news, diminishing economic risk. The S&P 500, Dow Jones and Nasdaq composite slashed moderate gains to close slightly higher on the stock market today, China wasn't to blame. Qualcomm ( QCOM), a key beneficiary of Trump's latest deal making, held onto early gains, rising 2.7%.

Beijing said it would restart its regulatory review Qualcomm's pending purchase of NXP Semiconductors ( NXPI) after earlier halting that process. That suspension followed Trump's move in March to block Singapore-based Broadcom ( AVGO) from buying Qualcomm. NXP rose 12% on Monday.

Both China and the U.S. are focused on which country's tech firms will develop next-generation 5G wireless network systems. Collaboration increasingly seems to be off the table. The U.S. also is said to be investigating Chinese communications equipment giant Huawei for violating U.S. sanctions policy.

Trump tweeted that he was working with Chinese President Xi Jinping to give ZTE "a way to get back into business, fast," after the Chinese mobile-phone company halted operations due to U.S. sanctions that kept it from buying key components from U.S. suppliers.

U.S. optical components makers that are big ZTE suppliers rallied Monday. Acacia Communications ( ACIA), Lumentum Holdings ( LITE) and Oclaro ( OCLR), which had sold off April 16 on the ZTE ban, were winners Monday, but off session highs.

North Korea Gambit?

One more possible explanation for Trump's dramatic ZTE reversal: He may be putting his North Korean diplomatic initiative ahead of trade goals and is working to shore up Beijing's support.

Jefferies economist Ward McCarthy called the softening of the U.S. position on ZTE "an encouraging development." "It suggests that the U.S. and China are both making progress on trade talks and trying to find ways for both sides to be able walk away from the table and claim that they won concessions, saving face in the process," he wrote.

Yet Trump's comments about letting ZTE off the hook because "too many jobs in China" were at stake prompted something of a backlash. Sen. Marco Rubio, R-Fla., responded that the "Problem with ZTE isn't jobs & trade, it's national security & espionage."

On Monday, Trump defended his ZTE reversal, noting the impact on U.S. companies and the "larger trade deal" being worked on with China.

Last month, the Pentagon banned sales of handsets from ZTE and Chinese communications-equipment giant Huawei on military bases, saying they represented a potential national security threat.

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6. Consumer Prices Tame On Cheaper Cars, Airfares, Easing Inflation FearsЧт., 10 мая[−]

U.S. consumer prices rose by less than forecast in April as costs for automobiles and airfares declined, reducing chances that inflation will run significantly above the Federal Reserve's target in coming months.

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The consumer-price index advanced 0.2% from the prior month after a March decline of 0.1%, a Labor Department report showed Thursday, compared with the Bloomberg survey median of a 0.3% gain. Excluding food and energy, the core gauge was up a below-forecast 0.1% from March — the least since November — and 2.1% from a year earlier, compared with projections for 2.2%.

Prices for used cars had the biggest monthly drop since 2009 and airfares fell the most in four years. The report suggests inflation isn't flaring up in a way that would be troublesome for policy makers, despite higher freight costs, a tight labor market and tariffs that are burdening businesses. The Fed is projected to raise rates in June for the second time this year after its preferred gauge of inflation — a separate consumption-based figure — reached its 2% goal in March.

While rising gasoline prices are pinching Americans' wallets, fuel is providing only a modest boost to the broad CPI, which rose 2.5% in April from a year earlier. Seasonally adjusted gas prices rose 3% in April from the previous month after a 4.9% drop in March, according to the report.

The core CPI reading brought the three-month annualized gain to 1.8%, the lowest since July, after 2.9%.

The shelter category rose 0.3% from the prior month after a 0.4% gain. Owners-equivalent rent, one of the categories designed to track rental prices, advanced 0.3%. Hotel and motel rates, which had posted an outsize gain in March, rose 0.8% in April.

Investors see the Fed as on track to raise interest rates at its June meeting, with policy makers expecting one or two more additional hikes in 2018. The unemployment rate fell to 3.9% in April, the lowest since late 2000, signaling the central bank is near its goal of maximum employment.

Commerce Department figures released April 30 showed the Fed's separate preferred gauge of inflation met policy makers' 2% target in March for the first time in a year. The preferred core index, seen by officials as a better gauge of underlying inflation trends, was up 1.9% from March 2017.

Wages, which feed into inflation pressures, are growing only moderately even as the job market is tight. A separate report released Thursday by the Labor Department showed average hourly earnings adjusted for inflation rose 0.2% from April 2017.

Other CPI Details

  • Energy prices rose 1.4% from the previous month after a 2.8% decline.
  • Food costs advanced 0.3% after 0.1% gain.
  • Costs for new vehicles fell 0.5% after being unchanged the prior month; used-vehicle prices dropped 1.6%, most since March 2009, following a 0.3% decline.
  • Airfares fell 2.7%, most since January 2014.
  • Apparel prices increased 0.3% after falling 0.6%.
  • Expenses for medical care rose 0.1%. These readings often vary from results for this category within the Fed's preferred measure of inflation due to different methodologies.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60% of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.

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7. The Big Squeeze: New Risks For Fed Interest Rates, Recession And Yield CurveСр., 09 мая[−]

Goldilocks has left the building. For proof, just look at interest rates. The 10-year Treasury yield eclipsed 3% in late April for the first time in four years, hitting the S&P 500, Dow Jones and Nasdaq. Clearly, the not-too-hot/not- too-cold economy that supported the nine-year bull market for stocks has fundamentally changed. On Wednesday, the 10-year yield again hit 3%.

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To some extent, that's good: Higher interest rates largely reflect faster economic growth, unemployment headed to a multidecade low and wage gains that are slowly picking up.

Yet financial markets are sending the message that this good news comes with a growing risk of a squeeze on the economy from several directions. First, higher goods and wage costs will squeeze corporate profits. Caterpillar ( CAT) warned recently that the first quarter was the "high-water mark" for operating margins, and profit pressures already are hitting other companies ranging from airlines to packaged food. Second, higher interest rates will squeeze corporate and household borrowers. Rising rates also could squeeze stock prices as investors opt for higher returns from risk-free short-term government bonds.

Yet by far the biggest risk is that policymakers will go overboard. Fed rate hikes to counteract a temporary growth spurt from new tax cuts and government spending could push the economy into a recession if they go too far.

For the stock market, the most obvious sign of peril is the hit to the S&P 500 index, Nasdaq composite and Dow Jones industrial average since late January. But worrisome signs lurk in the details. Both homebuilders, which thrive on low interest rates, and banks, which can benefit from rising rates, are among the market's biggest laggards.

10-Year Treasury Yield: Impact On Banks

IBD's Building-Residential/Commercial industry group has sunk to 176 out of 197 industries based on stock performance. Shares of Lennar ( LEN), the largest U.S. homebuilder, have tumbled from their January high. Meanwhile, the Banks-Money Center group, which includes JPMorgan Chase ( JPM), Bank of America ( BAC), Citigroup ( C) and more, has slid to No. 158.

While the latest data point to a robust housing market, there's no mystery about why housing stocks have tumbled as the 10-year Treasury yield pushes up mortgage rates. But what about the recent underperformance vs. the S&P 500 from banks such as JPMorgan Chase and Bank of America? While higher interest rates have grabbed the headlines, the more ominous signal is the flattening Treasury yield curve. Over the past year, the gap between the 2-year Treasury yield and 10-year Treasury yield has been cut by more than half. The yield curve is at its flattest levels since the lead-up to the 2007 recession.

Treasury Yield spread narrows, yield curve flattensHigher interest rates boost profits for Bank of America, Citigroup and others when the longer-term rates at which they lend increase more than the short-term rates at which they borrow. But the opposite has been happening, so even bank profits are getting squeezed. Two-year yields have climbed with the Fed's overnight rate and expectations of future hikes. But the 10-year yield's rise has lagged. Investors aren't demanding a big long-term premium, which suggests mild growth expectations beyond two years. The 2-year yield has hit its highest rates since August 2008, squeezing the spread between the 2- and 10-year yields.

By the second half of 2019, an economy that the Fed worries is at risk of overheating could hit a soft patch as stimulus levels off. Overly tight Fed policy that raises borrowing costs could turn that soft patch into a ditch.

Treasury Yield Curve Is 'Yellow Light Flashing'

Fed policymakers today are focused on overheating risks, while overlooking the likely slowdown. The Fed's latest projections, issued when the Fed hiked rates in March for the first time this year, penciled in two more rate hikes in 2018, three in 2019 and still two more in 2020. That would lift the Fed's benchmark rate from 1.62% now all the way to 3.375%. If that happens, the 10-year yield could head for 4% and the 30-year fixed-rate mortgage might near 6%.

The bond market's reaction to the more hawkish Fed outlook was swift. Within a week, the spread between the 2- and 10-year Treasury yield narrowed to less than 50 basis points, then fell to as little as 40 basis points in mid-April. The spread is around 47 basis points in the stock market today, with the 2-year yield at 2.53% and the 10-year at 3%.

Neel Kashkari, the dovish president of the Minneapolis Federal Reserve, called the flatter yield curve a "yellow light flashing" a heightened risk of a recession. His take-away: The Fed "may not be that far away from neutral," a rate that neither boosts nor restrains economic growth.

10-Year Treasury Yield Forecast And Recession Risk

"We are clearly more concerned than the Fed" about the economic outlook for 2019, wrote Harm Bandholz, chief U.S. economist at UniCredit Bank. "As the impact of the (tax cut and spending) stimuli fades, growth rates should begin to slow perceptibly around the middle of the year, before slowing further into 2020."

Dec Mullarkey, managing director of investment research at Sun Life Investment Management, told IBD that he expects the 10-year Treasury yield to rise to 3.5% within a year as the Fed follows a path of accelerated tightening. He predicts one rate hike per quarter through 2019, "which ultimately will lead to recession" in 2020.

Fed Interest Rates Vs. Fiscal Stimulus

To be fair, new Fed Chairman Jerome Powell faces an unprecedented policy challenge. Fiscal stimulus has always been ordered up during a recession or at the start of a recovery. This time, President Trump and Congress are delivering a double dose deep into the expansion, when growth is firm and labor markets tight. To top it off, the deficit financing used to pay for stimulus, which will exacerbate what most economists see as an unsustainable fiscal path, has added to upward pressure on interest rates.

Now the Fed's challenge just got even harder. Core consumer price inflation ticked up to 2.1% in March. The Fed's preferred inflation gauge, the core personal consumption price index, rose to 1.9% in March. That's just below the central bank's 2% target.

Average hourly wage growth ticked up to 2.7% in March and will likely head higher in the next few months. CVS Health ( CVS), Starbucks ( SBUX) and Target ( TGT) all announced pay hikes effective this spring. CVS raised its minimum wage to $11 an hour and Target to $12. They are among dozens of major companies that announced wage increases in the wake of corporate tax cuts passed in December.

As core inflation edges past the Fed's target and the jobless rate falls below 4%, standing pat would go against policymakers' deepest instincts.

Fed Rate Hike 'Feedback Loop'

Bandholz expects cooler heads to prevail, with the Fed hiking rates just once in 2019 as data point to a slowdown. But Mullarkey notes that the data "feedback loop is not instantaneous." By the time the Fed recognizes that a soft patch has arrived, a recession may be a fait accompli.

Even if the Fed does shift gears a year from now, false expectations come at a cost today. If policymakers are determined to stick to a path of steady Fed rate hikes, they could dampen the dynamic impact of lower taxes by adding to the growing and unsustainable federal debt burden.

The more future Fed rate hikes that markets price in, the more federal borrowing costs will rise. As the government borrows more to service debt with higher interest rates, borrowing costs for businesses and individuals will face more upward pressure.

10-Year Treasury Yield And Balance Sheet 'Bad Timing'

Deutsche Bank estimates that U.S. Treasury issuance will soar from $1 trillion in 2017 to $1.5 trillion this year and $2.3 trillion next. The surging federal deficit is the main culprit. The Fed will add to the debt pileup as it offloads about $180 billion in government bonds this fiscal year.

The Fed set its plan last fall for quantitative tightening, reversing bond buys made to aid the tepid recovery from the financial crisis. Newly passed tax cuts and spending hikes make those balance sheet reductions look like "bad timing," Mullarkey says.

Corporations carry a record $8.8 trillion in debt that will be more costly to refinance, working at cross-purposes with the tax-cut stimulus.

Meanwhile, higher U.S. interest rates have begun to push up the dollar. That acts to tighten financial conditions not only at home but in developing economies where companies often borrow in dollars.

"The risk in all this is a scenario where economic growth doesn't pick up as the supply-siders expect it to but interest rates move higher as a result of the larger federal deficits and the perception that Trump's fiscal stimulus might boost inflation," wrote Ed Yardeni, the veteran Wall Street economist who now runs Yardeni Research.

That may not happen, but Yardeni sees little evidence that corporations are putting their tax windfalls to work in the real economy: "We are waiting to see some signs that the supply-siders are on the right track. We aren't seeing any yet, though it has been only four months into the Trump tax cuts."

Flatter Yield Curve And Stock Market

Stock market history suggests investors shouldn't worry right away about a flatter yield curve, LPL Financial strategists John Lynch and Ryan Detrick write. "When looking back at the previous five recessions, once the yield curve hit 0.50%, it took a median of nearly a year before the curve inverted," they note.

An inverted yield curve, meaning long-term bond yields fall below short-term yields, is a reliable predictor of recession. Yet recessions typically haven't begun until 20 months after the yield curve inverts.

Also, Lynch and Detrick note, the S&P 500 has enjoyed a median 21.5% gain after the Treasury yield spread narrows to 50 basis points.

The problem with counting on that history is that the Fed faces unusual late-cycle stimulus at a time that federal debt has begun an unprecedented spiral upward.

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8. IBD/TIPP Poll: Economic Optimism IndexВт., 08 мая[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

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The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.4, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

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IBD/TIPP Economic Optimism Index: Overall

The IBD/TIPP Economic Optimism Index rose 1.9% in May to 53.6 from 52.6 in April, reversing two monthly declines. In February, the index hit its highest reading since October 2004. It's the 20th straight month that it has been over 50 — which signals overall optimism about the economy. It is also above its long-term average of 49.4. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index rose 3.2% in May to 51.3 after dropping 6% in April and 8% in March. The volatile gauge surged 11.4% in January. The reading for this index remains in optimistic territory and well above its long-term average of 46.3. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months inched up 0.5% to 61.0 in May from 60.7 in April, it dropped 4.9%. The index's all-time high of 65.3 was set in January 2004, when the Bush-era tax cuts began to kick in. The Personal Financial Outlook is one of the most consistently optimistic indexes in the IBD/TIPP data set. It remains above its long-term average of 57.1.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component increased 2.3% in May to 48.5 from 47.4 in April, but was still below its level of 50 in March. It remains above its 17-year average of 44.8. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years, and in March returned to the feel-good zone. But it subsided during recent budget and gun-control debates. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

RELATED:

Main IBD/TIPP Poll Page

IBD/TIPP Presidential Approval Index

IBD/TIPP Election 2016 Tracking Poll

Past Results

April 2018

March 2018

February 2018

January 2018

December 2017

November 2017

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

January 2017

December 2016

Media Contact

Terry Jones
Investor's Business Daily Commentary Editor
terry.jones@investors.com | 310.448.6377

Marisa Lam
GMK Communications
marisa@gmkcommunications.com | 650.232.7188

The post IBD/TIPP Poll: Economic Optimism Index appeared first on Investor's Business Daily.


9. IBD/TIPP Poll: Investors Are Optimistic; Everyone Else? Not So MuchВт., 08 мая[−]

The IBD/TIPP Economic Optimism Index rose further into moderately optimistic territory in May, gaining one point to 53.6. But the positive vibes came mostly from self-described investors. The rest of the country was slightly pessimistic, with the index registering at 49.9, just below the neutral 50 level.

Optimism and pessimism also were linked to income levels in May. Americans earning at least $50,000 were optimistic (53.3) and those earning more than $75,000 even more so (59.6). Yet Americans earning less than $50,000 were somewhat pessimistic (48.9 or lower).

The stabilizing stock market may have helped perk up investors' mood over the past month. Apple said it would buy back $100 billion in stock and boost dividend payments thanks at least in part to the recent corporate tax cut. Apple ( AAPL) stock skyrocketed last week, pushing the Nasdaq above its 50-day line, while the Dow Jones and S&P 500 index found support at the 200-day line.

On a similar note, the National Federation of Independent Business said Tuesday that a record share of small businesses reported improving profits in the 45-year history of its monthly survey.

While perceptions of the Trump tax reform may change over time, the IBD/TIPP Poll results gibe with other surveys suggesting most people haven't noticed their tax cut in their paychecks via lower withheld federal income taxes.

The IBD/TIPP Poll reflects 900 responses collected from April 26 to May 4. The drop in the jobless rate to 3.9% in April didn't make news until the final day of polling.

Americans Upbeat About Economic Outlook

The Economic Optimism Index is a composite of three major subindexes.

The six-month economic outlook gauge rose 1.6 points to 51.3, back into optimistic territory. That's well below the readings that topped 55 in the two months after President Trump signed the tax cuts into law in December.

The six-month personal financial outlook index ticked up three-tenths of a point to 61, still below January's 14-year high of 64.

Meanwhile, the measure of confidence in federal economic policies rose 1.1 points to 48.5. The gauge has only cracked into optimistic territory in a single month since 2007, during the brief honeymoon after Donald Trump's election.

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The post IBD/TIPP Poll: Investors Are Optimistic; Everyone Else? Not So Much appeared first on Investor's Business Daily.


10. Jobless Rate Sinks To 3.9% But Weak Wage Growth Saves Dow JonesПт., 04 мая[−]

The economy added 164,000 jobs in April as the jobless rate fell to 3.9%, the lowest since 2000. Yet wage growth, the key number for stock market investors on edge about more Fed rate hikes, surprised on the downside, coming in at 2.6%.

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The jobs and wage data slightly lowered odds of four Fed interest-rate hikes in 2018, which should be positive for the stock market. The data didn't initially provide much of a boost. The Dow Jones industrial average, S&P 500 index and Nasdaq composite opened moderately lower after the jobs data, but the major market indexes staged a midmorning rally, fueled by Apple ( AAPL). The Nasdaq led the way into positive territory, soon followed by the Dow Jones and S&P 500.

Wall Street expected 191,000 new jobs, 4.0% unemployment and a 2.7% annual rise in average hourly wages. Yet the undershooting on two of three key jobs metrics may make the job market look less robust than it is.

First, job gains in the prior two months were revised up by a combined 30,000, leaving the 3-month average at a rock-solid 208,000.

Further, Jefferies economist Thomas Simons noted that wage growth is sometimes depressed in months that the Labor Department's survey of businesses doesn't include the 15th of the month, which occurred in April. If that's the case, wage growth could take a leap in May. However, March's wage gain was also revised down, from 2.7% to 2.6%.

Jim Baird, chief investment officer for Plante Moran Financial Advisors, noted that other gauges of wage growth have pointed to stronger gains. The Employment Cost Index released last week showed that private-sector wages and salaries grew 2.9% from a year ago in March.

Treasury Yields Fall, Narrow

After the jobs data, the 10-year Treasury yield eased to 2.935% while the 2-year yield, which more closely tracks Fed rate expectations, held around 2.49%. The narrow spread between long-term and short-term interest rates may reflect concerns that the Fed will hike rates too much in the near term as the economy gets a boost from tax-cut and spending stimulus, leading to an economic letdown.

The stakes have increased for each jobs report as inflation has picked up close to the Fed's target 2% and interest rates have hit multiyear highs. The combination of low and falling unemployment with accelerating wage gains would fit perfectly with the Phillips curve theory that has long guided Federal Reserve policy. For investors, the key point is that most Fed policymakers still seem confident that inflation pressures won't lag too far behind wage pressures, as businesses pass along a portion of their higher wage bills.

To some extent, it's already happening as the Fed's favored gauge of core inflation hit 1.9% in March. Meanwhile, Wall Street has bumped up odds for a fourth rate hike this year to about 40%. Still, the Fed signaled on Wednesday that it won't be overly concerned if inflation rises a bit above 2% for a few months.

Big Retailers Hike Wages

There's good reason to expect a further pickup in wage growth in coming months. A host of large companies including CVS Health ( CVS), Starbucks ( SBUX) and Target ( TGT) have announced wage hikes rolling out this spring that may start to show up in Friday's report.

This year is beginning to look lot like 2016, when wage gains accelerated into summer after Walmart ( WMT) hiked its base wage to $10 an hour. Then Target, Costco ( COST) and others followed. Walmart's minimum wage hike to $11 an hour has contributed to the same kind of dynamic early this year. Target subsequently hiked its base pay to $12 an hour and CVS to $11 an hour.

And as those companies hike wages, their competitors are being pressured to do the same. In March, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

What's different from 2016 is that now the jobless rate is nearly a percentage point lower, meaning more competition for workers. On top of that, numerous companies announced wage hikes in the wake of tax reform.

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The post Jobless Rate Sinks To 3.9% But Weak Wage Growth Saves Dow Jones appeared first on Investor's Business Daily.


11. April Jobs Report: Brace For Faster Wage Growth, More Fed Rate-Hike FearsПт., 04 мая[−]

Wall Street expects the April jobs report to show the economy added 191,000 new jobs last month as the unemployment rate fell to 4% for the first time since 2000. Yet for stock market investors on edge over Fed rate-hike plans, wage growth is the key number. There's a good chance it will surprise on the upside.

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Economists expect average hourly wage growth of 2.7% from a year earlier, same as in March. Yet a host of large companies including CVS Health ( CVS), Starbucks ( SBUX) and Target ( TGT) have announced wage hikes rolling out this spring that may start to show up in Friday's report.

This year is beginning to look lot like 2016, when wage gains accelerated into summer after Walmart ( WMT) hiked its base wage to $10 an hour. Then Target, Costco ( COST) and others followed. Walmart's minimum wage hike to $11 an hour has contributed to the same kind of dynamic early this year. Target subsequently hiked its base pay to $12 an hour and CVS to $11 an hour.

And as those companies hike wages, their competitors are being pressured to do the same. In March, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

What's different from 2016 is that now the jobless rate is nearly a percentage point lower, meaning more competition for workers. On top of that, numerous companies announced wage hikes in the wake of tax reform.

The likely combination of low and falling unemployment with accelerating wage gains would fit perfectly with the Phillips curve theory that has long guided Federal Reserve policy. For investors, the key point is that most Fed policymakers still seem confident that inflation pressures won't lag too far behind wage pressures, as businesses pass along a portion of their higher wage bills.

To some extent, it's already happening as the Fed's favored gauge of core inflation hit 1.9% in March. Meanwhile, Wall Street has bumped up odds for a fourth rate hike this year to more than 40%.

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The post April Jobs Report: Brace For Faster Wage Growth, More Fed Rate-Hike Fears appeared first on Investor's Business Daily.


12. Dow Jones Whipsawed As China Trade War, Trump Impeachment Fears RiseЧт., 03 мая[−]

Wall Street got a break from Fed rate-hike worries on Thursday for a change. But the Dow Jones industrial average couldn't catch a break amid a new outbreak of concern about a China trade war and a growing sense that a messy impeachment fight for President Trump could be in the cards.

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The Dow Jones industrial average, S&P 500 and Nasdaq composite all fell sharply in morning trade on Thursday, before staging an afternoon recovery. The Dow Jones roared back from down nearly 400 points to close with a whisper-thin gain. The S&P 500 index rebounded from below its 200-day moving average to end with modest losses. Meanwhile, the safety bid sent gold prices higher and Treasury yields lower.

Treasury Secretary Steven Mnuchin, arriving in Beijing with a team of negotiators, was greeted by news that China has stopped buying soybeans from U.S. producers.

China warned last month that it will retaliate against U.S. farmers if President Trump makes good on his threat to impose 25% tariffs on $50 billion worth of mostly high-tech Chinese imports.

But Trump's decision on whether to follow through on that threat isn't due until next month. The takeaway is that China looks unlikely to yield to U.S. threats and thinks it can take advantage of Trump's political vulnerabilities.

Trump Impeachment At Least 50% Odds

Meanwhile, Horizon Investments strategist Greg Valliere, who has long tracked political developments for Wall Street, wrote Thursday that he now sees at least 50% odds that Trump will face House impeachment in early 2019. Odds of removal from office are still low, but rising, he wrote.

Valliere said he changed his assessment after several recent developments: The leaked questions that Special Counsel Robert Mueller wants to ask Trump include many about Trump campaign dealings with Russia. Trump just dismissed his top attorney, Ty Cobb, who wanted his client to cooperate with the Mueller probe. And now Rudy Giuliani, who has joined the Trump legal team, said that Trump repaid Michael Cohen for the $130,000 hush-money payment to Stormy Daniels just before the election.

Unlike the Clinton impeachment, the stock market would seem to have a big stake in a potential Trump impeachment. Not least, the 21% corporate tax rate could be low-hanging fruit for a future Democratic president with new spending priorities to fund.

China Presses Trump On Trade

Valliere thinks the stock market can surmount impeachment fears, but he adds that trade war and Fed rate-hike concerns make for a pretty serious wall of worry.

Shares of U.S. agribusiness Bunge ( BG) fell 3.5% after Bloomberg reported comments from the company's CEO saying that China has shifted soybean purchases to Canada and Brazil, at least temporarily.

Trump has taken a softer tack toward China in recent weeks. Late Wednesday, he tweeted about his good relationship with Chinese President Xi Jinping while noting negotiations to create "a level playing field on trade." A few weeks earlier, Trump tweeted that he was "very thankful" for Xi's speech offering concessions on trade, even as China said nothing new was offered.

Given the tone set by Trump and his political interest in avoiding tit-for-tat tariffs that undermine his support in the Midwest, a full-fledged trade war with China continues to look unlikely. However, a cold war over trade could happen and isn't without risk for investors.

Just as U.S. soybean purchases were halted without announcement or the imposition of tariffs, China could quietly target companies like Dow Jones components Boeing ( BA) or Caterpillar ( CAT). A cold war may already be on in advanced technology sectors. After the U.S. blocked Broadcom ( AVGO) from buying Qualcomm ( QCOM) because of its ties to Chinese telecom firms, China retaliated by delaying Qualcomm's acquisition of NXP Semiconductors ( NXPI).

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13. No Fed Rate Hike, But Here's Why The Dow Jones Can't Get A Head Of SteamСр., 02 мая[−]

The Fed meeting ended with no rate hike, as expected. The no news briefly boosted stocks, but they quickly reversed lower. Higher interest rates, inflation and the dollar won't let the Dow Jones and the broader stock market snap out of their recent funk.

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Wall Street expected the Fed statement to recognize that the pickup in core inflation has suddenly brought it close to the 2% inflation target. The Commerce Department reported Monday that the core personal consumption expenditures price index, which excludes food and energy, rose 1.9% from a year ago in March.

"On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2%," the Fed statement said. The Fed also signaled it was willing to let inflation rise above 2%, stating that it's a "symmetric" target.

With no press conference or update of policymakers' economic projections, any hawkish or dovish shift won't be known until Fed meeting minutes come out on May 23.

Despite healthy earnings from Apple ( AAPL), the Dow Jones industrial average and S&P 500 index were both close to the flat line just before the Fed meeting announcement, while the Nasdaq composite was barely higher. Apple is the largest component of the Dow Jones, S&P 500 and Nasdaq.

After the 2 p.m. ET announcement, the Nasdaq expanded modest gains, but only briefly. Heading into the close, the Nasdaq fell 0.4%. The Dow Jones and S&P 500, after briefly turning positive, fell 0.7%. All finished near session lows.

Investors won't get much of a reprieve from Fed rate-hike concerns. The Labor Department's April employment report out on Friday is expected to show that the jobless rate fell to 4.0% last month. Average hourly wage growth above the 2.7% expected also is a threat, with major employers like CVS Health ( CVS), Target ( TGT) and Starbucks ( SBUX) announcing that wage hikes would take effect this spring.

Dollar Weighs On Dow Jones Stocks

The latest culprit for the sluggish stock market is the dollar. The U.S. dollar index hit a new high for the year on Wednesday, continuing its recent resurgence against other major currencies. The greenback's roughly 3% rise since the end of March will have a dampening effect on earnings for U.S. multinationals with broad international exposure like Dow Jones stocks Caterpillar ( CAT), Boeing ( BA) and Merck ( MRK). Earnings in foreign currencies are worth less in dollar terms when the dollar strengthens.

The dollar's strength stems from the pickup in inflation and growing expectations that the Fed will hike rates four times this year. Meanwhile, central banks in Europe and Japan are in no rush to tighten. The widening gap between interest rates in the U.S. and overseas has made the dollar more of a draw.

Interest Rates Rising, Narrowing

Higher interest rates and inflation also could squeeze earnings in coming quarters. Higher interest rates also raise borrowing costs for consumers and businesses and can crimp the affordability of major purchases like autos and housing. Further, two-year Treasury yields have climbed more than 10-year yields, and the flatter yield curve pinches net interest margins for the likes of JPMorgan Chase ( JPM) and Bank of America ( BAC).

After the Fed meeting, the 10-year yield was at 2.972%, while the two-year was at 2.496%. Those were little changed, but the yield spread is near its lowest level in years.

Meanwhile, more companies are beginning to note profit-margin pressure from rising input costs, higher fuel and transportation costs, and rising wages.

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The post No Fed Rate Hike, But Here's Why The Dow Jones Can't Get A Head Of Steam appeared first on Investor's Business Daily.


14. As Fed Meets, Rising Rates And Dollar Hit Dow Jones Average, S&P 500Вт., 01 мая[−]

As Fed policymakers began a two-day meeting on Tuesday, the two-year Treasury yield touched its highest level since 2008 and the dollar rose to its highest point all year.

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With fears of a trade war receding, the dollar has surged over the past month. The greenback also has gotten a boost as inflation picks up and expectations grow that the Fed will hike rates four times this year. Meanwhile, central banks in Europe and Japan are in no rush to tighten, so further dollar gains are a fair bet.

Those three trends — higher interest rates, inflation and the dollar — could squeeze earnings in the second quarter and beyond. Those concerns contributed to a bad day for the Dow Jones industrial average and S&P 500 index. In midafternoon trading, the Dow was off 1.4% and the S&P 500 was down 0.8% on the stock market today.

Earnings in foreign currencies are worth less in dollar terms when the dollar strengthens. That's a negative for U.S. multinationals like Caterpillar ( CAT), Boeing ( BA) and Merck ( MRK) as the dollar turns from tailwind to headwind.

Caterpillar lost 2.8%, Boeing 2.6% and Merck 3.3%.

Higher interest rates also raise borrowing costs for consumers and businesses and can crimp the affordability of major purchases like autos and housing. Ford Motor ( F) reported a 5% drop in auto sales in March, though Fiat Chrysler ( FCAU) saw surging Jeep sales.

Ford fell 1% and Fiat Chrysler dropped 1.2%.

Further, two-year Treasury yields have climbed more than 10-year yields, and the flatter yield curve pinches net interest margins for the likes of JPMorgan Chase ( JPM) and Bank of America ( BAC).

JPMorgan slipped 0.9% and BofA shed 0.8%.

Meanwhile, more companies are beginning to note pressure on profit margins from rising input costs, higher fuel and transportation costs, and rising wages.

No fireworks are expected from Wednesday's policy statement at 2 p.m. ET. The Fed is virtually certain to maintain its key interest rate. The next quarterly press conference from Fed Chair Jerome Powell and update of economic projections won't happen until June.

The two-year yield rose as high as 2.52% on Tuesday, the highest since the month before Lehman Bros. went bust, before pulling back to 2.50%. Meanwhile, the 10-year yield that helps determine mortgage rates ticked up to 2.96%. That sub-50-basis-point spread suggests markets are beginning to worry that the Fed will go overboard in hiking rates in the face of temporary tax-cut and spending stimulus.

The U.S. dollar index, which tracks the greenback against a basket of advanced economy currencies, rose as high as 92.57 on Tuesday, up more than 0.5%. The U.S. dollar index has spent much of the year below 90.

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15. U.S. Factory Gauge Dips To Nine-Month Low As Inflation Heats UpВт., 01 мая[−]

U.S. manufacturing expanded last month at the slowest pace since July, while prices paid for materials continued to accelerate amid supply constraints and tariff concerns, data from the Institute for Supply Management showed Tuesday.

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Highlights of ISM Manufacturing (April)

  • Factory index fell to 57.3 (est. 58.5) from 59.3; readings above 50 indicate expansion
  • Measure of production declined to 57.2 from 61; lowest level since November 2016 and biggest drop in a year
  • Prices-paid gauge rose for fifth consecutive month to 79.3, the highest since April 2011, from 78.1
  • Employment gauge dropped for a second month, to 54.2 from 57.3; matches lowest since May 2017

Key Takeaways

The results included signs that factories are having trouble keeping up with demand. A measure of order backlogs was the highest in almost 14 years, and delivery times lengthened to match the second-longest since March 2010. The gauges for new orders and production weakened for a fourth straight month.

Even with the April decline, the main index is close to the 57.9 average since January 2017 and is consistent with solid-but- moderating activity. Trump administration policies have created both tailwinds and headwinds for manufacturers: Tax cuts are expected to underpin demand, while materials costs are accelerating, partly from supply-chain disruptions stemming from tariffs on imported steel and aluminum. Energy costs are also on the rise, with oil reaching a three-year high last month.

Economists taking note of the softer ISM factory payrolls index may nonetheless wait for its services counterpart before tweaking forecasts for April employment. The group's non- manufacturing survey data are due Thursday, a day before the Labor Department's jobs report.

Other Details

  • ISM gauge of new orders cooled to 61.2, lowest since July, from 61.9
  • Index of backlogs rose to 62; supplier delivery gauge advanced to 61.1, matching the second-highest level since 2010
  • Measure of customer inventories rebounded to 44.3 from 42
  • Export orders measure fell for second month to 57.7, lowest in 2018, from 58.7

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16. Trump Punts Again On Steel Tariffs As China Draws LineВт., 01 мая[−]

The Trump administration announced late Monday that it will extend steel and aluminum tariff exemptions for the European Union, Mexico, Canada and other allies for another month.

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Although the tariffs of 25% on steel and 10% on aluminum were justified on national security grounds, President Donald Trump seems to have realized that the real national security threat relates to advanced technologies, not industrial metals.

Treasury Secretary Steven Mnuchin and other U.S. officials are heading to China this week for talks to avoid a trade war. But Beijing signaled that some things aren't open for discussion. China won't consider Trump's demand that Beijing offer a plan to shrink the trade deficit by $100 billion. Nor will it back off its Made in China 2025 agenda to achieve leadership in artificial intelligence, robotics and other cutting-edge technology, aided by $300 billion in funding from the Chinese government.

Steel and aluminum shares such as U.S. Steel ( X) and Alcoa ( AA) initially surged as Trump signaled he opposed any exemptions to global tariffs of 25% for steel imports and 10% for aluminum. But shares reversed after Trump granted exemptions to countries responsible for more than half of imports.

Steelmaker Nucor ( NUE), in announcing earnings on April 19 said that pricing had improved and predicted "sustainable strength" in steel markets. But Nucor management argued against the breadth of exemptions granted by Trump. "We believe broad-based tariffs with few exceptions are needed to address the historic volume of unfairly traded imports and transshipping that is done to avoid trade duties," the company said in a statement.

Aluminum stocks surged again the other week, but that was due to an unrelated Trump administration action. The Treasury Department slapped sanctions on United Company Rusal, the Russian aluminum giant. Earlier in April, the Treasury began implementing sanctions authorized by Congress last year to punish Russia for interfering in the 2016 election.

Alcoa shares were the biggest beneficiary, but the gains didn't last long. Aluminum prices and Alcoa stock fell back after the Treasury Department said it won't enforce the sanctions for now.

"The U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries," Mnuchin said. "Rusal has approached us to petition for delisting. Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider Rusal's petition."

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The post Trump Punts Again On Steel Tariffs As China Draws Line appeared first on Investor's Business Daily.


17. Fed Inflation Gauge Nears 2% Target On Eve Of Policy Meeting; S&P 500 RisesПн., 30 апр.[−]

The core personal consumption expenditures price index, the key Fed inflation gauge, rose 1.9% from a year ago in March, nearing policymakers' 2.0% target. Wall Street economists expected a 2% annual increase, with a 0.2% monthly gain. The overall PCE price index did hit a 2% annual rise.

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After the report, the Dow Jones industrial average, S&P 500 and Nasdaq 100 futures held onto early gains on the stock market today.

Meanwhile, the 10-year Treasury yield ticked down to 2.96%. The 2-year Treasury yield held at 2.49%, up 1 basis point.

Treasury yields have surged over the past month as concerns about a trade war with China gave way to worries about firming inflation, a tight job market and a hawkish Fed. But the rise of the 10-year yield to a record high hasn't done much for bank stocks, because short-term rates have climbed even more.

Yield Trends Hit Builders, Big Banks

IBD's Banks-Money Center industry group, including more tightly regulated systemically important financial institutions Bank of America ( BAC), JPMorgan Chase ( JPM) and Wells Fargo ( WFC) is rated No. 156 out of 197 industry groups based on price performance and momentum. Meanwhile the Building-Residential/Commercial industry group is ranked No. 168 as homebuilders like Lennar ( LEN) have struggled amid higher rates, even as current housing data remain strong.

The flattening yield curve reflects worries that the Fed will go overboard with interest-rate hikes to counteract a temporary growth spurt from new tax cuts and government spending.

The Fed begin a two-day policy meeting on Tuesday. It's expected to stand pat when it releases a policy statement at 2 p.m. Eastern Time on Wednesday. Economists expect wage growth to hold at 2.7% when April jobs data come out Friday morning.

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18. GDP Growth Cools To 2.3% On Weakest Consumer Spending Pace Since 2013Пт., 27 апр.[−]

U.S. economic growth cooled last quarter as consumers pulled back following outsize spending in the prior period, though solid business investment cushioned some of the weakness.

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Gross domestic product, the value of all goods and services produced in the nation, rose at a 2.3% annualized rate after climbing 2.9% in the prior quarter, the Commerce Department reported Friday. The median forecast of economists surveyed by Bloomberg called for a 2% gain. Consumer spending, the biggest part of the economy, rose 1.1%, matching estimates and marking the smallest gain since 2013.

While GDP growth was the best for any January-March period since 2015, it's a step down from three quarters of GDP growth above or near 3%, and a reminder that the first quarter remains plagued by data quirks. Analysts expect a rebound as tax cuts take hold amid a strong job market, though tailwinds such as low inflation and borrowing costs are starting to dissipate, and trade tensions represent a headwind.

"The first quarter has been persistently weak in recent years," David Sloan, senior economist at Continuum Economics, said before the report. "We expect a rebound. Tax cuts will support consumer spending and business investment," while "trade is certainly a risk."


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A separate Labor Department report Friday showed that a broad measure of employee compensation rose more than expected in the first quarter, adding to signs that the tight job market is supporting a pickup in pay.

The 2.3% pace of GDP growth is still faster than what the Federal Reserve sees as the economy's long-term potential rate, and officials have previously said they view the first-quarter slowdown as transitory, with the economy poised to reach a milestone in May — the second-longest expansion on record. Investors expect the central bank to raise interest rates in June for the second time this year.

Trump's Goal

Even so, the results underline the difficulty of achieving President Donald Trump's goal of 3 percent sustained growth, despite corporate and individual tax cuts that went into effect in January. Other figures on Friday cast a shadow over the strong, synchronized global upswing: Europe's economy lost momentum in the first quarter as expansions slowed from the U.K. to France, partly because winter storms ripped through the region.

In addition to the slowdown in consumer spending, the U.S. first-quarter GDP report showed cooling in business-equipment spending and residential investment, with the government citing a downturn in brokers' commissions on home sales. Spending on nonresidential structures and intellectual property accelerated in the period, limiting any broader slowdown.

Government spending slowed to a 1.2% gain from 3%, as both federal and state and local outlays cooled. Trade added 0.2 percentage point to growth, while inventories added 0.43 point, a reversal from the prior quarter, when they subtracted a combined 1.69 points. Trade and inventories are two of the most volatile components in GDP calculations.

The report also showed price pressures are picking up. The GDP price index rose 2% in the first quarter. A measure of inflation, tied to consumer spending and excluding volatile food and energy costs, advanced at a 2.5% annualized pace, the fastest since 2011, adding to signs that price gains are picking up.

After adjusting for inflation, final sales to domestic purchasers — which strip out inventories and trade — rose at a 1.6% pace, the slowest in two years, after a 4.5% advance that was the fastest since 2010.

Analysts' forecasts for economic growth ranged from 0.5% to 2.8%. The GDP estimate is the first of three for the quarter, with the other releases scheduled for May and June when more information becomes available.

Quarter's Quirks

Economists say statistical quirks, or so-called residual seasonality, have been behind some of the disappointing first- quarter GDP results in recent years. In five of the past eight years, the first quarter turned out to be the worst one of the year. The Commerce Department's Bureau of Economic Analysis is revamping its methodology to try to address the issue.

Beyond quarterly gyrations, underlying demand looks resilient, analysts said before the report. Retail sales rose more than expected in March and automobile purchases improved. Data released Thursday showed a better picture for the trade deficit toward the end of the first quarter but a weaker handoff for investment.

Meanwhile, changes in U.S. trade and tariff policies are posing a risk to the outlook. The economy may expand 2.8% in 2018, according to the median of forecasts compiled by Bloomberg, before slowing in the following two years.

The first-quarter figures showed household consumption added 0.73 percentage point to GDP growth, following 2.75 points in the prior quarter that representing a 4% annualized gain.

Nonresidential fixed investment, or spending on equipment, structures and intellectual property, increased at a still-solid 6.1% annualized pace, contributing 0.76 percentage point to growth. It grew at a 6.8% rate in the previous quarter.

Among the details, business spending on equipment rose 4.7%, following a three-year high of an 11.6% jump. Investment in nonresidential structures, including office buildings and factories, rose 12.3%, the most in a year. Housing investment was unchanged from the prior quarter following a 12.8% gain.

Consumer Spending

The slowdown in U.S. consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report. That occurred despite a 3.4% annualized gain in disposable income, the biggest jump since 2015, thanks to tax cuts under the new law.

With Amazon.com ( AMZN) and Walmart ( WMT) battling for consumer dollars, lower spending could underscore the challenges facing companies that sell food and household products. Large consumer companies, including Nestle, Unilever ( UN) and Reckitt Benckiser Group, have said they're struggling to raise prices on their products because of intense retail competition.

In addition, investors have focused on some company comments that suggest the economy may be weaker in 2018 than anticipated. Construction-equipment maker Caterpillar, a bellwether for growth, said this week that its first-quarter adjusted profit per share "will be the high water mark for the year," sending its shares down the most since mid-2016.

At the same time, Boeing said it's seeing solid global demand, while United Parcel Service said the U.S. economy is showing "healthy fundamentals."

The post GDP Growth Cools To 2.3% On Weakest Consumer Spending Pace Since 2013 appeared first on Investor's Business Daily.


19. Stocks Dive As Treasury Yield Hits 3%, Investors Bet On 4 Fed Rate HikesВт., 24 апр.[−]

The 10-year Treasury yield hit 3% on Tuesday for the first time in more than four years, reflecting expectations that the Fed will hike its key rate four times in 2018. Stocks, which have struggled as Treasury rates have rallied strongly in recent sessions, sold off sharply yet again.

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Fed expectations are fluid. Around 10 a.m. Eastern Time, the CME Group FedWatch page showed roughly 53% odds of a fourth quarter-point rate hike coming in December, up from one-in-four odds after the deceptively strong March jobs report two weeks ago.

But as the S&P 500 index and Dow Jones both closed 1.7% lower and the Nasdaq composite lost 1.3%, the 10-year Treasury yield pulled back to just below 3% and odds of a fourth Fed hike slipped to 39%.

Bank Stocks Outperform Higher Rates

Bank stocks were among the better performers in afternoon trade on the stock market today. But Bank of America ( BAC) reversed lower for a 0.4% decline as the market closed, and JPMorgan Chase ( JPM) lost 0.5%. Bank of America and JPMorgan Chase are both still below their 50-day lines.

Superregional Fifth Third Bank ( FITB) surged 4.1% after soundly beating earnings estimates, but was well off session highs. West Coast-based Umpqua Holdings ( UMPQ) gained 1.4%, extending its recent breakout.

Bank stocks can see a big benefit from higher long-term rates if the spread vs. short-term rates widens. But the big move in the 10-year in recent weeks has seen narrowing spreads.

While a higher 10-year Treasury means higher mortgage rates for home buyers, housing stocks got a lift initially Tuesday from strong earnings and housing data. Shares of PulteGroup ( PHM) gapped higher on strong earnings, rising 2.9%, while Lennar ( LEN) fell 1.7% and D.R. Horton ( DHI) advanced 0.6%.

March new home sales rose 4% to a 694,000 annual rate, well above the 630,000 rate expected and not far off November's 11-year high. Also, the Case Shiller 20-City Home Composite Price Index rose 6.8% from a year ago in March, the best gain since June 2014.

Still, Tuesday's market action suggests, at least in the near term, that higher market interest rates may pose a hurdle for the S&P 500 and and the stock market generally as it aims to shake off the recent correction.

Inflation Accelerating

Since jobs day, the Labor Department reported that core consumer inflation accelerated to 2.1% from a year ago in March. And now higher oil prices, which once again rose to their highest level since 2014 on Tuesday, could add to upward pressure on prices.

At a minimum, the risk of another inflation undershoot has diminished. All the near-term risk is to the upside. That, in turn, could dampen demand for U.S. debt at a time when deficits are beginning to spiral higher and the Fed is curtailing its own holdings of Treasury and mortgage debt.

In a Tuesday note, Lewis Alexander, Nomura's chief U.S. economist, projected that the Fed's preferred inflation gauge, the core personal consumption expenditures price index, looks likely to rise to 2.3% by the end of 2019, up from 1.6% in February.

Core PCE inflation for March will be reported on Monday, April 30.

The Federal Reserve will meet on May 1-2 but isn't expected to hike rates again until the June meeting. Fed policymakers who want to move gradually but are concerned about the economy overheating will privately cheer financial markets moving proactively, essentially doing the Fed's work for it.

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20. It's Not Just Apple: 10-Year Treasury Yield Hits 4-Year High, S&P 500 Dives On Fed, Inflation FearsПт., 20 апр.[−]

Now that President Trump has turned down the heat on a China trade war, investor concern about rising inflation and a hawkish Federal Reserve may be taking center stage. On Friday, the 10-year Treasury yield rose to 2.96%, just eclipsing the four-year high touched in February. The run-up in yields is a quiet reason for the stock market's struggles late in the week, even though chip warnings and Apple ( AAPL) iPhone fears dominated the headlines. The S&P 500 index slid 0.85% on the stock market today, with the S&P 500, Dow Jones, Nasdaq composite and Apple all falling below their 50-day lines.

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Odds of a fourth Fed rate hike in December have climbed above 40%, according to the CME Group FedWatch page. That's up from a one-in-four chance after the deceptively strong March jobs report two weeks ago.

Since jobs day, the Labor Department reported that core consumer inflation accelerated to 2.1% from a year ago in March. And now higher oil prices, which hit their highest level since 2014 this week, could add to upward pressure on prices.

United Airlines ( UAL) said this week that its jet fuel costs surged 26% from a year ago in the first quarter. Airlines have had trouble pushing through price increases but can be expected to try again.

At a minimum, the risk of another inflation undershoot has diminished. All the near-term risk is to the upside. That, in turn, could dampen demand for U.S. debt at a time when deficits are beginning to spiral higher and the Fed is curtailing its own holdings of Treasury and mortgage debt.

Treasury Yield Spike Hits Builders, Lifts Banks

Housing stocks continued to skid after seeing a bout of selling on Thursday amid the prospect of higher mortgage rates. Lennar ( LEN) lost 1.8% and D.R. Horton ( DHI) 1.7%.

Financial stocks, which can see a gain in net interest income from higher rates, have fared relatively well. Bank of America ( BAC) edged up 0.3% on Friday, while JPMorgan Chase ( JPM) was down 0.2%. Both outperformed the general market.

The March jobs report showed that wages have started to edge higher. That will likely continue in the next few months. CVS Health ( CVS), Starbucks ( SBUX) and Target ( TGT) all announced pay hikes effective this spring. CVS raised its minimum wage to $11 an hour and Target to $12. They are among dozens of major companies that announced wage increases in the wake of corporate tax cuts passed in December.

As those wage hikes take effect and lift worker pay in coming months, replacing several months of notably soft wage growth last spring, the annual pace of wage gains is likely to keep trending higher.

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21. Beige Book: Tariff Fears Cloud Solid Economic Outlook, Fed SaysСр., 18 апр.[−]

New tariffs and concerns over widening trade disputes cast a shadow over the Federal Reserve's most recent survey of U.S. businesses even as all 12 regions reported continued robust job growth with few signs of overheating, the Fed said in its Beige Book report.

"Outlooks remained positive, but contacts in various sectors including manufacturing, agriculture and transportation expressed concern about the newly imposed and/or proposed tariffs," according to the Beige Book .

The report, based on anecdotal information collected by the Fed district banks in March and early April, showed companies continued to struggle to fill open jobs, particularly skilled positions. Despite that, "most districts reported wage growth as only modest."

"Businesses were responding to labor shortages in a variety of ways, from raising pay to enhancing training to increasing their use of overtime and/or automation," according to the report compiled by the Dallas Fed and released Wednesday in Washington.

The report gives fodder to both sides of a debate among Fed policy makers over how long they can continue raising interest rates at a gradual pace without allowing a tight labor market to spark excessive inflation.

Unemployment remained at 4.1% in March for the sixth straight month, a level that hasn't been bettered since 2000. Wages have responded only sluggishly, however. Year-on-year gains in hourly earnings rose by an average 2.7% in the year through March.

All 12 districts reported "modest" or "moderate" overall economic growth. Consumer spending increased in most regions, compared with the February report, when it was described as "mixed."

Prices Rising

The report also reflected a "scattered" incidence of companies passing price increases on to customers.

"Business generally anticipate further price increases in the months ahead, particularly for steel and building materials," the report said.

Input prices continued to rise, especially in transportation and construction, where the costs of fuel and materials rose briskly. There were also "widespread reports that steel prices rose, sometimes dramatically, due to the new tariff."

The Boston Fed provided a vivid example of the unintended consequences of the Trump administration's effort to reduce the U.S. trade deficit through tariffs and new bilateral agreements. One unnamed company, hurt by levies on Chinese aluminum that caused prices to jump threefold, reported to the central bank that "these tariffs are now killing high-paying American manufacturing jobs and businesses."

The post Beige Book: Tariff Fears Cloud Solid Economic Outlook, Fed Says appeared first on Investor's Business Daily.


22. Retail Sales Rebound In Sign Consumer Slump TransitoryПн., 16 апр.[−]

U.S. retail sales rose by more than expected in March in the first gain in three months, suggesting consumer demand regained steam on the back of tax cuts and refunds.

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Sales advanced 0.6% following a 0.1% drop in the previous month, according to Commerce Department figures released Monday. That compared with the median estimate of economists for a 0.4% increase. So-called retail control-group sales, which are used to calculate gross domestic product and exclude food services, auto dealers, building-materials stores and gasoline stations, gained 0.4%, matching estimates.

The improvement in demand went beyond a bump in auto sales, as consumers went shopping at furniture and home stores along with electronics and appliance sellers. The results underscore that the declines from December to February were more of a pause following a post-hurricane spending binge. That supports the Federal Reserve's view that such weakness was transitory, as well as the central bank's outlook for two or three more interest-rate increases this year following a quarter-point hike in March.

Eight of 13 major retail categories showed increases. Sales at health and personal-care stores rose 1.4%, the most in two years. Auto sales rose 2%, the most since September; a report last week showed purchases of cars and light trucks rose to a 17.4 million annualized rate in March, the fastest this year.

Weaker categories included building-materials stores, which fell 0.6%; apparel-store sales, down 0.8%; and sporting goods, hobby, book and music stores, which declined 1.8%, the most since December, the data showed.

Optimistic Consumers

Consumer optimism has held at relatively high levels thanks to factors including job-market strength, rising wages and lower taxes. Refunds from 2017 returns may have also given retail sales a boost in March.

Even with the bounceback, consumer spending probably expanded at a slower pace in the first quarter. Control-group sales rose at a 1% annualized rate over the last three months, compared with 7.6% in the three months through December.

The relatively weak spending has kept estimates for economic growth in check, with analysts forecasting before Monday's report that gross domestic product expanded at a 2.2% annualized pace in the January-March period, down from 2.9% in the previous quarter.

The data on Monday also showed that a decline in gasoline costs, as reported last week in the Labor Department's consumer price index, may have weighed on filling-station receipts. Gas-station sales dropped 0.3%, the most since July, according to the Commerce report. Excluding automobiles and gasoline, sales advanced 0.3% for a second month.

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23. Trump's Shocking TPP Flip-Flop Reveals China Tariff Plan Is A DudЧт., 12 апр.[−]

President Trump may have shelved two wars in one day. First, he tweeted that an imminent attack on Syria may not happen for a long time. That boosted the S&P 500 and other stock indexes out of the gate. Next, Trump signaled his China trade war may be on hold.

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Sen. Ben Sasse, R-Neb., a Farm Belt critic of Trump's strategy to win trade concessions from China by threatening tariffs, revealed the president's startling about-face on trade. In an apparent admission that the U.S. can't win a tariff fight with China, Trump told new economic advisor Larry Kudlow to work on joining the Trans-Pacific Partnership trade agreement.

Sasse, who attended a White House meeting along with other senators from agricultural states, said that Trump told Kudlow to "Go get it done."

On his fourth day in office, Trump backed out of the TPP, the 12-nation trade agreement pushed by President Obama as a way for the U.S. to counter China's influence in East Asia.

And throughout the presidential campaign, Trump leaned heavily on his TPP opposition as part of his anti-trade message and used the issue as a key point of attack against opponent Hillary Clinton. She had earlier supported the TPP when she was secretary of state but backed away from it during the campaign.

Whether Kudlow will get it done on terms that Trump will accept is far from clear. But the go-ahead to try is much more than symbolic. It indicates that Trump prefers a more strategic, multilateral approach to a head-to-head confrontation that could lead to a full-blown China trade war.

Shares of Deere & Co. ( DE) rose 4% on the stock market today, making it among the best-performing S&P 500 issues. Deere stands to be among the biggest losers from a trade war in which China targets American farmers.

Among Dow Jones components with a big presence in China, Boeing ( BA) rose 3.1%, Caterpillar ( CAT) 2.3%, Cisco Systems ( CSCO) 2.1%, Intel ( INTC) 3.2% and Apple ( AAPL) 1%. Apple, Intel, Boeing, and Cisco rank among companies with the highest volume of sales to China.

Backing Off China Trade War?

The TPP builds in intellectual property protections central to trade tensions with China. The other 11 nations include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Last month, those remaining countries pledged to move forward with the trade pact without the U.S.

Trump told the lawmakers that he was looking at ethanol policy as one way to protect farmers if China retaliates against them. After Trump detailed the $50 billion worth of high-tech Chinese imports that would face 25% imports, China hit back last week. China said that it would slap tariffs on $50 billion worth of American imports, including soybeans, wheat, corn, cotton and other agricultural commodities. China imported $14 billion worth of soybeans from the U.S. last year.

Trump initially lashed out with a threat to slap tariffs on another $100 billion worth of Chinese imports. But Trump has taken a less combative approach this week, thanking Chinese President Xi Jinping for a new willingness to take down trade barriers, even though Xi denies any such moves.

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24. Fed Minutes: Policymakers Lean Toward Faster Fed Rate HikesСр., 11 апр.[−]

Federal Reserve officials leaned toward a slightly faster pace of tightening at their March meeting as their growth outlook and confidence in hitting their inflation target strengthened, according to Fed minutes released Wednesday.

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"A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected," the Federal Open Market Committee said in the records of its March 20-21 meeting.

At the gathering, the first under Chairman Jerome Powell, Fed officials lifted interest rates by a quarter percentage point and mostly penciled in two or three more moves this year. Even with the improved outlook, a "strong majority" of Fed officials voiced concern that a trade war would harm the economy, and some policy makers said the recent turbulence in financial markets highlighted risks to growth, the minutes showed.

"Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook," the minutes said. "But a strong majority of participants viewed the prospect of retaliatory trade actions by other countries" as a downside risk.

Investors saw about a 78% chance that interest rates will be higher after the June meeting, according to federal funds futures prices at 12:40 p.m. New York time. The central bank's current target is a range of 1.5% to 1.75%, after the March hike.

Growth 'Well Above Potential'

U.S. central bankers saw costs and benefits to an economy operating "well above potential," ranging from a faster return of inflation to target and an increase in labor force participation. "On the other hand, an overheated economy could result in significant inflation pressures or lead to financial instability," the minutes said.

The minutes showed participants discussed the possibility of revising statement language "at some point" to acknowledge that monetary policy "would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity."

Officials gathered to discuss policy with more powerful cross- currents than usual buffeting the U.S. economy.

Tax cuts have lifted business sentiment and the outlook for growth, with the Fed seeing a "significant boost to output over the next few years" from the tax law and a federal budget boost. At the same time, a few officials "noted that the changes in tax policy could boost the level of potential output," the minutes said.

Yet a simmering U.S.-China trade dispute has roiled markets in recent weeks and tightened financial conditions, which could argue for going slower.

Trade Tensions

As the FOMC deliberated, the Trump administration was considering tariffs on Chinese imports, the prospect of which sent U.S. stocks tumbling by close to 6 percent that week, after a volatile February thanks in part to an unexpectedly strong reading on wages. Equities have since recouped some of those losses amid signs of eased trade tensions.

"Many participants reported that their contacts had taken the previous month's turbulence in stride, although a few participants suggested that financial developments over the intermeeting period highlighted some downside risks associated with still-high valuations for equities or from market volatility more generally," the minutes said.

At the meeting, central bankers raised their median estimates for U.S. growth to 2.7% for 2018 from 2.5% projected in December.

They also saw the jobless rate falling to 3.6% by the end of 2019, further below their 4.5% estimate of unemployment's long-run sustainable rate. The rate was 4.1% in March, holding at the lowest since 2000.

Even with the strengthening labor market, most officials "still described the pace of wage gains as moderate," according to the minutes. "A few participants cited this fact as suggesting that there was room for the labor market to strengthen somewhat further."

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25. Inflation Firms In March As Core CPI Rises 2.1%Ср., 11 апр.[−]

Core consumer prices, excluding food and energy, rose 0.2% in March, while the core CPI annual rate accelerated to 2.1%, the Labor Department reported on Wednesday.

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Wall Street expected the core CPI to rise 0.2% on the month and 2.1% from a year ago. The annual rate rose partly because a weak year-earlier reading, when Verizon ( VZ) shifted to unlimited data plans, was dropped from the calculation.

Overall CPI dipped 0.1% on the month, while the annual increase accelerated to 2.4%. The monthly rate was expected to be flat, but gasoline prices fell sharply.

The Federal Reserve has a 2% inflation target, but favors the core PCE deflator over the core CPI. The core PCE deflator has shown slightly lower inflation.

After the report, Dow Jones industrial average, S&P 500 and Nasdaq 100 futures remained solidly in the red on the stock market today. That followed Tuesday's market trend-shifting follow-through day thanks to big gains on the S&P 500 index and other major averages.

The 10-year Treasury yield fell before the report and remained lower.

The Fed is expected to hike rates three times this year, as the economy looks headed for relatively strong growth and the jobless rate could sink to a multidecade low. Fed policymakers expect that wage pressures will rise as unemployment falls, with companies on passing some of their higher labor costs via price increases.

Wage Growth Picking Up

Last week, the Labor Department reported that average hourly wage inflation ticked up to 2.7% in March after February's surprisingly soft reading. Faster wage growth is just beginning to show up after recent wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX), Bank of America ( BAC) and dozens of others.

Kroger ( KR) from Walmart and Amazon ( AMZN) via its Whole Foods face fierce competition. That offers some reason to doubt whether wage pressure lead to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Yet even doves on the Fed are beginning to sound more hawkish. "Although last year we faced a disconnect between the continued strengthening in the labor market and the step-down in inflation, mounting tailwinds at a time of full employment and above-trend growth tip the balance of considerations in my view," Fed Governor Lael Brainard said last week.

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26. Thanks, For Nothing: China's Xi Jinping Offers Nothing New, But Trump ThrilledВт., 10 апр.[−]

China President Xi Jinping made little or no new concessions to avoid a U.S.-China trade war in his highly anticipated economic speech on Tuesday, but stock market investors focused on the positive — and so did President Donald Trump.

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In afternoon trading on the stock market today, the Dow Jones industrial average, S&P 500 index and Nasdaq composite all turned in strong gains. The Dow Jones, S&P and Nasdaq are in the midst of a rally attempt.

Among Dow Jones components with a big presence in China, Boeing ( BA) rose 3.8%, Caterpillar ( CAT) 3.5%, Cisco Systems ( CSCO) 3.25%, Intel ( INTC) 3.5% and Apple ( AAPL) 1.9%. Apple, Intel, Boeing, and Cisco rank among companies with the highest volume of sales to China.

Xi Jinping Gives An Inch, Maybe

Xi offered just one new commitment, to "significantly lower" tariffs on China auto imports this year, without giving any specifics. Even that was largely in line with a government pledge last November to "gradually and properly" cut auto tariffs. Still, shares of U.S. automakers rose, including Telsa ( TSLA) and General Motors ( GM).

Beyond that, Xi repeated ill-defined promises to loosen investment restrictions and better protect the intellectual property of foreign companies who operate in China, generally with joint-venture partners needed to access markets.

Xi would, of course, prefer to avoid a trade war with the U.S. But he made clear that China won't be pushed to adopt reforms faster than it wants. He hinted President Trump is the one with an antiquated world view.

"The cold war and zero-sum mentality looks out of place in today's world," Xi said. "Arrogance or only focusing (on) one's own interests will get nowhere. Only peaceful development and cooperation can truly bring win-win or all-win results."

Trump 'Very Thankful'

President Trump said in a tweet Tuesday afternoon that he was "very thankful" for Xi's "kind words on tariffs and automobile barriers."

Trump's Farm-Belt Concerns

Still, as long as there is no escalation, President Trump's simmering China trade war should have a minor impact on the economy and stocks. At the moment, there's reason to doubt the extent to which U.S. tariffs on $50 billion in high-tech Chinese imports will even take effect.

Trump's 25% tariffs can't kick in until after a month-long comment period giving businesses a chance to air their views as negotiations proceed. But the calm before any storm may last much longer if Trump wants protections in place for U.S. farmers.

Trump's statement last Thursday decried China's plan to retaliate with tariffs that match U.S. trade restrictions blow for blow. "China has chosen to harm our farmers and manufacturers," Trump's statement read. In other words, China's strategy may be working.

American farmers, and farm equipment makers like Deere & Co. ( DE), may be among the biggest losers in a China trade war.

Trump said that he's tasked the Department of Agriculture to work on ways "to protect our farmers and agricultural interests." That may be hard to do without an emergency congressional appropriation.

Billions of dollars are at stake for U.S. farmers, with China imposing 25% tariffs on $14 billion worth of soybeans alone. Corn, cotton, tobacco and other crops also face tariffs. Farm state GOP lawmakers are said to worry about what Trump's trade war could do to their electoral prospects. At the least, Trump tariffs threaten to undermine the GOP's message about tax cuts finally unleashing economic growth.

Looking For Leverage

It's not clear that Trump and the GOP are prepared for the fallout from China's retaliation against the first $50 billion worth of Chinese imports he plans to target. Slapping tariffs on an additional $100 billion worth of Chinese imports, as Trump threatened last week, seems very unlikely.

In the initial round of tariffs, U.S. trade officials bent over backwards to avoid hitting Chinese imports that would harm American consumers. Nike ( NKE) shoes and Apple iPhones were left unscathed. Doubling, or tripling, down on tariffs without hitting consumers may not be possible.

The takeaway for investors is that Trump's China trade war will likely be mostly talk for months to come. Further, Trump is probably discovering he has less leverage than he believed. Trade war costs would increase as Trump escalates. While he'll hold out the threat of using a hammer, he may not have much of a hammer at his disposal.

The U.S. could win broader concessions with a coalition of international trading partners united against Beijing's unfair trade practices. New Trump economic advisor Larry Kudlow has begun talking up the idea of a " trade coalition of the willing."

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27. Trump Tariffs: Why $100 Billion China Trade War Threat May Be Good NewsПт., 06 апр.[−]

President Trump's latest threat to double down on his China trade war would be so bad that it may actually be good news in disguise.

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Yet his proposal to slap tariffs on another $100 billion worth of Chinese imports could signify that Trump now recognizes a trade war won't be "fun" or "easy to win."

The Dow Jones, S&P 500 index and Nasdaq composite all tumbled more than 2% on the stock market today. The S&P 500 index undercut its 200-day line once again intraday, but closed above that key support. The Dow Jones, with a number of components that could be collateral damage in a trade war with China, led the way lower.

Boeing ( BA) lost 3.1%, Caterpillar ( CAT) 3.5%, Nike ( NKE) 2.9%, Cisco Systems ( CSCO) 2.6%, Intel ( INTC) 3.2% and Apple ( AAPL) 2.6%. Apple, Intel, Boeing, Cisco and Nike rank among companies with the highest volume of sales to China.

Trump's late Thursday statement decried China's plan to retaliate with tariffs that match U.S. trade restrictions blow for blow. "China has chosen to harm our farmers and manufacturers," Trump's statement read. In other words, China's strategy may be working.

China Trade War Hits U.S. Agriculture

American farmers, and agricultural equipment makers like Deere & Co. ( DE), may be among the biggest losers in a China trade war.

Trump said that he's tasked the Department of Agriculture with working on ways "to protect our farmers and agricultural interests." That may be hard to do without an emergency congressional appropriation.

Billions of dollars are at stake for U.S. farmers, with China imposing 25% tariffs on $14 billion worth of soybeans alone. Corn, cotton, tobacco and other crops also face tariffs. GOP lawmakers from farm states are said to worry about what Trump's trade war could do to their electoral prospects. At the least, Trump tariffs threaten to undermine the GOP's message about tax cuts finally unleashing economic growth.

So it's not clear that Trump and the GOP are prepared for the fallout from China's retaliatory measures against the first $50 billion worth of Chinese imports he plans to target.

Trump's 25% tariffs on high-tech imports won't take effect for at least a month. That will give businesses a chance to comment and negotiations to proceed. But the calm before any storm may last much longer if Trump wants protections in place for U.S. farmers.

Hard To Shield American Consumer

Further, the likelihood of Trump tariffs on up to another $100 billion worth of Chinese imports seems low. U.S. trade officials bent over backwards to avoid hitting Chinese imports that would harm American consumers. Nike shoes and Apple iPhones were left unscathed. Doubling down on tariffs without hitting consumers may not be possible.

The takeaway for investors is that Trump's China trade war will likely be mostly talk for months to come. Further, Trump is probably discovering he has less leverage than he believed. As trade war costs hit home increasingly as Trump escalates, there's a good chance he will make a concerted effort at negotiation. While he'll hold out the threat of using a hammer, he doesn't have much of a hammer at his disposal.

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The post Trump Tariffs: Why $100 Billion China Trade War Threat May Be Good News appeared first on Investor's Business Daily.


28. Better Wage Growth In March Keeps Four Fed Rate Hikes In PlayПт., 06 апр.[−]

Don't be fooled by the weak job growth or higher-than-expected unemployment in March. Better wage growth and less labor-market slack mean the stock market won't get much of a reprieve from Fed rate-hike fears.

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The good news: The surprisingly weak 103,000 job gain throws a bit of cold water on the notion that the economy is overheating. Yet a hawkish shift by the data-dependent Federal Reserve will continue to remain a risk for investors with every wage and inflation report. The consumer price index coming out on Wednesday is the next one to watch. UniCredit Research expects the core CPI, excluding food and energy, to rise 2% from a year ago vs. 1.8% in February.

Following the report, Dow Jones industrial average, S&P 500 index and Nasdaq composite initially moved higher, then relapsed in late morning trade on the stock market today. The Dow Jones, S&P 500 and Nasdaq composite were all down 1% or more.

Before the report, stock market futures were deep in the red in reaction to President Trump's threat to strike back at China even harder, with tariffs on an additional $100 billion in imports.

The 10-year Treasury yield slipped about 5 basis points to 2.78% as stocks fell and the jobs and unemployment data surprised on the soft side. Odds of four Federal Reserve rate hikes this year, one more than expected, eased to about 26% after the report, according to CME Group's FedWatch tool.

Average hourly wages rose 8 cents to $26.82 an hour, lifting the annual gain to 2.7%, in line with expectations.

Wall Street economists expected a 175,000 job gain, 4.0% unemployment and 2.7% average wage growth.

Still, job growth has averaged a solid 202,000 the past three months, including revisions. A balmy February likely shifted some seasonal job employment forward, depressing March job creation.

Harm Bandholz, chief U.S. economist at UniCredit, pointed out that jobless rate actually did decline in March — if you don't round to the tenths — from 4.14% to 4.07%. Over the past 12 months, the labor force has increased by 125,000 per month, on average, well below the pace of job creation. "Looking forward, we continue to expect the jobless rate to fall towards 3.5% by the end of the year."

Employers also have been increasing work hours, further evidence of less slack. On a weekly basis, the average wage rose 3.3% from a year ago in March, the best gain in seven years.

Investors should expect the improvement in hourly wage growth to be the start of a trend for two reasons.

First, dozens of major employers announced wage hikes over the past few months, but few came early enough to show up in February's jobs report. Walmart ( WMT) and CVS Health ( CVS) hiked their minimum wages to $11 an hour. Six months after raising its minimum wage to $11, Target ( TGT) said last month that it will pay all current associates at least $12 an hour starting this spring.

Second, wage growth receded in the spring of 2017, rising just 2.2% at an annual rate from March through June. As those months that saw depressed pay gains drop off, replaced by months with firmer growth this year, the annual rate will trend higher.

Walmart Wage Growth Contagious

Take a closer look at Walmart's wage changes. Before its pay hike announced in January 2018, Walmart hadn't raised its base wage in nearly three years. That's a big deal. When Walmart hiked its minimum wage for all current associates to $10 an hour in February 2016, that wage hike was contagious.

Walmart is big enough to put upward pressure on wages for other employers. Target and Costco ( COST) were among those who quickly hiked pay shortly after that 2016 move. Average hourly earnings growth rose to 2.8% that July before momentum flagged.

Walmart's 2016 wage hike came when the jobless rate was nearly 5%. Now it's around 4%, so competition for workers has intensified. At least for workers on the lower end of the wage spectrum, pay hikes appear to be broad-based. Starbucks ( SBUX), Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all have said they're raising pay. Meanwhile, dozens of banks, including Bank of America ( BAC) and Wells Fargo ( WFC) hiked their minimum wage to $15 an hour for tellers.

Fed Rate Hike Implications

As wage gains accelerate and the jobless rate moves below 4% in coming months, Fed policymakers may lean toward four interest-rate hikes in 2018, not just three. Fed models assume that inflation will follow wage growth higher. There's reason to be skeptical. For example, Kroger said last month that it will use the bulk of its tax cut to offset the cost of higher wages and lower prices. The competitive environment facing Kroger from Walmart and Amazon ( AMZN) via its Whole Foods division offers at least some reason to doubt whether wage pressure will feed through to higher prices.

The post Better Wage Growth In March Keeps Four Fed Rate Hikes In Play appeared first on Investor's Business Daily.


29. Goodbye Goldilocks: Wage Growth Set To Accelerate In March Jobs ReportЧт., 05 апр.[−]

Wage growth will likely accelerate in the March jobs report and beyond, with hawkish implications for the Fed interest-rate outlook. Goldilocks is on her way out.

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Wall Street economists expect the monthly employment report out at 8:30 a.m. ET to show a gain of 175,000 jobs. The unemployment rate should dip to 4%, the lowest since December 2000. Average hourly wage growth should tick up to 2.7% on an annual basis from a so-so 2.6% in February.

Expect the improvement in wage growth to be the start of a trend for two reasons.

First, dozens of major employers announced wage hikes over the past few months, but few came early enough to show up in February's jobs report. Walmart ( WMT) and CVS Health ( CVS) hiked their minimum wages to $11 an hour. Six months after raising its minimum wage to $11, Target ( TGT) said last month that it will pay all current associates at least $12 an hour starting this spring.

Second, wage growth receded in the spring of 2017, rising just 2.2% at an annual rate from March through June. As those months that saw depressed pay gains drop off, replaced by months with firmer growth this year, the annual rate will trend higher.

Walmart Wage Growth Contagious

Take a closer look at Walmart's wage changes. Before its pay hike announced in January 2018, Walmart hadn't raised its base wage in nearly three years. That's a big deal. When Walmart hiked its minimum wage for all current associates to $10 an hour in February 2016, that wage hike was contagious.

Walmart is big enough to put upward pressure on wages for other employers. Target and Costco ( COST) were among those who quickly hiked pay shortly after that 2016 move. Average hourly earnings growth rose to 2.8% that July before momentum flagged.

Walmart's 2016 wage hike came when the jobless rate was nearly 5%. Now it's around 4%, so competition for workers has intensified. At least for workers on the lower end of the wage spectrum, pay hikes appear to be broad-based. Starbucks ( SBUX), Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all have said they're raising pay. Meanwhile, dozens of banks, including Bank of America ( BAC) and Wells Fargo ( WFC) hiked their minimum wage to $15 an hour for tellers.

Fed Rate Hike Implications

As wage gains accelerate and the jobless rate moves below 4% in coming months, Fed policymakers may lean toward four interest-rate hikes in 2018, not just three. Fed models assume that inflation will follow wage growth higher. There's reason to be skeptical. For example, Kroger said last month that it will use the bulk of its tax cut to offset the cost of higher wages and lower prices.

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The post Goodbye Goldilocks: Wage Growth Set To Accelerate In March Jobs Report appeared first on Investor's Business Daily.


30. Trade War: China Targets Boeing, GM, Tesla To Match Trump TariffsСр., 04 апр.[−]

Beijing just detailed the cost of President Trump's China trade war. Boeing ( BA), General Motors ( GM), Tesla ( TSLA), Ford ( F) and U.S. soybean growers could pay the price for Trump tariffs on $50 billion in Chinese imports.

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Stock market investors could also pay a price. The Dow Jones industrial average, S&P 500 index and Nasdaq 100 all fell sharply at the open, tough they soon pared losses somewhat on the stock market today. Shares of Boeing lost 4%, Tesla 1%. GM and Ford pared big losses to just fractional declines. Apple ( AAPL), which has the highest volume of sales in China of any U.S. multinational, slipped 1.1%. Apple didn't appear to be a target of Beijing's potential reprisals.

China didn't wait long to make good on its threat to hit the U.S. with tariffs that are proportional to those threatened by the Trump administration. After the White House detailed the $50 billion worth of Chinese high-tech products that stand to face 25% tariffs, China responded in kind.

Beijing said that it will target $50 billion worth of American products with 25% tariffs, including airplanes, cars and soybeans.

China trade war tensions might still ease. The Trump tariffs won't take effect for at least 30 days, giving U.S. businesses a chance to comment as negotiations with China proceed.

Late Tuesday, the U.S. Trade Representative's office detailed plans for a 25% tariff on some $50 billion in mostly high-tech imports. The duties will fall on lithium batteries, semiconductors, communication satellite technology, as well as some TV components and even flamethrowers

"This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China's harmful acts, policies, and practices," the USTR said in a report. The list covers about 1,300 products.

The USTR said it was focusing on key technologies that China aims to dominate, while "trying to minimize the effect on U.S. consumers."

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31. China Vows To Fight Back As Trump Details Tariffs On 1,300 Chinese GoodsСр., 04 апр.[−]

The next episode of President Donald Trump's China trade war has two possible storylines, Beijing signaled on Tuesday. Either the two sides negotiate a truce, or China will match Trump tariffs blow for blow. China stepped up its rhetoric Tuesday, with the Trump administration detailing China tariffs.

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" We will certainly take countermeasures of the same proportion and the same scale, same intensity," Cui Tiankai, China's ambassador to the United States, said in a China Global Television Network interview.

Despite the tough talk from China, the stock market staged a modest, up-and-down recovery on Tuesday. The Dow Jones industrial average and S&P 500 index both rose more than 1% on the stock market today, while the Nasdaq composite advanced 1%. The Nasdaq led a broad-based sell-off Monday amid growing China trade war concerns and tech-stock weakness, with the S&P 500 undercutting its 200-day moving average.

Apple ( AAPL), Boeing ( BA) and Nike ( NKE), all Dow Jones components, are among the companies with the highest dollar-value exposure to China based on total sales. Apple climbed 1% Tuesday. Boeing rose 2.6%. Nike climbed 4%, reclaiming its 50-day line.

Beijing Retaliates In China Trade War

So far, China's actions have met that standard of matching U.S. tariffs in scale. Over the weekend, Beijing detailed the $3 billion worth of U.S. products that will face tariffs in China. Those products include fresh and dried fruit, wine, pork, and certain steel products.

Beijing didn't impose those tariffs in retaliation for the anti-China trade measures Trump announced on March 22, as Wall Street first thought. Rather, China struck a proportional blow against Trump's steel and aluminum tariffs, which largely spared the country.

Trump Administration Details China Tariffs

Late Tuesday, the U.S. Trade Representative's office detailed plans for a 25% tariff on some $50 billion in mostly high-tech imports. The duties will fall on lithium batteries, semiconductors, communication satellite technology, as well as some TV components and even flamethrowers

"This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China's harmful acts, policies, and practices," the USTR said in a report. The list covers about 1,300 products.

The USTR said it was focusing on key technologies that China aims to dominate, while "trying to minimize the effect on U.S. consumers."

China was quick to reiterate that it would respond in kind, with countermeasures coming soon.

Stock market futures fell slightly late Tuesday.

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32. IBD/TIPP Poll: Economic Optimism Index For April 2018Вт., 03 апр.[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

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The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.4, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

Tax Revenues Jump 13% To Record High In April — When Will Dems Admit They Were Wrong About Trump's Tax Cuts?Economy: The federal government collected far more taxes this April than it did a year ago, despite the "budget busting" Trump tax cuts. So, we'll ask again: Are the tax cuts paying... Read More

IBD/TIPP Economic Optimism Index: Overall

See All Questions And Full Results

The IBD/TIPP Economic Optimism Index fell 5.4% in April to 52.6, the second straight monthly drop after hitting its highest reading since October 2004 in February. It's the 19th straight month that it has been over 50 — which signals overall optimism about the economy. It is also above its long-term average of 49.4. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index fell 6% in April, after dropping 8% in March, clawing back all of January's 11.4% jump. At 49.7 for the month, the index was also below 50. Still, the reading for this index remains well above its long-term average of 46.3. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months dropped 4.9% to 60.7 in April after being unchanged in March at 63.8. The index's all-time high of 65.3 was set in January 2004, when the Bush-era tax cuts began to kick in. The Personal Financial Outlook is one of the most consistently optimistic indexes in the IBD/TIPP data set. It remains above its long-term average of 57.1.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component fell 5.2% in April to 47.4 from 50 in March. It remains above its 17-year average of 44.8. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years, and in March returned to the feel-good zone. But it subsided during last month's budget and gun-control debates. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

RELATED:

Main IBD/TIPP Poll Page

IBD/TIPP Presidential Approval Index

IBD/TIPP Election 2016 Tracking Poll

Past Results

March 2018

February 2018

January 2018

December 2017

November 2017

October 2017

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August 2017

July 2017

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Media Contact

Terry Jones
Investor's Business Daily Commentary Editor
terry.jones@investors.com | 310.448.6377

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GMK Communications
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The post IBD/TIPP Poll: Economic Optimism Index For April 2018 appeared first on Investor's Business Daily.


33. IBD/TIPP Poll: Economic Optimism Loses Trump Tax-Cut SparkВт., 03 апр.[−]

The IBD/TIPP Economic Optimism Index fell 3 points to 52.6 in April, continuing to fade after hitting a 13-year high of 56.7 in February.

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The six-month economic outlook, one of three IBD/TIPP Economic Optimism Index subgauges, slid to 49.7. That's just below the 50 neutral level. In February, the outlook gauge hit 57.5, the highest since October 2012, as economic optimism rode a wave of tax cuts, bonuses and wage hikes.

The March 22-29 survey of 902 people came after President Trump stirred fears of a trade war with China. The Dow Jones tumbled more than 1,100 points in the first two days of polling, as Trump announced plans to hit China with 25% tariffs on up to $60 billion in high-tech imports. Trump also announced steel and aluminum tariffs, but has since has granted temporary exemptions covering more than half of imports.

With China trade war concerns returning and Amazon ( AMZN) tumbling on several Trump tweets, the Dow Jones and S&P 500 index sank below their 200-day lines Monday. The Nasdaq composite isn't far behind.

Meanwhile, polling shows that most Americans haven't noticed bigger paychecks as tax cuts lowered their withholdings earlier this year. Average hourly wages rose just 2.6% from a year ago in February, the Labor Department reported. Some of the tax-cut dividends will come via a bigger child tax credit that is paid at tax time.

Wage Gains On The Way

Wage gains appear likely to pick up momentum. Target ( TGT) announced a hike in its minimum wage to $12 an hour last month. That followed Target's increase to $11 in October. After tax cuts passed in December, Walmart ( WMT) and CVS Health ( CVS) raised their minimum wages to $11 an hour. While dozens of major employers have hiked base wages, it's still unclear if the middle class will get a lift.

The Economic Optimism Index's other two main subindexes also retreated.

The six-month personal financial outlook index fell to 60.7, slipping further from January's 14-year high of 64.0.

Meanwhile, the measure of confidence in federal economic policies slipped 2.6 points to 47.4. March's neutral reading was the second-most favorable view of government since 2007. The gauge briefly turned positive in Trump's post-election honeymoon.

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The post IBD/TIPP Poll: Economic Optimism Loses Trump Tax-Cut Spark appeared first on Investor's Business Daily.


34. Trump Tariffs: China Trade War Just Took This Surprise TurnПн., 02 апр.[−]

Stock market investors reacted with relief when China said two weeks ago that it would impose tariffs on only $3 billion in U.S. imports following various Trump tariffs.

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Wall Street saw the move as a very modest response to 25% tariffs on $60 billion in Chinese products President Trump announced March 22.

Here is the surprise: China confirmed over the weekend that everyone got it wrong. Beijing said it set those penalties as retaliation for the steel and aluminum tariffs Trump made official on March 8.

China accounts for just 2% of U.S. steel imports, the primary target of Trump's metal tariffs, so Beijing's reprisals don't look that moderate.

The Dow Jones and S&P 500 index fell sharply on the stock market today. That was partly due to investors bracing for another week of possible negative trade news. The Nasdaq composite tumbled as Tesla ( TSLA) and FANG stocks including Amazon ( AMZN) slumped.

Trump tweeted over the weekend that he would end Nafta unless Mexico halts " big drug and people flows" across the border. He also took some more shots at Amazon over the weekend and again on Monday.

Dow Jones components Boeing ( BA) and Caterpillar ( CAT) are among the U.S. multinationals whose sales in China could suffer if trade war tensions mount.

Trump Tariffs: Details On China Duties Soon

The Trump administration has promised to detail the "largely high-tech" products from China that will face 25% tariffs by April 6.

Investors will be eagerly awaiting China's plan for responding to these new Trump tariffs.

But Trump isn't done ratcheting up trade tensions with Beijing. More intensive investment restrictions to keep China from acquiring American-made technology are still to come.

China's tariffs on $3 billion in goods will apply to 128 products, including fresh and dried fruit, wine, pork and certain steel products.

The news isn't all bad. China has sent some conciliatory signals and Trump's tariffs were smaller than expected. Still, investors don't have enough clarity to dismiss the possibility of a trade war.

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35. Four Cryptocurrency Futures: How Bitcoin, Blockchain Could Transform The Financial SystemПн., 02 апр.[−]

Imagine being told one day that your paychecks would be in Bitcoin. Pretty cool, right? Except your liquid assets could tumble in value at any moment in this cryptocurrency future. And you'd have to convert your cryptocurrency to dollars to buy groceries at Walmart ( WMT), coffee at Starbucks ( SBUX) or books on Amazon ( AMZN).

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The surge in value of Bitcoin and its digital currency rivals has not been matched by their everyday utility. Payment processor Stripe cut off Bitcoin support in January, citing slow transaction times and high fees.

"We've seen the desire from our customers to accept Bitcoin decrease," explained Stripe product manager Tom Karlo.

Bitcoin and other digital rivals are nowhere near ready for prime time. They might never match the utility of today's financial-system incumbents, the banks and payment companies that facilitate the flow of funds over tens of millions of merchant locations.

Yet much like millennials will never have a landline, a coming generation might do without bank accounts thanks to secure, peer-to-peer cryptocurrency transactions. Blockchain technology and the vast new crypto wealth have opened the door to four cryptocurrency futures that could usher in a new financial order.

Four Cryptocurrency Future Scenarios

What are these possibilities?

  • The Federal Reserve could issue its own digital currency, as some global central banks are exploring.
  • Large companies such as Amazon, Walmart and Starbucks might issue digital coins that inspire trust and gain wide acceptance.
  • Retail giants, by accepting payments in the currency, could elevate Bitcoin, Ethereum or another cryptocurrency above the others vying to offer safety, soundness and utility.
  • Finally, if trust is lost in government-backed, or fiat, currencies, a cryptocurrency future could come about by default. That may be a risk not only in places like Venezuela, but in the U.S., where federal deficits are spiraling.

"Virtual currencies might just give existing currencies and monetary policy a run for their money," International Monetary Fund director Christine Lagarde predicted last fall. "Citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash — no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities," she said.

That explosive potential helps explain why so many tech entrepreneurs and investors turned cryptocurrencies into a 21st Century gold rush, even as JPMorgan Chase ( JPM) CEO Jamie Dimon has trashed Bitcoin as "a fraud."

Dimon and other titans of finance voice certainty that commercial banks will remain indispensable, cryptocurrencies will stay on the fringe, and governments will want to keep it that way.

FedCoin? Central Banks Mull Future Of Cryptocurrency

Blockchain's potential to revolutionize the financial system has some central banks studying whether to issue their own digital currency. Yale University scholars have proposed the FedCoin. In this cryptocurrency future, FedCoin could make monetary policy more flexible and forceful, even allowing for negative interest rates.

If a cryptocurrency acted as a reliable, widely accepted store of value, people could cut ties to their banks. They could keep some crypto cash in digital wallets, with other liquid assets in mutual funds, stocks and government bonds.

A Bank of England study concluded that a central-bank cryptocurrency could boost GDP by 3%. Gains would come, in part, from shrinking "monetary transaction costs that are analogous to distortionary tax rates."

Yet FedCoin looks far-fetched at present because of the massive disruption it could cause. Central bank crypto dollars "could endanger the economically and socially important financial intermediation function of commercial banks," JPMorgan analysts warned.

The contribution of fractional reserve banking to global growth — turning each $1 of deposits into $10 in loans — could fade. "We would expect that central banks would think twice before disturbing this source of capital to the private sector."

Bitcoin Crash Or Cryptocurrency Revolution?

Dimon is surely right about one thing: The cryptocurrency future will depend heavily on government. That could mean smothering it with regulation, stealing its thunder via FedCoin or cultivating it with a light regulatory touch.

Bitcoin hit its 2018 low early on Feb. 6, the morning of a key Senate cryptocurrency hearing, briefly undercutting $6,000. The chairmen of the Securities and Exchange Commission and Commodity Futures Trading Commission both urged stronger oversight. But the financial regulators stopped short of sounding an alarm. Nor did they call for any legislation to rein in cryptocurrencies. In the weeks after that hearing, Bitcoin rebounded to around $11,000 but it has retreated yet again to below $7,000.

Bitcoin had doubled in the first half of December, hitting a peak above $19,000 just as Bitcoin futures began trading on Cboe Global Markets ( CBOE) and CME ( CME). The anticipation of futures trading, touted as validation from U.S. regulators, stoked speculation.

At the Senate hearing, Sen. Mark Warner, D-Va., who earned his fortune as an early investor in the cell phone industry, said he sees a parallel between mobile phones then and cryptocurrencies now. "The same kind of transformation is about to take place," he said.

Could Bitcoin Raise Systemic Risks?

Warner criticized the CFTC for embracing Bitcoin options at this stage. He fretted that total cryptocurrency market capitalization could hit $20 trillion — vs. $300 billion now — with another 2017-like surge.

"This rises potentially to the level of a systemically relevant event," Warner said.

Yet there's reason to doubt that cryptocurrency frenzy will return. JPMorgan Chase, Bank of America ( BAC) and Citigroup ( C) — Ma Bell in Warner's analogy — banned credit-card purchases of cryptocurrencies. Meanwhile, the SEC and foreign governments have cracked down on initial coin offerings. And lately, Alphabet ( GOOGL)-unit Google, Facebook ( FB) and Twitter ( TWTR) have banned cryptocurrency ads.

Even Ethereum founder Vitalik Buterin warned via Twitter not long ago that cryptocurrencies " could drop to near-zero at any time." He added that "traditional assets are still your safest bet."

The Bank for International Settlements, the central banker for global central banks, has warned that cryptocurrencies in the future could become a "threat to financial stability" if regulators aren't vigilant. U.S. regulators appear to be playing catch-up. As of Feb. 6, the cryptocurrency working group put together by Treasury Secretary Steven Mnuchin had held a single meeting.

Politicians and central bankers worry that cryptocurrencies won't hold value in a panic. "When things really go bad, where do Americans turn?" Philadelphia Federal Reserve President Patrick Harker asked a fintech conference last fall. "Well, they're going to come back to the government. That's the history of the country."

Another 'Large Player' For Cryptocurrencies

Harker did allow that other currency models might work if another "large player" besides the government provided trust.

Who could fill that role? Starbucks Chairman Howard Schultz offered some thoughts on the coffee chain's January earnings call.

"I personally believe that there is going to be one or a few legitimate, trusted digital currencies off of the blockchain technology," Schultz said. He doubted that Bitcoin would be one of them.

Cryptocurrencies "will have to be legitimized by a brand in a brick-and-mortar environment, where the consumer has trust and confidence in the company that is providing the transaction."

Starbucks wants to play a role but isn't making a big investment in a cryptocurrency future right now, Schultz said.

Amazon, Cryptocurrency Kingmaker — Or Central Bank?

Cryptocurrency investors have speculated that Amazon might accept Bitcoin or one of its digital rivals. That specific cryptocurrency would vault past competitors as a trusted store of value and useful medium of exchange. Amazon even registered the domains AmazonEthereum.com, AmazonCryptocurrency.com and AmazonCryptocurrencies, kicking such talk into high gear.

Alternatively, Amazon, Walmart — or a consortium of large companies — might issue their own cryptocurrency. Doing so could let them save on transaction costs and act as a competitive weapon.

But Amazon has also been cozying up with JPMorgan. Recently, Amazon and JPMorgan have partnered in a health care venture and in creating a new type of bank account.

Yet imagine if Amazon or Walmart rewarded loyal customers with tokens that could escalate in value. The tokens would jump to the head of the cryptocurrency pack with potential for broad acceptance as a currency. Customers would likely hoard the tokens, rather than spend them. The effect on sales and profits might be electric.

For a digital currency to gain wide acceptance from outside businesses, the issuer would have to act like a central bank. Governing a currency requires trust, so some functions might need independence from corporate issuers.

Those milestones could ease fears of a massive cryptocurrency crash. The Fed shouldn't need to rush in and save the day if AmazonCoin or WalmartCoin crashed.

Currencies rely on conservative and predictable rules to assure the public that massive money printing won't destroy value. Could people trust the central bank of Amazon?

Then again, will people always be able to count on the Fed?

Cryptocurrency Future: Competition For Central Bank Fiat Money

The Fed controls the creation of money, but central bankers seem to be losing their grip. Any loss of faith in the dollar and the Fed bodes well for a cryptocurrency future as dollar-skeptics look for an alternative store of wealth — besides gold.

Bitcoin's peer-to-peer electronic payment system, first proposed in 2008 to verify transactions through a decentralized public blockchain, arrived on the scene as the global financial crisis triggered bailouts of one big bank after another.

Bitcoin fulfilled famed economist Friedrich Hayek's idea of denationalizing money. He believed competition could help keep central banks honest and prevent runaway inflation.

Doubts fueled by "ballooning balance sheets of the major central banks in the aftermath of the global financial crisis" motivated early cryptocurrency investors, JPMorgan analysts wrote. Yet the lack of any upsurge in inflation since "has surely reduced concerns about fiat (legal tender issued by a central bank) money."

A Fiscal Train In Cryptocurrency Future?

Yet the Fed now faces a much different challenge: a runaway federal deficit even amid a strong U.S. economy. The deficit will top $1 trillion in fiscal 2019 and $2 trillion by 2027, and there's no fix in sight. Republicans have overseen big deficit-financed tax cuts and increased government spending. Democrats want more generous Social Security benefits, Medicare for all and debt-free college.

"The continued growth of public debt raises eventual sustainability questions if left unchecked," Goldman Sachs economists warned recently.

The Fed seems on track to suffer the same fate as the Bank of Japan. The BoJ has been forced to accommodate sky-high government deficits with easy money and asset purchases. Japan, with a falling working-age population, hasn't had a whiff of inflation. But the U.S. might be a different story.

Deutsche Bank global credit strategist Jim Reid put this shocking headline on a November report: "The Start of the End of Fiat Money?" Reid argued high debt levels will keep the Fed and other central banks too accommodative, putting fiat currencies at risk.

"The fiat currency system may be seriously tested over the coming decade and ultimately we may need to find an alternative," Reid wrote. "Cryptocurrencies are all the rage at the moment and are as much about blockchain as anything else, but there could be an increasing desire for alternative" mediums of exchange in the years to come."

Keep in mind that fiat money is a relatively young innovation. It's only truly been the norm since President Nixon ended the dollar's quasi-gold standard in 1971.

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The post Four Cryptocurrency Futures: How Bitcoin, Blockchain Could Transform The Financial System appeared first on Investor's Business Daily.


36. U.S. Factory Gains Cool As Raw Materials Prices Heat UpПн., 02 апр.[−]

U.S. factories expanded at slightly slower pace in March and a measure of raw-material prices hit an almost seven-year high, according to the widely watched ISM manufacturing index released Monday. Manufacturers struggled to keep up with demand, data from the Institute for Supply Management showed Monday.

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ISM Manufacturing Highlights

The ISM manufacturing index Factory index eased to 59.3 (est. 59.7) from 60.8 m/m; readings above 50 indicate expansion. Measure of new orders fell to 61.9, the lowest since August, from 64.2. Prices-paid index rose for a fourth straight month to 78.1, the highest since April 2011, from 74.2; employment gauge declined to 57.3 from 59.7

Key Takeaways

A measure of customer inventories dropped to the lowest level since July 2011 and a gauge of backlogs held at an almost 14-year high. Together that indicates factories continue to have trouble keeping up with demand from consumers and businesses, while paying ever-higher prices for raw materials.

Even so, the figures are consistent with expectations of further gains in manufacturing production in coming months, and the main index remains near the highest level since 2004. While a measure of factory payrolls softened, the underlying details of the ISM report bode well for employment. The Labor Department's March jobs report is due later this week.

Other Details

  • ISM index of backlogs held at 59.8, the highest level since May 2004
  • The production gauge eased to 61 from 62.
  • Export orders measure fell to 58.7 from 62.8. Supplier deliveries gauge cooled to 60.6 from 61.1.

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37. Inflation Perks Up In February But Not Enough To Shift Fed Rate HikesЧт., 29 марта[−]

The favored Fed inflation gauge, the core personal consumption expenditures price index, rose 0.2% on the month and 1.6% from a year ago in February, the Commerce Department reported Thursday.

Core inflation came in a tad hotter than the 1.5% annual rate expected. Including food and energy prices, the PCE price index rose 0.2% on the month and 1.8% from a year ago vs. expectations of 0.2% and 1.7% increases.

After the report, Dow Jones industrial average and S&P 500 index futures rose a little more, while the 10-year Treasury yield was little changed around 2.77%.

If the inflation data stay tame, and core PCE inflation remains well below the Fed's 2% inflation target, the U.S. central bank probably won't hike its key interest rate four times this year. At last week's Fed meeting, policymakers' projections saw core inflation rising to 1.9% this year as the Fed hikes three times.

Policymakers are getting more confident that inflation will start to firm. Their projections point to 2.1% core inflation in 2019, just above their target.

The Fed still believes in the Phillips curve, which predicts rising wage growth as unemployment falls. Before too long, wage pressures put upward pressure on consumer prices.

Wage Hikes Hint At Inflation Pressures

So far, official measures haven't detected a pickup in wages. The Labor Department reported weaker-than-expected 2.6% annual average hourly wage inflation in February. But faster wage growth should begin to show up this spring, reflecting recently announced wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX) that didn't happen soon enough for the latest jobs report.

As those companies hike wages, their competitors are being pressured to do the same. Earlier this month, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

Can Retailers Pass On Higher Costs?

The competitive environment facing Kroger from Walmart and Amazon ( AMZN) via its Whole Foods division, among others, offers at least some reason to doubt whether wage pressure will feed through to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Still, inflation is likely to remain near the top of investors' concerns this year. Fed policymakers expect to hike rates another three times in 2019 and two more in 2020, which is far more than financial markets think can or should happen.

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38. Don't Look Now, But Trump Just Scored A Trade WinПн., 26 марта[−]

The stock market's expect-the-worst reaction to President Trump's trade confrontations last week seemed to overlook one positive development after another. Yet by Monday, investors couldn't help but notice the good news piling up in Trump's trade wars.

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Trump's first clear-cut trade victory, with South Korea, and hints of progress in negotiations with China fueled a stock market rebound. The Dow Jones industrial average, S&P 500 index and Nasdaq composite all rose at least 2.7% on the stock market today. U.S. multinationals that could suffer in a trade war with China were rebounding. Dow Jones giants Boeing ( BA) and Caterpillar ( CAT) were up 2.5% and 3.4%, respectively.

There's a good chance that Monday's action is a real turning point, not just a head fake that investors should ignore, suggests Ray Dalio, co-chief investment officer of Bridgewater Associates, the world's largest hedge fund.

"If this is the negotiating that I expect, the next move will be toward some trade agreements that will look like victories for Trump, so tensions will subside and the markets will like it," Dalio wrote on LinkedIn. "That's the most likely scenario. I would consider that scenario to be broken if there is any new worsening in trade relations with China from here. We will find out soon enough."

South Korea Trade Deal

On Monday, South Korea said it reached a deal to avoid steel tariffs by limiting its steel exports to 70% of the level of recent years. Seoul also doubled the number of U.S. auto imports it will allow to bypass safety standards to 100,000.

General Motors ( GM) announced in February that it would close one of its auto plants in South Korea. GM shares rose 2.3% on Monday, while Ford ( F) gained 2.6%.

China Signals More Openness

Meanwhile, China continued to send all the right signals. Premier Li Keqiang told a conference of global CEOs that China would treat foreign and domestic firms equally, would not force foreign firms to transfer technology, and would strengthen intellectual-property rights, CNBC reported. To access markets in China, foreign companies have been required to form joint ventures that put their intellectual property at risk, so Li is indicating that far-reaching changes could be coming.

Trump's proposed tariffs on China turned out to be much smaller than feared, and China's initial retaliatory measures were far more modest. And more countries got exemptions from Trump's steel and aluminum tariffs, which now look like a minor deal. And Trump backed off a key Nafta demand that 50% of the parts in vehicles imported from Mexico and Canada be produced in the U.S.

Even as trade-war fears knocked the Dow Jones and S&P 500 to their worst weekly losses in over two years, all those positive surprises led Nomura chief U.S. economist Lewis Alexander to conclude on Friday, "Perhaps trade tensions are not quite as high as previously assumed."

Still, it's too soon to conclude that a breakthrough is coming in trade with China, wrote UniCredit Group chief economist Erik Nielsen over the weekend. "It's certainly a possibility that these latest U.S. trade policy measures will achieve the desired fundamental change in China's protectionist policies," he wrote. Yet, "China has a bit of a record of pledging changes at politically convenient times, while plowing ahead at its predetermined pace."

Trump's trade policy hasn't had the smoothest of introductions, with his global steel and aluminum tariffs turning out to be applied on a fairly narrow basis. As Trump makes China the focus of his trade war, he is seeking allies, not more battlegrounds. The White House has reportedly offered to make the exemption from steel and aluminum tariffs permanent for the European Union in exchange for cooperation in pressuring China for economic reforms.

Despite some reasons for optimism, both Bridgewater's Dalio and UniCredit's Nielsen see some possibility that trade tensions could combine with military tensions and have a real downside.

"At the same time, I can't help but wonder if the trade war is part of a bigger impending conflict," Dalio wrote, while Nielsen headlined his weekend missive "Cold War II seems to have broken out with no letup in sight."

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39. Trump Tariffs: Why Dow Jones, S&P 500 Are Falling Despite Steel Tariff Exemptions, China RestraintПт., 23 марта[−]

President Donald Trump's tariffs on steel and aluminum imports, which roiled the stock market less than three weeks ago, now look like a much smaller deal after big new exemptions were granted on Thursday, just before they were set to take effect.

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Yet dramatically shrinking metal tariffs were an afterthought on Thursday, as Trump made China the central front in his trade war and fear of retaliation against U.S. multinationals sent the stock market tumbling anew. The Dow Jones industrial average, S&P 500 index and Nasdaq composite tumbled well over 2% Thursday on Trump's confrontational trade policy. The major averages sold off into the close on the stock market today, with the S&P 500 losing 2.1%.

China is showing maximum restraint for now. Overnight, Beijing said it would impose 25% tariffs on just $3 billion worth of U.S. goods, including pork, fruit, wine, steel pipe and recycled aluminum. That compares to Trump's proposed tariffs on Chinese robotics, aerospace, biopharma and other goods that could amount to about $15 billion — 25% on roughly $60 billion worth of imports. Even Trump's tariffs look modest in comparison to the $375 billion U.S. goods trade deficit with China and the $60 billion in tariffs that were floated.

A day after the stock market tumble, investors initially exhibited relief Friday that the near-term consequences may be limited, but the major averages turned mixed. Dow Jones components Boeing ( BA) closed up 0.4%, while Caterpillar ( CAT) fell 1.8%. Both fell more than 5% on Thursday.

China did not lay out any measures that would negatively affect Boeing and Caterpillar, but they could be at risk if Beijing decides to step up its retaliatory measures.

China's U.S. ambassador told Bloomberg that Beijing could scale back Treasury purchases in response.

'First Of Many' U.S.-China Trade Actions

Investor relief over China's measured response may be limited because Trump's tariffs to punish Beijing for intellectual property theft likely mark the beginning of a fractious era for China-U.S. economic and geopolitical relations, which can't help but pose significant risks for U.S. multinationals.

Trump said Thursday that the tariffs were just the "first of many" actions to reduce the U.S.-China deficit. China's U.S. ambassador said that his country is "not afraid" to fight a trade war.

The Trump administration is targeting products that are key to Beijing's Made in China 2025 initiative aimed at achieving global technology leadership. Tariffs are expected to go hand-in-hand with investment restrictions that blunt China's ability to acquire American technology. China, for its part, is saying that U.S. accusations of IP theft are without merit.

The unstated rationale of Trump's actions are pretty clear: The U.S. wants to maintain technological — and military — leadership over China, and that goal has to take precedence over economic cooperation when the two come in conflict. At the announcement of the tariffs, Trump's plan got an endorsement from Marillyn Hewson, CEO of Lockheed Martin ( LMT). Lockheed's F-35 uses stealth technology that lets it evade detection. Shares of Lockheed rose 3% on Friday.

The Trump administration appears to have made a sudden realization that launching a trade war with global trading partners over steel and aluminum would hamper Washington's efforts to contain the growing threat posed by China.

Steel Tariff Exemptions Expand

The 25% steel and 10% aluminum tariffs were set to take effect on Friday, but the Trump administration clarified late Thursday that countries representing more than half of U.S. steel imports would receive exemptions through May 1. Exempted countries include European Union members, Canada, Mexico, South Korea, Brazil, Australia and Argentina. After May 1, Trump could decide to permanently exempt those nations based on the status of talks.

Steel stocks fell hard on Thursday after U.S. Trade Representative Robert Lighthizer telegraphed the change in policy. On Thursday, shares of U.S. Steel ( X) sank 11% to levels last seen before Trump ramped up his steel tariff talk in mid-February. Steel Dynamics ( STLD) fell 7.5%, Nucor ( NUE) 6.5% and AK Steel ( AKS) 8.7%. Steel stocks extended losses Friday.

The Obama administration has been a target of some criticism for an inadequate response to IP theft. Yet it did have a plan for maintaining a sphere of influence in East Asia and Southeast Asia, expanding markets for U.S. multinationals and providing stronger IP protections: the controversial Trans Pacific Partnership. Dropping out of that pact was among the first acts of Trump's presidency, but Treasury Secretary Steven Mnuchin has said in recent weeks that the U.S. could seek to rejoin the pact.

Trump, by contrast, has been focused on bringing more U.S. intellectual property back home, through corporate tax cuts. But U.S. multinationals can't hope to serve global markets only from American shores. China, meanwhile, is laser-focused on deepening economic integration with economies throughout Asia through its 21st Century Silk Road initiative. The more the U.S. distances itself from trading partners, the easier it will be for China to emerge unscathed from a trade war.

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40. After Trump Tariffs Hit, China 'Not Afraid' To Fight Trade WarПт., 23 марта[−]

President Donald Trump made punishing China for trade misdeeds official U.S. policy on Thursday, imposing tariffs of 25% on up to $60 billion of imports, with a focus on high-tech goods. While not as hostile as the $60 billion worth of tariffs floated in recent days, the move signals the beginning of a fractious era for China-U.S. economic relations as the two countries vie for technological supremacy.

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Trump said Thursday's tariffs were "the first of many," while China's U.S. ambassador said Beijing is "not afraid" of a trade war.

The tariffs would apply to "appropriate products," said U.S. Trade Representative Robert Lighthizer, as the U.S. strikes back at China's "policy of forced technology transfer" and cybertheft. Those products will reportedly include robots, aerospace, high-speed rail, biotech and other categories.

Once the list of some 1,300 products is made official, U.S. companies will have a window to comment and potentially seek relief. Trump, who signed a "memorandum targeting China's economic aggression," according to the White House, characterized the tariffs not as the start of a trade war, but part of "a very large negotiation" with Beijing.

But Trump said Thursday's action will be the "first of many" to tackle the "out of control" U.S.-China trade gap.

China 'Not Afraid' Of Trade War

China signaled it was ready for a trade war.

"We don't want a trade war with the United States, or with anybody else. But we are not afraid of it. If somebody tries to impose a trade war on us, we will fight," Ambassador Cui Tiankai said in a video posted on the Chinese embassy's Facebook page. He said China "would fight to the end..with all necessary measures."

But he added that China will continue to work to "manage our possible differences in a constructive way." He also said allegations that China is abetting intellectual property theft are "groundless."

The Dow Jones industrial average, the S&P 500 index and the Nasdaq composite initially pared losses somewhat after the announcement, but sold off into the close, with all the major averages closing down at least 2.4%. The Dow tumbled 2.9%.

Even as U.S. tariffs on steel and aluminum imports start to kick in on Friday, Trump is making China the central front in his trade war, aiming to punish intellectual-property infringement by Chinese companies, abetted by strong-arm tactics from Beijing. That became clearer after Lighthizer said that the European Union, Brazil, South Korea, Argentina and others would get at least temporary exemptions from the steel and aluminum tariffs as negotiations proceed. Exemptions already had been granted to Mexico and Canada.

The tariffs aimed against China aren't enough to have a noticeable impact on economic growth, and it's not yet clear how China will respond in the short term. But the stock market fallout on Thursday may reflect an understanding by investors that U.S. has begun confronting China in what will be a long-term conflict with major ramifications for economic relations.

"The damage will be real, it will probably be substantial, and it will mount over time," wrote Brad McMillan, Chief Investment Officer for Commonwealth Financial Network. "For companies that sell to China, or indeed any country outside the U.S., the effects are likely to be negative — which is why markets are reacting again."

Dow Stocks Boeing, Caterpillar Hit Hard

Boeing ( BA), which China has previously said could be targeted for reprisals if Trump starts a trade war, helped lead the Dow Jones lower early Thursday. Caterpillar ( CAT), another Dow Jones component that could see exports suffer and also could face collateral damage if China retaliates against U.S. agricultural imports, also traded lower. Boeing was off 5.3% and Caterpillar 5.7% on the stock market today.

Ahead of the announcement, Best Buy ( BBY) told Reuters on Wednesday that it will stop selling mobile phones from China's Huawei. Apple ( AAPL), which contracts out global iPhone production in China and sells a lot of phones in the country, is also potentially vulnerable in a trade war. But Beijing has no incentive to make it harder for tech firms to use China as a manufacturing base. Shares of Apple, yet another Dow Jones component, fell 1.4% after sliding below the 50-day line Wednesday.

China Tariff Response Key

Stock market reaction will depend on the scale and timing of U.S. trade restrictions, and on China's response. So far, China seems to be emphasizing plans to respond by targeting soybeans and other agricultural imports, and halting progress on greater access to China's financial sector and other markets.

While China is expected to strike back, it may do so in a relatively limited fashion as it challenges Trump's actions at the World Trade Organization. That would initially limit the scope of the conflict.

That also would mirror the European Union's plan to retaliate if Trump's steel and aluminum tariffs go into effect, as they could as soon as Friday. The EU has detailed a list of $3.4 billion worth of American products that could face retaliatory tariffs, including Harley-Davidson ( HOG) motorcycles, Jack Daniels whiskey and Florida orange juice, but it plans to double down if the WTO ultimately finds Trump's tariffs justified on national-security grounds to be illegal.

Trump's authority to hit China with tariffs comes from section 301 of the 1974 Trade Act, which has seen little use since the WTO came on the scene. The act gives the president power to impose tariffs or other restrictions when a trading partner "engages in discriminatory or other acts or policies which are unjustifiable or unreasonable and which burden or restrict United States commerce."

The Trump administration has asked China to propose ways of narrowing the $375 billion U.S. goods deficit with Beijing by $100 billion, but it's not clear that a confrontational approach will yield progress.

China Trade War Impact On U.S. Consumers, Companies

Hitting China with massive tariffs may be difficult to do without hurting American consumers and American brands produced in China. As Trump prepares to direct relatively heavy economic fire toward China, trade groups representing Walmart ( WMT), Apple, Best Buy and other retailers warned that tariffs would raise prices for American consumers, whether or not tariffs prove effective in shrinking the trade deficit. Under Armour ( UAA), Nike ( NKE) and other shoe companies echoed similar concerns. (Walmart and Nike are both Dow Jones components, with Nike reporting earnings late Thursday.)

Trump's economic advisors are focused on taxing U.S. imports that are key to Beijing's Made in China 2025 initiative aimed at achieving global technology leadership. Tariffs are expected to go hand-in-hand with investment restrictions that blunt China's ability to acquire American technology. Among the possibilities would be restricting the ability of Chinese companies to list on U.S. stock indexes.

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The post After Trump Tariffs Hit, China 'Not Afraid' To Fight Trade War appeared first on Investor's Business Daily.


41. Steel Stocks Dive On Trump Tariff Exemptions As China Trade Is Top PriorityЧт., 22 марта[−]

Now that President Trump is making China the focus of a potential trade war, the White House has suddenly realized that it's not the best time to anger other big trading partners.

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To avoid the risk of finding itself facing trade hostilities all over the world, the Trump administration is mulling much broader exemptions from steel and aluminum tariffs than announced two weeks ago. U.S. Trade Representative Robert Lighthizer told the Senate Finance Committee that tariffs set to take effect on Friday won't initially apply to the European Union, Argentina, South Korea, Brazil and Australia.

Steel stocks fell to their lowest levels since mid-February, when Trump's support for big steel tariffs became clear. U.S. Steel ( X) crashed 11%, Steel Dynamics ( STLD) 7.5%; Nucor ( NUE) 6.5% and AK Steel ( AKS) 8.9% on the stock market today. Shares of Century Aluminum ( CENX), the biggest beneficiary of a planned 10% tariff on aluminum imports, tumbled nearly 18%.

Already, Trump had exempted Canada and Mexico, which account for about 25% of U.S. steel imports. The broader exemptions now being considered mean half of steel imports will initially be exempt.

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The post Steel Stocks Dive On Trump Tariff Exemptions As China Trade Is Top Priority appeared first on Investor's Business Daily.


42. The Trump Economy: Jobs, Regulations, Taxes And TradeЧт., 22 марта[−]

President Trump sailed into office in January on a raft of promises about reviving the slow-moving American economy.

He vowed to restore middle class jobs by encouraging major U.S. companies to build their products in the U.S. again. He promised to slash regulations, and in one of his earliest executive actions committed his administration to cutting two regulations for every new rule imposed.

He told Americans to expect tax cuts, including reductions in the U.S. top corporate rate of over 35%, among the highest in the world. And he pledged to lower U.S. trade deficits by raising tariffs on goods from countries that run large trade surpluses with the U.S.

Whether he can achieve this ambitious agenda will depend on his working relationship with Congress — and on his credibility and goodwill among American voters.

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The post The Trump Economy: Jobs, Regulations, Taxes And Trade appeared first on Investor's Business Daily.


43. Fed Rate Hike Is No Surprise, But Stock Market Weakens On Powell, 2019 OutlookСр., 21 марта[−]

The Fed hiked its key interest rate on Wednesday, surprising no one, while signaling no rush to step up its gradual pace of monetary tightening this year. The S&P 500 index and other major averages, after initially extending modest pre-announcement gains, then weakened as Jerome Powell held his first post-meeting news conference as Federal Reserve chairman.

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The initial market focus was on the Fed's near-term policy trajectory, but the takeaway may not be quite so positive once investors digest the more hawkish long-term outlook which hints at concern that there's greater risk of the economy overheating.

As in December, the quarterly economic projections reflecting the individual views of each Federal Reserve policymaker pointed to a likelihood of three quarter-point rate hikes in 2018, not four, as Goldman Sachs and some other Wall Street firms anticipate. But the Fed did step up its rate-hike outlook for 2019.

Fed policymakers now expect three quarter-point rate hikes in 2019, up from two in December, as the jobless rate falls to 3.6% in 2019 and core inflation rises to 2.1%, just above the Fed's target.

The Fed's patience could give stocks a bit of running room as policymakers await evidence that faster economic growth, fueled by the big Trump tax cut and spending increases that have yet to hit, will boost wage growth and inflation.

Powell said that if the Fed hikes too fast, "inflation doesn't get up to 2%."

Stock Market Pares Gains

The Dow Jones industrial average, S&P 500 index and Nasdaq composite initially extended moderate gains following the 2 p.m. ET policy statement. But after Powell began speaking at 2:30 p.m. ET, the Nasdaq led the averages into negative territory in the stock market today. The Dow Jones and S&P 500 fell 0.2% while the Nasdaq lost 0.3%. However, the small-cap Russell 2000 managed to climb 0.6%.

The S&P 500 and Dow Jones remain below their 50-day moving averages, while the Nasdaq recently found support at that key level. Bank stocks were among the gainers after the Fed meeting, thanks to signals that policymakers are willing to let the economy run at least a little hotter.

The 10-year Treasury yield initially slipped after the announcement, then turned higher to about 2.92%, before backtracking as stocks weakened. The yield is not too far off the key 3% threshold that hasn't been breached in more than four years.

If there's one reason why stocks turned lower as Powell spoke, it could be because of his discussion of the significance of the Fed, for the first time, expecting above-target core inflation of 2.1%. The forecast raises the question of whether the Fed may really think of the 2% inflation target as symmetric — meaning that the current undershoot should be balanced out by a future overshoot.

Yet Powell, in his press conference, said policymakers will aim to avoid any "sustained or persistent deviations."

"We're always going to be seeking 2%."

Investors probably shouldn't be too reassured by a largely status-quo announcement on 2018 policy from the Fed. There's good reason to expect policymakers to step up their expectations to four 2018 Fed rate hikes by June — even if inflation remains tame.

Once a pickup in wage growth materializes — and it's very likely to this spring after wage hikes by Walmart ( WMT), Target ( TGT), CVS Health ( CVS), Starbucks ( SBUX), FedEx ( FDX), JPMorgan Chase ( JPM), Bank of America ( BAC), Wells Fargo ( WFC) and others — Fed members will likely adjust rate-hike expectations upward.

The Fed's most influential dove, Lael Brainard, in 2017 explained earlier this month why low inflation won't prevent a more hawkish policy turn: Policymakers need to stay "vigilant" to contain any financial-system excesses.

Unemployment appears on course to fall to rarely seen levels that tend to come with " elevated risks of imbalances, whether in the form of high inflation in earlier decades or of financial imbalances in recent decades," Fed Governor Brainard said, alluding to the dot-com and housing bubbles.

Brainard echoed new Fed Chairman Jerome Powell's congressional testimony last month that economic headwinds have turned to tailwinds. Powell said there was still no evidence in the data that stronger growth has led to an acceleration in wage gains, which Fed theory sees as a precursor of upward price inflation.

Brainard noted, "While asset valuations appear to be elevated, overall risks to the financial system remain moderate because household borrowing is moderate" and the banking system is "well-capitalized" after financial reforms. Still, she said, "We will need to be vigilant" because a booming economy can lead to a relaxation in lending standards.

Vigilance is code for being proactive, raising rates if the economy runs hot, even before any acceleration of inflation. Yet there's a risk that the Fed will overreact to faster growth this year and into 2019, which is fueled by a one-time fiscal boost from tax cuts and a big increase in federal spending. That's the recipe for a big economic slowdown late next year or in the first half of 2020.

Bank Stocks Fare Well

Bank of America, Wells Fargo and other bank stocks, which can benefit from higher short-term rates, especially when long-term interest rates rise even more, were only slightly higher before the Fed meeting statement on Wednesday, though JPMorgan Chase saw healthier gains. Bank of America and JPMorgan rose a little more after the announcement.

Even though the 10-year yield was slightly lower, the 2-year yield fell a little more. A wider yield spread is good for bank profits.

E-brokers are among financial stocks that benefit from a higher Fed interest rate, in part because floating-rate margin loans for trading accounts are based on short-term rates that move in tandem with Fed policy. TD Ameritrade ( AMTD) CFO Stephen Boyle said on the Jan. 23 earnings call that the next 25-basis-point increase to the Fed's target rate could yield an estimated $60 million to $110 million in pretax income. Shares of Ameritrade were up slightly ahead of the Fed announcement and rose a little more later.

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44. Trump's China Trade War Could Start To Get Real ThursdayСр., 21 марта[−]

President Trump is preparing to unveil a plan to hit China with at least $30 billion worth of tariffs, and possibly twice that amount, as soon as Thursday.

X

News reports say the announcement could be delayed and that the tariffs won't take effect immediately, largely because the White House is still settling on its approach.

Yet the news leaves little doubt that Trump is preparing to make China the central front in his trade war to punish intellectual-property infringement by Chinese companies, abetted by strong-arm tactics from Beijing.

By comparison Trump's steel and aluminum tariffs that sent financial markets into a tizzy last month were relatively minor — amounting to $9 billion a year, even before he started handing out exemptions to Mexico, Canada and potentially other trading partners.

As Trump prepares to direct relatively heavy economic fire toward China, trade groups representing Walmart ( WMT), Apple ( AAPL), Best Buy ( BBY) and other retailers warned that tariffs would raise prices for American consumers, whether or not tariffs prove effective in shrinking the trade deficit. Under Armour ( UAA), Nike ( NKE) and other shoe companies echoed similar concerns.

Trump's economic advisors are reportedly focused on taxing U.S. imports that are key to Beijing's Made in China 2025 initiative aimed at achieving global technology leadership.

Yet, in some respects, taking on China in this way makes more sense than via steel and aluminum tariffs. While China is the biggest source of global steel overcapacity, it represents only about 2% of U.S. steel imports.

Even though candidate Trump often directed nearly as harsh rhetoric at Mexico, the White House clearly doesn't want to fight a two-front trade war at this juncture. The Trump administration gave Mexico and Canada indefinite exemptions from the steel and aluminum tariffs while the countries renegotiate Nafta, despite halting progress in the talks to date. Mexico and Canada are both big importers of U.S. steel as well amid the fluid North America supply chains. So hitting them with steel tariffs makes little sense.

Still, it's looking likely that Trump will be engaging in trade-related skirmishes — and U.S. companies will be at risk of collateral damage — on multiple fronts.

On Wednesday, the European Union proposed a 3% tax on digital revenue, hitting U.S. tech giants such as Apple, Facebook ( FB), Google parent Alphabet ( GOOGL) and Amazon ( AMZN).

The proposal to raise about $6 billion in tax revenue per year will need all 28 EU members for approval but could be adopted on a country-by-country basis. The idea precedes Trump's election and is justified based on the companies' low tax rates in the EU, yet the move could contribute to growing trade tensions between the U.S. and European allies.

In preparation for Trump's steel and aluminum tariffs that are set to take effect on Friday if no exemption is granted, the EU has detailed a list of $3.4 billion worth of American products that could face retaliatory tariffs, including Harley-Davidson ( HOG) motorcycles, Jack Daniels whiskey and Florida orange juice. European officials plan to challenge Trump's tariffs at the World Trade Organization and up the ante in retaliation if the ruling goes their way.

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45. 'Vigilant' Fed Is About To Shift The Rate-Hike Goal PostsВт., 20 марта[−]

A Federal Reserve rate hike on Wednesday is a near certainty, so the focus will be on Fed policymakers' projections of future policy, especially whether they see a fourth hike in the cards in 2018.

X

If Fed members don't step up their expectation for three quarter-point hikes on Wednesday, they're very likely to by June — even if inflation remains tame.

The Fed's most influential dove in 2017 explained earlier this month why low inflation won't prevent a more hawkish policy turn: Policymakers need to stay "vigilant" to contain any financial-system excesses.

Unemployment appears on course to fall to rarely-seen levels that tend to come with " elevated risks of imbalances, whether in the form of high inflation in earlier decades or of financial imbalances in recent decades," Fed Governor Lael Brainard said, alluding to the dot-com and housing bubbles.

Brainard echoed new Fed Chair Jerome Powell's congressional testimony last month that economic headwinds have turned to tailwinds. Powell said there was still no evidence in the data that stronger growth has led to an acceleration in wage gains, which Fed theory sees as a precursor of upward price inflation.

Yet once a pickup in wage growth materializes — and it's very likely to this spring after wage hikes by Walmart ( WMT), Target ( TGT), CVS Health ( CVS), Starbucks ( SBUX), FedEx ( FDX), Bank of America ( BAC), Wells Fargo ( WFC) and others — Fed members will adjust rate-hike expectations upward, if they don't do so on Wednesday.

Stocks overall have paused in recent weeks, with the Nasdaq composite, S&P 500 index and Dow Jones industrial average all falling more than 1% Monday as Facebook ( FB) triggered selling. The S&P 500 and Dow Jones are both below their 50-day moving averages. But the major averages have rallied sharply over the last several years. The major averages rose modestly on Tuesday.

Brainard noted, "While asset valuations appear to be elevated, overall risks to the financial system remain moderate because household borrowing is moderate" and the banking system is "well capitalized" after financial reforms. Still, she said, "We will need to be vigilant" because a booming economy can lead to a relaxation in lending standards.

Vigilance is code for being proactive, raising rates if the economy runs hot, even before any acceleration of inflation. Yet there's a risk that the Fed will overreact to faster growth this year and into 2019 which is fueled by a one-time fiscal boost from tax cuts and a big increase in federal spending. That's the recipe for a big economic slowdown late next year or in the first half of 2020.

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46. Trump Is Said To Pick Larry Kudlow As New Top Economic AdviserСр., 14 марта[−]

Donald Trump plans to name economist and CNBC contributor Larry Kudlow to replace Gary Cohn as director of the White House National Economic Council, adding a longtime confidant to the president's inner circle, a person familiar with the decision said.

X Trump may announce the move as soon as Thursday, according to CNBC, which reported the president's decision earlier. On Tuesday, Trump said Kudlow had "a very good chance" at getting the job. White House spokeswoman Sarah Huckabee Sanders said the president spoke with Kudlow by phone on Tuesday but declined to describe the conversation.

Kudlow, 70, is expected to provide a familiarity and loyalty to Trump, who has seen a flood of high-level departures throughout his administration, including by some of the aides with whom he is closest personally. A television host from New Jersey, Kudlow is seen as temperamentally and politically similar to the president.

He's also seen within the White House as having credibility on both Wall Street and in Washington, where he served as an adviser to former President Ronald Reagan.

Trump has made clear that he's hoping to use the turnover to reshape his staff closer to his own image, and has tired of a senior staff that often opposed the policies and priorities Trump supported on the campaign trail.

Cohn announced his departure last week after Trump moved forward with steep tariffs on steel and aluminum imports -- a plan Cohn had vociferously opposed.


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Kudlow has also clashed with Trump in the past. Earlier this month, he wrote a column for CNBC describing the president's tariffs as "a regressive tax on low-income families."

"Trump should also examine the historical record on tariffs, because they have almost never worked as intended and almost always deliver an unhappy ending," Kudlow wrote in the March 3 column, which also included praise for other parts of the president's economic agenda. Kudlow has strongly backed the tax overhaul that Trump signed at the end of last year.

Yet, as he left the White House on Tuesday for a trip to California, Trump said Kudlow "now has come around to believing in tariffs."

In 2016, when a tape surfaced before the election featuring Trump boasting about grabbing women's genitals, Kudlow said he was "furious" and threatened to vote for Mike Pence as a write-in candidate.

The post Trump Is Said To Pick Larry Kudlow As New Top Economic Adviser appeared first on Investor's Business Daily.


47. U.S. Retail Sales Unexpectedly Fall For Third Straight MonthСр., 14 марта[−]

U.S. retail sales unexpectedly fell in February for a third month, adding to signs that consumer spending will cool this quarter from the previous period's hot pace, according to Commerce Department figures released Wednesday.

X

Highlights of Retail Sales (February)

  • Overall sales fell 0.1% (est. up 0.3%) after 0.1% decrease in prior month (prev. down 0.3%); Dec. figure revised to down 0.1%.
  • Purchases at automobile dealers fell 0.9%, the second straight month with such a reading.
  • So-called retail-control group sales, which are used to calculate GDP and exclude food services, auto dealers, building materials stores and gasoline stations, rose 0.1% (est. up 0.4%) following unchanged.
  • Seven of 13 major retail categories showed declines.

Key Takeaways

The results indicate consumer spending, the biggest part of the economy, is easing after strong gains in the fourth quarter. Shoppers may be taking a breather following a run-up in borrowing in late 2017, and relatively tepid wage growth is limiting Americans' purchasing power.

In addition to declines at auto dealers and gas stations, February's figures reflected lower demand at furniture and home furnishing stores, electronics and appliance vendors, food and beverage sellers and health and personal care stores. General merchandise stores saw a 0.4% decline in receipts, the most since May, following a similar advance in January.

On the brighter side, building-material stores reported a 1.9% sales gain in February, following a 1.7% decline.

Even with the latest sluggish sales figures, job-market strength, rising property values and lower taxes are buoying Americans' sentiment and should support steady gains in spending. Consumption was probably sufficient to keep Federal Reserve policy makers on track for a widely expected interest- rate increase next week.

Other Details

  • Excluding automobiles and gasoline, sales rose 0.3%, matching forecasts, after a 0.1% decline the previous month
  • Receipts at gasoline stations fell 1.2%

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48. Inflation Comes In A Bit Soft In February; S&P 500, Dow Jones RiseВт., 13 марта[−]

Core consumer prices, excluding food and energy, rose 0.2% in February, but the annual inflation rate held steady at 1.8%, undershooting expectations, the Labor Department reported on Tuesday.

X The soft inflation reading could slightly lower odds of a fourth Fed interest-rate hike in 2018. After the report, Dow Jones industrial average, S&P 500 and Nasdaq 100 futures extended gains, with the major averages opening modestly higher on the stock market today. The 10-year Treasury yield pointed lower.

The overall consumer price index rose 0.2% on the month and 2.2% from a year ago, matching expectations.

The Fed is expected to hike rates three times this year, with quarter-point moves, as the economy looks headed for relatively strong growth and the jobless rate could sink to a multidecade low. Fed policymakers expect that wage pressures will rise as unemployment falls, leading companies to pass on some of their higher wage bills in the form of price increases.

So far, official measures haven't detected a pickup in wages. The Labor Department reported weaker-than-expected 2.6% annual average hourly wage inflation in February. But faster wage growth should begin to show up this spring, reflecting recently announced wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX) that didn't happen soon enough for the latest jobs report.

As those companies hike wages, their competitors are being pressured to do the same. Last week, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

The competitive environment facing Kroger from Walmart and Amazon.com ( AMZN) via its Whole Foods division, among others, offers at least some reason to doubt whether wage pressure will feed through to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Yet even doves on the Fed are beginning to sound more hawkish. "Although last year we faced a disconnect between the continued strengthening in the labor market and the step-down in inflation, mounting tailwinds at a time of full employment and above-trend growth tip the balance of considerations in my view," Fed Governor Lael Brainard said last week.

Bottom line: Inflation is going to remain a concern for Wall Street throughout 2018.

More Inflation Details

The soft inflation reading came as medical care services inflation was unchanged in February, after January's 0.6% monthly gain, and prices for medical care commodities including prescription drugs slipped 0.3%.

Meanwhile, prices for food away from home rose 0.2%, while the cost of food consumed at home fell 0.2%, more evidence of the competition from Amazon in the grocery arena.

Outside of energy, inflation is showing up in transportation services, whose prices rose 1.0% on the month and 4.5% from a year ago. The cost of shelter rose a moderate 0.2% on the month and 3.1% from February 2017.

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49. Stock Market Cheers Final Goldilocks Jobs Report — Before Wage Hikes Kick InПт., 09 марта[−]

The U.S. economy added 313,000 jobs in February, while the unemployment rate held at 4.1%, the Labor Department said on Friday.

X Average hourly wages rose 4 cents to $26.75 an hour, up a tame 2.6% from a year earlier. That missed consensus expectations of 2.9% rise. January's wage gain, originally reported as a 2.9% rise, was revised down to 2.8%.

Wall Street expected a gain of 205,000 jobs and 4.0% jobless rate.

December and January payrolls were revised up by a combined 54,000.

After the jobs report, the Dow Jones industrial average, S&P 500 index and Nasdaq 100 futures moved significantly higher on the stock market today. The S&P 500 index, which closed a point below its 50-day moving average on Thursday, reclaimed that key level at Friday's open.

The 10-year Treasury yield rose a few basis points to 2.9% but the jobs and wage data didn't substantially bolster the case for the Federal Reserve to add an extra interest-rate hike in 2018.

Despite the blowout jobs number, the data may give stocks a tad more running room before Fed hike expectations begin to bite, but investors shouldn't take too much comfort.

While the data don't show that Goldilocks-type wage gains are history, bigger pay gains are likely coming this spring, reflecting recently announced wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX), which don't show up yet in the February jobs report.

And as those companies hike wages, their competitors are being pressured to do the same. This week, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

The retail sector added 50,000 jobs, while construction employment surged 61,000 and manufacturers hired a net 31,000.

The likely combination of low and falling unemployment with accelerating wage gains would fit perfectly with the Phillips curve theory that has long guided Federal Reserve policy. As far as investors are concerned, the key point is that most Fed policymakers still seem pretty confident that inflation pressures won't follow too far behind wage pressures, as businesses pass along a portion of their higher wage bills.


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That's why an interest-rate scare is looking possible, even if a legitimate inflation scare doesn't materialize.

The competitive environment facing Kroger from Walmart and Amazon.com ( AMZN) via its Whole Foods division, among others, offers at least some reason to doubt whether wage pressure will feed through to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Kroger gave weak profit guidance as it forecast smaller profit margins, sending shares crashing 12% on Thursday.

Walmart's minimum-wage hike to $11 an hour was its first for new, entry-level workers since 2015, when it raised its minimum wage to $9 an hour. Then, in early 2016, Walmart hiked pay for all current associates to a minimum of $10 an hour, leading Target, Costco ( COST) and others to raise their own wages. The point is that wage hikes can come in bunches. It didn't really happen last year, when wage growth hit a bit of a lull. But it does appear to be happening in 2018.

If it does, Wall Street will continue to bump up odds for a fourth rate hike in 2018. Already those odds are about 1 in 3, up from about 20% a month ago, according to the CME Group's FedWatch tool.

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50. Friday's Jobs Report Is All About The 2018 Wage WaveПт., 09 марта[−]

If the February jobs report out Friday morning comes in as strong as Wall Street expects, it will set financial markets up for another Fed interest-rate scare later this spring.

X Here's the reason: Economists expect the new jobs data to match January's 2.9% hourly annual wage gain — the best since 2009. That's even though that surprising data point appeared inflated by a dive in the work week that disproportionately reduced hours for low-wage workers. But even bigger pay gains are likely coming this spring, reflecting recently announced wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX), which won't show up yet in the February jobs report.

And as those companies hike wages, their competitors are being pressured to do the same. This week, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

Wall Street also expects that the jobless rate dipped to 4.0% in February for the first time since 2000, as the economy added a robust 205,000 jobs.


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The combination of low and falling unemployment with accelerating wage gains fits perfectly with the Phillips curve theory that has long guided Federal Reserve policy. As far as investors are concerned, the key point is that most Fed policymakers still seem pretty confident that inflation pressures won't follow too far behind wage pressures, as businesses pass along a portion of their higher wage bills.

That's why an interest-rate scare is looking increasingly likely, even if a legitimate inflation scare doesn't materialize.

Yet the competitive environment facing Kroger from Walmart and Amazon.com ( AMZN) via its Whole Foods division, among others, offers at least some reason to doubt whether wage pressure will feed through to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Kroger gave weak profit guidance as it forecast smaller profit margins, sending shares crashing 12% on Thursday.

Walmart's minimum-wage hike to $11 an hour was its first for new, entry-level workers since 2015, when it raised its minimum wage to $9 an hour. Then, in early 2016, Walmart hiked pay for all current associates to a minimum of $10 an hour, leading Target, Costco ( COST) and others to raise their own wages. The point is that wage hikes can come in bunches. It didn't really happen last year, when wage growth hit a bit of a lull. But it does appear to be happening in 2018.

If it does, Wall Street will continue to bump up odds for a fourth rate hike in 2018. Already those odds are about 1 in 3, up from about 20% a month ago, according to the CME Group's FedWatch tool.

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51. Trump Tariffs On Steel, Aluminum Go Easy On Canada, Mexico; Dow Jones, S&P 500 ClimbПт., 09 марта[−]

President Trump will indefinitely delay imposing steel and aluminum tariffs on Mexico and Canada, but other countries could face tariffs within 15 days.

X Trump explained his policy Thursday afternoon before a signing ceremony, saying that other countries will be invited to negotiate exemptions from import tariffs of 25% on steel and 10% on aluminum.

Trump said he was acting to stop "an assault on our country" in the form of cheap, imported industrial metal, calling it "not merely an economic disaster, but a national security disaster."

He claimed that his policy is already paying dividends, with U.S. Steel ( X) and Century Aluminum ( CENX) both announcing increased capacity and hiring.

Trump said that in the next 15 days his administration will decide which countries will face tariffs and to what extent, based on "who's treating us fairly," not just in regard to trade but also military relationships.

Wall Street seemed relieved about the clarification with regard to Mexico and Canada. America's Nafta partners account for 25% of U.S. steel imports but are also major export markets for U.S.-made steel.

The Dow Jones industrial average, S&P 500 index and Nasdaq composite all strengthened to close modestly higher on the stock market today. Meanwhile, shares of steel companies, the major potential beneficiaries of Trump's trade prescriptions, remained under pressure. U.S. Steel, Steel Dynamics ( STLD) and Nucor ( NUE) fell nearly 3% on Thursday with AK Steel ( AKS) down 4%.


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While tariffs could raise U.S. manufacturing costs for companies like Ford ( F), General Motors ( GM) and Boeing ( BA), the bigger concern is that they would spark a tit-for-tat retaliation. Boeing and GM shares turned higher on Thursday afternoon, while Ford was off 0.2%.

Still, the sense of relief on Wall Street is far from complete. The European Union has threatened to retaliate if Trump moves forward with the tariffs, targeting companies like Harley-Davidson ( HOG).

Steel and aluminum tariffs aren't the only trade concern likely to occupy Wall Street in the months to come. The White House is also reportedly mulling wide-ranging tariffs on Chinese imports to punish Beijing for permitting rampant theft of U.S. intellectual property.

The Trump administration is asking China to propose actions that would shrink the bilateral trade deficit by $100 billion.

Trump Steel Tariffs Can 'Go Up Or Go Down, Depending'

Trump has tried to provide reassurance that the impact of the steel and aluminum tariffs would be largely benign, saying it would be done in a "loving" way and inviting key trading partners to negotiate an alternative to his proposed trade prescription.

On Thursday he went further, talking about the flexible approach he would take in setting or adjusting the 25% and 10% rates on a country-by-country basis. "I'll have a right to go up or go down depending on the country, and I'll have a right to drop out countries or add countries."

Yet there's more than a little danger that Trump is miscalculating. The environment for negotiating may turn poisonous if he enacts tariffs that trading partners see as unjustified and a danger to a global trading system which has depended on respect for World Trade Organization rules.

Trump's steel tariffs are seen as an affront by most U.S. trading partners because the bulk of steel industry overcapacity comes from China, yet China itself would barely be touched, at least directly, by the 25% tax since it accounts for just 2% of U.S. steel imports.

Trump seems to be using the threat of steel tariffs as leverage to undo other perceived inequities with trading partners that contribute to the high U.S. trade deficit. Yet the whole effort undermines the justification for his tariffs — that the U.S. will impose them because a glut of steel and aluminum imports poses a danger to national security.

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52. Trump Tariffs May Exempt Canada, Mexico, White House Says; Nasdaq, S&P 500, Dow Jones BounceЧт., 08 марта[−]

Donald Trump may exempt Mexico, Canada and other countries from steel and aluminum tariffs, the White House said Wednesday afternoon, sending the Nasdaq composite higher while the S&P 500 index and Dow Jones industrial average slashed losses.

X "There are potential carve-outs for Mexico and Canada based on national security, and possibly other countries as well based on that process," White House press secretary Sarah Huckabee Sanders told reporters at a daily briefing.

Sanders said that other nations could receive exemptions.

"That would be a case-by-case and country-by-country basis but it would be determined whether or not there is a national security exemption," she said.

Canada is the biggest steel exporter to the U.S., with Mexico also a major shipper.

Sanders said Trump plans to sign the tariffs by the end of the week.


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The Nasdaq composite, slightly lower before the Sanders statement, rose 0.3% in late afternoon trade on the stock market today. The S&P 500 index briefly turned positive but closed fractionally lower. The Dow Jones was off just 0.3%. Stocks had been under pressure following the late Tuesday resignation of White House economic advisor Gary Cohn, who opposes the steel tariffs.

Dow Jones stocks Boeing ( BA), United Technologies ( UTX) and Caterpillar ( CAT) also pared intraday losses. Boeing, United Technologies and Caterpillar are big steel and aluminum users. They also could be affected if the tariffs trigger a broader trade war with Europe, Nafta partners and China.

U.S. Steel ( X) pared its intraday gain somewhat, but closed up 2.6% at 45.69.

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53. Target Hikes Base Wage To $12 An Hour, One-Upping Walmart Despite Earnings SqueezeСр., 07 марта[−]

Target ( TGT) said it will raise its minimum wage for current associates to $12 an hour this spring, after hiking its base wage to $11 in October, trumping Walmart ( WMT) once again even as the brick-and-mortar discount giants both missed on earnings and gave weak guidance as they try to keep pace with Amazon ( AMZN).

X Target's move to $12 follows announcements earlier this year from Walmart and CVS Health ( CVS) that they will match Target's $11-an-hour wage.

Numerous other big employers including Starbucks ( SBUX) and JPMorgan Chase ( JPM) also announced wage hikes following the passage of tax cuts. The trend suggests a pickup in national average hourly wage gains in coming months, which is likely to raise concerns about a faster pace of Fed rate hikes.

CEO Brian Cornell on Tuesday also reiterated Target's commitment to raise its minimum wage all the way to $15 an hour by the end of 2020, which "establishes Target as an employer of choice."


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Cornell said Target's wage hike last fall immediately translated to a 30% spike in seasonal job applicants, giving Target "a much stronger pool of talent to hire from."

Target shares took a hit on Tuesday after the big-box discounter came up just shy of earnings estimates and offered disappointing guidance. Analysts expressed concern that the company's investments in store remodels and labor will limit the earnings uplift from better sales trends.

Shares of Target tumbled 4.5% to 71.79 on the stock market today, plunging through the 50-day line for the first time since late November.

Walmart stock slipped 1%. Walmart tumbled last month after also coming up light on per-share profit in holiday quarter and 2018 earnings guidance. Shares are trying to find support at the 200-day line.

Amazon shares rose 0.9%, hitting a new high.

Some analysts have speculated that Target could be the next big acquisition for Amazon.com, giving it the wide store distribution it needs with a nice fit for Amazon's Prime demographic.

But Amazon may not be willing to take on the political glare that would come from a Target deal in a period of rising antitrust sentiment in Congress. At a minimum, Amazon would surely face enormous pressure to embrace Target's $15 minimum wage commitment.

In perhaps a reflection of Wall Street's concern about the earnings impact of Target's investments, the company said the wage hike will apply to current associates, suggesting the minimum wage for new workers will remain $11 an hour for now.

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54. IBD/TIPP Poll: Economic Optimism Index For March 2018Вт., 06 марта[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

X The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.4, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

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IBD/TIPP Economic Optimism Index: Overall

View All Questions And Full Results

The IBD/TIPP Economic Optimism Index fell 1.9% in March to 55.6, after hitting its highest reading since October 2004 in February. It's the 18th straight month that it has been over 50 — which signals overall optimism about the economy. It is also above its long-term average of 49.4. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index fell 8% in March, taking back a big chunk of January's 11.4% jump. The reading for this index remains well above its long-term average of 46.3. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months remained unchanged in March at 63.8. The index remains close to its all-time high of 65.3 in January 2004, when the Bush-era tax cuts began to kick in. The Personal Financial Outlook is one of the most consistently optimistic indexes in the IBD/TIPP data set. It is well above its long-term average of 57.1.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component gained 2.7% in March to reach 50, following a 6.6% gain in February as the impact of the Trump tax cuts started to become clear. At 50, it is well above its 17-year average of 44.8. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years, and now at 50 has returned to the feel-good zone. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

RELATED:

Main IBD/TIPP Poll Page

IBD/TIPP Presidential Approval Index

IBD/TIPP Election 2016 Tracking Poll

Past Results

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January 2018

December 2017

November 2017

October 2017

September 2017

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July 2017

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Media Contact

Terry Jones
Investor's Business Daily Commentary Editor
terry.jones@investors.com | 310.448.6377

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The post IBD/TIPP Poll: Economic Optimism Index For March 2018 appeared first on Investor's Business Daily.


55. IBD/TIPP Poll: Economic Optimism Dips From 13-Year High As Americans See Their Tax CutsВт., 06 марта[−]

The IBD/TIPP Economic Optimism Index eased 1.1 points to 55.6 in March, taking a step back after hitting a 13-year high in February.

X The polling from Feb. 22 to March 1, reflecting 901 responses, came after a month that saw most Americans' paychecks get a boost from lower tax withholdings and the first real bout of stock-market weakness in two years. While political support for the tax cuts has strengthened, polling shows that only about 1 in 4 registered voters noticed an increase in their paychecks. Some of the tax-cut dividends will come via a bigger child tax credit that is paid at tax time.

Positive news continued to roll in from the response to corporate tax cuts, with CVS Health ( CVS) hiking its minimum wage to $11 an hour, following earlier pay-hike announcements from Walmart ( WMT), JPMorgan Chase ( JPM), Starbucks ( SBUX) and dozens of other companies since the tax cuts were passed.

President Trump on March 1 announced plans to impose a 25% steel tariff and a 10% aluminum tariff on all imports. That spooked markets, at least temporarily, and economists warn that could hurt jobs and GDP growth over time. But the news on the last day of IBD/TIPP polling likely had no impact on March's Economic Optimism Index.

All income groups exhibited optimism, though optimism decreases with income. falling from 58.7 for those earning above $75,000 to 50.2 for sub-$30,000 earners.


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The Economic Optimism Index is a composite of three major subindexes that track views of near-term economic prospects, the outlook for personal finances over the coming six months, and views of how well government economic policies are working.

The gauge of the six-month economic outlook fell 4.6 points to 52.9, a month after hitting its highest level since October 2012.

The six-month personal financial outlook index held at 63.8, still close to January's 14-year high of 64.0.

Meanwhile, the measure of confidence in federal economic policies rose 1.3 points to 50.0. That neutral reading reflected the second-most favorable view of government since 2007, with the gauge briefly popping into positive territory during the honeymoon after Donald Trump's election.

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56. Will Trump Steel Tariffs And Policies Spark An Economic Clash With China And Xi Jinping?Сб., 03 марта[−]

President Trump's national security strategy has drawn sharp critiques for its pointed challenge to China's economic policy and geopolitical ambitions. But a forceful new stand by China's leader last fall may have paved the way for a run-in, with huge stakes for America's world standing, businesses and investors.

X China's party congress, the huge meeting of Communist Party members held every five years in Beijing, is usually a boring affair that passes with little notice. But in October President Xi Jinping declared at the congress that China should "take center stage in the world." He also made clear the days of political liberalization are at an end.

That puts Xi Jinping and China squarely on a collision course with Donald Trump and the U.S. — an inevitable clash of "Make America Great Again" against "Make China Great Again."

"One result of this strengthening of state intervention is a worsening environment for American investors in China and greater barriers to American companies exporting to China," said Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies (CSIS) in Washington.

Xi's grip on China could continue for a long time. On Feb. 25 the Communist Party revealed it plans to end China's constitutional limits on presidential terms. Outsiders viewed the news, which affected U.S.-traded Chinese education stocks TAL Education Group ( TAL) and New Oriental Education ( EDU), as another step toward more authoritarian rule in China.


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Besides trade, Xi's policy shift raises new questions about intellectual property, data security, censorship and treatment of U.S. companies in China vis-a-vis Chinese companies. Among those with big stakes are giant technology stocks like Apple ( AAPL), Google, Facebook ( FB) and Microsoft ( MSFT).

The one softening influence on China's tone has been its dependence on exports to finance its economic goals. But President Trump on March 1 signaled he will slap tariffs on steel and aluminum from foreign producers, using "national security" as a reason for the action.

Since the U.S. has already imposed 24 separate trade penalties on China for its steel exports to the U.S. — far more than any other country — the news of more tariffs is likely to create even more trade and political friction. Stocks fell sharply on trade war concerns Thursday and early Friday. In stock market trading Friday, the Nasdaq bounced back to close up 1.1% and the S&P 500 ended up 0.5%, but the Dow Jones industrial average fell 0.3%.

China's State Control Of Economy

With Xi now marching toward one-man rule and with greater protectionist sentiment abroad, China's freewheeling brand of capitalism, officially encouraged since Deng Xiaoping's years in the late 1970s, may be over.

Xi's attention-grabbing move to put his official stamp on the nation's future, dubbed "Xi Jinping Thought," embraces greater political power for Xi and his fellow party rulers, and increased centralization of state control over the economy.

The New York Times called Xi's new philosophy "a flattering echo of 'Mao Zedong Thought,'" named for China's xenophobic first, and most totalitarian, communist leader.

Trade and economic conflict seem inevitable. Friction is especially likely over U.S. tech and internet companies, which increasingly find themselves hemmed in by China's ubiquitous rules that favor local companies over foreign ones.

The U.S. ran a massive $347 billion trade deficit with China in 2016, which President Trump has attacked as a sign of unfair trade. That deficit is also a major source of China's wealth, which now totals $1.2 trillion of U.S. treasuries.

Trump's National Security Strategy

Like Xi, Trump articulated his own tough vision of U.S. and China ties as he unveiled his national security strategy Dec. 18. It boldly reasserts U.S. global leadership, particularly in the economic realm.

Not mincing words, Trump portrayed China as a "challenge (to) American power, influence, and interests, attempting to erode American security and prosperity."

"Whether we like it or not, we are engaged in a new era of competition," he said.

Because of this, Trump said his new strategy "calls for trade based on the principles of fairness and reciprocity ... for firm action against unfair trade practices and intellectual property theft ... (and) for new steps to protect our national security industrial and innovation base."

U.S. investors have reason to be wary of the new Chinese model.

"Japanese and Korean firms have already felt the pinch, as rising nationalism has sometimes gotten out of control and led to protests against their brands and even some destruction of their property in China," said Salvatore Babones, a sociologist and China specialist at the University of Sydney and author of " American Tianxia: Chinese Money, American Power and the End of History."

How Chinese Exports To U.S. Affect Politics

In 2016, China sold some $463 billion in goods and services to the U.S., a sore spot with Trump but a huge boost to the Chinese economy. The silver lining: Xi can't afford to rile the U.S. too much.


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"The Chinese government won't let anti-U. S. feeling get out of hand in a way that would lead to real U.S. retaliation," Babones told IBD. "So the main impact on investors is likely to be low-key regulatory interference of the kind that makes it difficult for U.S. internet companies to succeed in China."

Already, the Chinese government competes directly with big tech businesses from abroad, including the so-called FANG companies, through its recently acquired investments in some of the most successful Chinese tech companies, including Alibaba ( BABA), Tencent ( TCEHY) and Weibo ( WB).

U.S. companies that compete with those fast-growing Chinese internet giants may find a less-welcoming attitude from the government in the future, particularly as it steers away from its reliance on foreign investment and exports toward a more domestic-growth orientation.

Does China Treat U.S. Companies Fairly?

The same day Trump spoke on national security, Chinese regulators at a Geneva technology conference said companies like Alphabet ( GOOGL) unit Google, Facebook and Twitter ( TWTR) that don't operate now in China would be welcomed back — but only if they accept censorship and strict laws governing online use.

"The condition is that they have to abide by Chinese law and regulations," said Qi Xiaoxia, a top official at the Cyberspace Administration of China. "That is the bottom line. And also that they would not do any harm to Chinese national security and national consumers' interests."

Given China's 750 million-plus web users, big U.S. internet companies will be tempted to accept such limits to operate within China's so-called Great Firewall.

Alphabet has dipped a toe in the water, with the announcement in mid-December that Google will open an artificial intelligence center in China.

But Google's signature search engine, YouTube and Gmail services will continue to be blocked.

Meanwhile, Apple already operates in China but does so under heavy censorship — for which it has been sharply criticized in the U.S.

In the future, the price of admission to China may be too steep for some.

Increasingly, U.S. companies are required to give up their trade secrets or patents as the price of admission.

Are U.S. Tech Companies' Data Secure In China?

China's new cybersecurity law, passed just last June, requires that foreign tech firms store their data inside China and allow the government to keep tabs on how they use it.

China is also encouraging U.S. companies to set up research and development operations there.

Apple, Amazon ( AMZN) and Microsoft already have cloud-computing operations in China. And of course, there's Google's new AI center.

But it isn't only technology, strictly speaking, that gets this treatment.

Current Chinese rules require foreign companies that want to enter industries such as energy, autos and telecom to do so through joint ventures.

These ventures often lead to Chinese companies gaining U.S. technology and manufacturing know-how on the cheap.

In addition, the CSIS' Kennedy said, "The Chinese are using their advantages in their home market to compete head to head with the U.S. in third markets."

Impact Of China Protectionism

Kennedy believes this has established an even more damaging dynamic, one in which Chinese protectionist policies and subsidies in coveted high-tech markets will cripple U.S. competitors' business models, which are based on heavy R&D and intensely competitive markets.

"Although consumers in these sectors benefit from lower prices now, productivity in these sectors will decline and the benefits ... for the rest of the global economy will fall as well," Kennedy said.

With $75 billion in direct investment in China as of 2015, the stakes for U.S. companies and investors in China's recent political changes are enormous.

Then there's the elephant in the room: The so-called Silk Road Initiative, one of the biggest infrastructure projects ever, and the linchpin in Xi's plan to leapfrog the American economy to make the Chinese economy No. 1 in the world.

That trillion-dollar road-and-sea port project will eventually tie China's heartland to a wide swath of countries and regions, ranging from Southeast Asia to the Middle East and into Russia and Europe.

McKinsey & Co. estimates that the project will eventually span 68 countries. It could include 65% of the global population and as much as a third of global GDP. While China will itself spend $1 trillion or so, it expects to finance anywhere from $2 trillion to $8 trillion in new infrastructure in dozens of countries, helping to fund everything from roads and warehouses to ports and freight-loading facilities.

China's Standing In The World

It's not altruism. It's all about geopolitical clout.

As the British magazine The Economist noted, "Its ultimate aim is to make Eurasia (dominated by China) an economic and trading area to rival the transatlantic one (dominated by America)."

When it's done, China, which insulated itself from foreign contact for much of its nearly 5,000 years of existence, will for the first time ever be intimately connected with its Asian neighbors and Europe. It would tower as an economic superpower with direct links to some of its biggest markets.

But here's the rub: To build this massive project, Xi will need to run massive fiscal deficits for years, if not decades. One estimate from Hayman Capital Management LP already shows total deficit spending both on-budget and off-budget of 14% — greater than the spending "stimulus" China applied during the financial crisis.

Even if it's half that, it will be hard to sustain.

That means China will have to continue exporting to the U.S. to finance its big plans — or squeeze more from its domestic economy. And all this comes as the U.S., under Trump, slashes corporate tax rates, another challenge to China as it seeks to finance its future growth.

What Trump Says About China Trade

None of this seems to be lost on the Trump administration.

During his 2017 trip to Asia, President Trump went out of his way to show a friendly face toward China and its leader. But he has since shown he's willing to challenge Xi Jinping, particularly on economic and trade matters.

In late November, Trump's administration surprised some by arguing before the World Trade Organization that China's bid to be declared a "market economy" should be rejected.

China had maintained that it had an implied deal when it joined the WTO in 2001 to automatically gain long-sought "market economy" status 15 years later. But the Trump administration cites Xi's backsliding on democracy and free markets in opposing changing China from "non-free market" to "free market" status.

There might be a strategic reason for Trump's move.

Once China gains status as a market economy, it would legally be much more difficult to bring a WTO case against it for dumping and other trade violations. Trump wants to keep that as negotiating leverage in the new era of "Xi Jinping Thought."

Can Trump Keep China Markets Open?

Trump's move to keep China from being declared a free-market nation, the New York Times said, could "shape the global trading system for decades to come."

More likely, Trump will use it as a crowbar to keep Chinese markets open to U.S. goods and investment. That could be seen in China's recent cuts in tariffs on U.S. goods.

China's economy has had an incredible run, growing at an official rate of close to 10% per year since the early 1980s, after China's capitalist experiment began.

But even China says that growth is over. The question is, what will China become: A protectionist hegemon, or an open, market-oriented economy with increasing political freedom?

"Now with omnipotent power firmly in his hands, Xi Jinping wants to do something neither Mao nor Deng has done — he wants the combination of Mao's totalitarianism and Deng's crony capitalism," Helen H. Wang, a Chinese-born, U.S.-based business consultant, noted.

If so, this could herald a new era of government control, with the Chinese regime more involved in directing the business sector and cracking down on those that conflict with Xi's desire to push China to the center stage in the world economy. Entrepreneurs and foreign businesses beware.

Editor's note: This story originally was published Dec. 22, 2017. It was updated to include the Feb. 25 news that China's Communist Party plans to eliminate constitutional limits on presidential terms and the March 1 steel tariffs announcement by President Trump.

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57. Trump Steel Tariffs Will Miss China And Hit Canada, Wall Street And YouПт., 02 марта[−]

The first big shot in the trade war that President Trump promises to launch next week by imposing a 25% tariff on steel imports would be aimed at China but score a direct hit on Canada.

X Canada is the biggest steel exporter to the U.S., shipping 5.8 million metric tons in 2017, or about 16% of total steel imports. Yet Canada is also, far and away, the largest export market for U.S. steelmakers. Through the first three quarters of 2017, the U.S. ran a relatively minor trade deficit with Canada of about a half-million metric tons, according to Department of Commerce data.

Mexico, although it's the No. 4 source of U.S. imports of steel, actually imported more steel from the U.S. than it sent here through the first three quarters of 2017.

On the other hand, China, which the Commerce Department characterizes as by far the worst offender, accounting for about half of global steel overcapacity, only provides about 2% of U.S. imports, so it won't feel much direct impact from a 25% tariff.

In other words, it's hard to imagine a clumsier, more ham-handed way of seeking to redress unfair trade practices than a 25% tariff on global steel imports. The collateral damage may include workers from Ford ( F) and General Motors ( GM), along with American car buyers and — if the Dow Jones industrial average's 420-point dive on Thursday is any indication — U.S. stock investors.

By the time foreign trade partners hit back with reprisals, the tariffs may boomerang on Harley-Davidson ( HOG), Jack Daniels and soybean farmers, and the list may get a lot longer.

All of that could mean lost jobs in other industries and higher costs for consumers on a wide range of goods.

"You'll have protection for a long time," President Trump on Thursday told executives of U.S. Steel ( X) and Nucor ( NUE), among others, saying he'll make 25% steel tariffs and 10% aluminum tariffs official next week.

Shares of U.S. Steel rose nearly 6%, Steel Dynamics ( STLD) 4%, Nucor 3% and AK Steel ( AKS) 10% in Thursday trading on the stock market today.


IBD'S TAKE: The sell-off triggered by President Trump's tariff plan has changed the outlook for the stock market, The Big Picture column explained on Thursday. Now that stock market volatility has returned, it's more important than ever to read IBD's The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


Despite reported divisions in the White House over the wisdom of major tariffs, Trump appeared determined to stick to his guns. The import tariffs — easily his most far-reaching protectionist trade measures — were recommended by the Commerce Department, which cited national security concerns to justify support of U.S. steel and aluminum producers with high tariffs on imports.

National security concerns haven't been used to justify the imposition of tariffs for decades. There's little reason to think that the action would comply with World Trade Organization rules, though that doesn't appear to worry Trump. President George W. Bush backed down about 18 months after imposing steel tariffs in 2002, just as European nations were getting ready to launch trade reprisals. This time, foreign trade partners are unlikely to hesitate for long because they've been preparing for Trump to follow through on his America First rhetoric.

Commerce recommended global tariffs of 24% on steel imports and 7.7% on aluminum, along with a range of other options aimed at bringing capacity utilization in the two domestic industries up to 80%.

Trump apparently bumped up the recommendation to a 25% steel tariff because he liked the round number. At least for now, Trump appears to be insisting on no exceptions to the tariffs, which threatens to create a crisis situation with Canada and Mexico, and likely other nations as well.

Other top steel exporters to the U.S. include Brazil, South Korea, Russia, Turkey, Japan, Germany and Taiwan.

The Commerce Department had provided Trump with an alternative approach that would have shielded both Canada and Mexico. That option would have levied a 53% tariff on a select group of countries, including Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia and Costa Rica. Those countries, the Commerce Department notes, account for just 4% of steel exports from the U.S.

Defense Secretary James Mattis in February raised concern about the "negative impact on our key allies," advising that " target tariffs are more preferable than a global quota or global tariff."

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58. Trump's Steel Tariff Vow Sends S&P 500, Dow Jones Tumbling On Trade War RiskПт., 02 марта[−]

President Trump said on Thursday that he'll sign a measure next week imposing tariffs of 25% on steel imports and 10% on aluminum imports. That gave steel and aluminum stocks a boost, but the S&P 500 index and other major averages retreated.

X Despite reported divisions in the White House over the wisdom of major tariffs, which could spark retaliation by trading partners, Trump appeared determined to stick to his guns. The import tariffs — easily his most far-reaching protectionist trade measures were recommended by the Commerce Department, which cited national security concerns to justify support of U.S. steel and aluminum producers with high tariffs on imports.

The Dow Jones industrial average fell 1.7% on Trump comments, with the S&P 500 index and Nasdaq composite off 1.3%. While steel and aluminum buyers, such as Ford ( F) and General Motors ( GM), stand to lose from such tariffs, the bigger risk to markets is that Trump's actions will bring retaliation from foreign trade partners.

Ford and GM reported February U.S. auto sales Thursday morning that fell more than expected. Auto stocks accelerated losses on the Trump tariff news.


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Shares of U.S. Steel ( X), Steel Dynamics ( STLD), Nucor ( NUE) and AK Steel ( AKS) had surged in early action on the stock market today, but gave up some of their gains as expectations waned that Trump was set to follow-through on Commerce Department recommendations.

Trumps comments did light a fire under the industrial metals producers again. U.S. Steel was up 5.76%, Steel Dynamics 4%, Nucor 3.3% and AK Steel 9.5%. They were off their session highs though. Alcoa ( AA) edged up 0.2%.

Trump tweeted early Thursday morning that "our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy."


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


Commerce recommended global tariffs of 24% on steel imports and 10% on aluminum, along with a range of other options aimed at bringing capacity utilization in the two domestic industries up to 80%.

National security concerns haven't been used to justify the imposition of tariffs for decades. There's little reason to think that the action would comply with World Trade Organization rules, though that doesn't appear worry Trump.

President George W. Bush backed down after imposing steel tariffs in 2002, just as European nations were getting ready to launch trade reprisals.

Harley-Davidson ( HOG) motorcycles, Jack Daniels whiskey, and soybeans are seen as potentially facing collateral damage in a trade war, but that may not be all. There's also a risk that a pullback from globalization could add to upward pressure on inflation.

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59. Fed Chief Powell Assures On Inflation, But Here's 6 Reasons Why Investors Are NervousПт., 02 марта[−]

Federal Reserve Chair Jerome Powell told the Senate Banking Committee on Thursday that he still sees evidence of modest slack in the labor market, meaning the economy still has room to grow without rising inflation pressures.

X "Nothing (in the data) suggests to me that wage inflation is at a point of acceleration," Powell said.

Powell's remarks were at least somewhat soothing to Wall Street, coming after the main takeaway from his Tuesday appearance before a House panel was that the economy will grow at a faster pace this year than Fed policymakers had anticipated when they penciled in three rate hikes by the end of 2018.

Meanwhile, the Commerce Department reported early Thursday that the Fed's preferred gauge of inflation, the core personal consumption expenditures price index, rose a tame 1.5% from a year ago in January, as expected.

Although the Institute of Supply Management reported that national factory activity in February grew at its fastest pace since 2004 and jobless claims hit a 48-year low, Powell's less-hawkish testimony left Treasury yields little changed in early afternoon trading. Treasury yields dipped by the close as the Dow Jones industrial average, S&P 500 index and Nasdaq composite sold off on the stock market today as President Trump vowed to impose a 25% steel tariff, raising trade war fears.

Inflation has been undershooting expectations for years, so it may seem odd that markets are so focused on the threat now. Yet there's good reason to think that 2018 will be the year when price pressures begin to surface, at least to a moderate extent.

That's not to say inflation is about to spike. The war for retail dominance between Amazon.com ( AMZN) and Walmart ( WMT), the transparency in pricing afforded by the internet and disruptive business models like Airbnb are a legitimate game-changer. A push by the FDA to expedite generic drug approvals is likely to continue to help keep a lid on prescription prices.

While such disinflationary fundamentals aren't going away, a host of forces are lining up this year that have potential to finally push inflation up to the Fed's 2% goal.

Double Dose of Fiscal Stimulus

The combination of the $1.5 trillion tax cut and $300 billion spending package is expected to shift an economy that had already picked up speed into still-higher gear.


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Stepping on the fiscal accelerator in the ninth year of an economic expansion amid solid growth is an experiment that's never been tried, and it's likely to add to upward cyclical pressure to inflation that tends to emerge when demand for labor and resources rises.

With economic optimism on the rise and more dollars in their pocket, consumers may be, on the margins, more receptive to price hikes. Companies that have recently announced price increases include Amazon, which hiked fees for monthly Prime members; Disney ( DIS), which raised theme park ticket prices for single-day guests; and Wendy's ( WEN), which said on its latest earnings call that it raised prices by 1% in January to offset higher wages and commodity costs.

4.1% Unemployment And Falling

Whether or not the tax cuts really deserve the credit, companies such as Walmart, CVS Health ( CVS), Starbucks ( SBUX) and Wells Fargo ( WFC) gave a nod to the tax legislation when they subsequently announced pay hikes.

Wage growth looks like it will take another step up from the Goldilocks-like 2.5% gain in average hourly wages that prevailed for most of 2017.


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


Fed policymakers often talk about full employment, the lowest that unemployment can go before inflation starts to accelerate. No one knows exactly where it is and some economists, citing the experience of Japan, have doubts about the theory. Still, some economists expect unemployment to get as low as 3.5% this year, and new Fed chair Jerome Powell said Tuesday that 3.5%, in his view, is the lowest imaginable rate of full employment, though he think it might be quite a bit higher.

Some industries, such as trucking, are seeing above-average wage gains because the job market for hiring and retaining drivers is especially competitive. Those extra wages tend to get passed along. While transportation makes up a relatively small fraction of a retailer's costs, those extra costs, along with higher retail wages, could affect the end consumer — even if it only results in less discounting.

Most inflation tends to be services inflation, so even flat prices for goods would be inflationary.

Mobile Phone Services

Fed policymakers have said for much of the past year that transitory factors may have only temporarily lowered inflation. One such factor was Verizon ( VZ) changing its cell-phone service pricing to provide unlimited data. Because that change began to lower inflation data in March 2017, that temporary factor will drop out of the picture this coming March,

Higher Oil Prices

Crude oil prices, at about $61.50 per barrel, are about $7 higher than a year ago, boosting the price of gasoline. While the Fed's core gauge of inflation excludes energy prices, higher energy prices can get passed along to consumers. Delta Air Lines ( DAL) is among a number of airlines that have tried to pass along higher fuel costs to customers through price hikes recently. So far, those hikes haven't taken hold, but stayed tuned.

Cheaper Dollar

The U.S. dollar is more than 10% cheaper than it was a year ago, relative to a basket of other currencies from advanced economies. That raises the price of industrial commodities and a range of imported goods. At the least, a rising dollar is no longer working to hold down inflation in the U.S. by making foreign goods cheaper in dollar terms. A weakening dollar, at least at the margins, adds to inflation pressures. Import prices rose for German cars, French cheese and Italian wine, though it's not clear the extent to which end consumers will face higher prices, since consumers have the option of buying nonimports.

Trump Trade War?

President Trump has until mid-April to make up his mind over whether to impose tariffs on steel imports, as recommended the Commerce Department. Investors in U.S. Steel ( X) appear to be betting that Trump will pull the trigger. Higher steel prices would add costs to cars made in the U.S., though it's not clear how automakers will respond when it comes to auto prices.

Another question is how foreign governments will retaliate if the U.S. enacts punitive trade measures that they believe are unwarranted under World Trade Organization rules.

The possibility of a trade war that then forfeits some of the disinflationary effects of globalization is among the biggest wild cards in the inflation outlook.

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60. U.S. Manufacturing Expanding At Fastest Pace In 14 YearsЧт., 01 марта[−]

U.S. factories expanded in February at the fastest rate since May 2004, indicating sustained strength in manufacturing as demand remains solid, figures from the Institute for Supply Management showed Thursday.

ISM Manufacturing Index Highlights

X The factory index climbed 1.7 points to 60.8, defying forecasts for a dip to 58.7. Readings above 50 indicate expansion.

The employment gauge jumped to a four-month high of 59.7 from 54.2.

The new orders index eased to 64.2 from 65.4; order backlogs climbed to 59.8 from 56.2.

The prices-paid index rose to 74.2, the highest since May 2011, from 72.7.

Key Takeaways

The latest advance extends a series of healthy readings in the survey-based measure of manufacturing that's being fueled by improving global economies and firm business investment. It also comes on the heels of a late-year pickup in consumer spending, which advanced in the fourth quarter at the fastest pace in more than a year.

The purchasing managers group's gauge of export orders was the strongest since April 2011. While orders and production were a touch weaker in February than the prior month, the readings are nonetheless robust.

The report showed factories are having some difficulty keeping up with demand. The ISM's index of order backlogs climbed to a 13-year high. Delivery times also lengthened in February, with a measure reaching the second-highest level since 2010. That may help explain the rise in the group's gauge of manufacturing employment, which posted its largest month-over-month gain in more than two years.

In addition to firmer overseas and domestic sales, corporate optimism is getting a lift from the recent tax-cut law and reduced regulation.

Other Details

The production index dropped to 62 in February from 64.5.

A measure of export orders jumped to 62.8 from 59.8. It was the gauge's fourth straight advance, the longest such stretch in six years.

Index of customer inventories fell to 43.7 from 45.6, indicating stockpiles were being depleted at a faster rate. The factory inventories gauge rose to 56.7 from 52.3.

Gauges of supplier deliveries climbed to 61.1 from 59.1.

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61. Stocks Fall As Fed Chief Powell Sees Faster Growth, But Here's What Investors MissedСр., 28 февр.[−]

New Federal Reserve Chair Jerome Powell told Congress that he sees "at most modest risk" from high asset prices, despite the generally buoyant stock market. But investors sold shares on concerns that Powell and fellow policymakers will raise interest rates more than three times in 2018 due to stepped-up economic growth forecasts.

X

Asked whether low interest rates have fueled "dangerous risk-taking," Powell noted no real build-up of leverage among households or the emergence of other significant risks to financial stability.

Wall Street reacted somewhat negatively to Powell's first monetary policy testimony to Congress since taking the helm of the U.S. central bank, focusing on his outlook for stronger economic growth and what that might mean for the number of Fed rate hikes in 2018.

Yet the overall tenor of his testimony probably should be taken as positive, because it suggests a lack of urgency to raise interest rates. The Fed, in other words, remains data-dependent and won't move to tighten policy more quickly due to tax cuts and fiscal stimulus unless inflation gathers momentum.

On the stock market today, the Dow Jones industrial average, S&P 500 index and Nasdaq composite closed at session lows, down more than 1%.

Bank stocks fell somewhat amid the broad sell-off. Shares of Bank of America ( BAC) and Morgan Stanley ( MS) lost a fraction, though JPMorgan Chase ( JPM), Wells Fargo ( WFC) and PNC Financial Services ( PNC) were down 1% or more. Banks can reap higher net interest margins as interest rates rise, especially when the long-term yields rise more than short-term yields.


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The 10-year Treasury yield rose 3 basis points to 2.90%, off session peaks but not far off last week's four-year high of 2.95%.

"At the December meeting, the median participant called for three rate increases in 2018," Powell said in response to a question over what it would take for the Fed to hike rates more than three times this year. "Now since then — we will submit another projection, all of us, in three weeks — but since then, what we've seen is incoming data that suggests that strengthening in the economy. We've seen continuing strength in the labor market. We've seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. We've also seen continued strength around the globe, and we've seen fiscal policy become more stimulative. So I think each of us is going to be taking the developments since the December meeting into account and writing down our new rate paths as we go into the March meeting."

Powell added that it was his "personal outlook" as well as the overall committee that "the economy has strengthened since December," when Fed policymakers last offered their economic and policy projections for 2018.

Powell's upgrading of the outlook is hardly a surprise, coming after Congress backed a $300-billion-plus increase in federal spending earlier in February. Even before that, some Fed policymakers had been marking up their economic projections, as noted in the minutes from their Jan. 30-31 meeting.

Asked about whether "profligate fiscal policy" might require higher interest rates than otherwise by a Democratic committee member, Powell said that the Fed will keep its on eye on the economy, not on the actions of Congress, but he allowed that "all things equal," the appropriate interest rate would be higher when fiscal policy becomes more stimulative.

The Q&A seemed to cancel out the seemingly positive reaction to his published testimony. In prepared remarks released before the market open, Powell said that the Fed policymaking committee sees the risks to the economy as balanced between upside and downside risks, even as "some of the headwinds the U.S. economy faced in previous years have turned into tailwinds," especially fiscal policy.

The takeaway from the Q&A is that the assessment of balanced risks might date back to the January meeting, before the latest fiscal stimulus.

Yet in discussing a possibility that the Fed might discuss adopting an inflation range, instead of its specific 2% target, as a guide for policy, Powell underscored that there's not much reason to worry about an upsurge in inflation.

"Generally speaking inflation has been low or stable for 15 years now," Powell said.


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


Indeed, core inflation, as measured by the Fed's favored personal consumption expenditures price index, hasn't touched 2.5% since 1995. The past two economic expansions weren't tripped up by the Fed having to tamp down an inflation outbreak, but by the bursting of the dot-com and housing bubbles.

So when Powell expresses confidence that few troubling signs of excess have emerged, as well as confidence about a stable inflation outlook, investors should see the potential for this economic expansion running for several more years.

In prepared testimony, Powell said, "In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis."

Powell's testimony comes as firms including Goldman Sachs and JPMorgan are predicting one more rate hike this year than the Fed's own policymakers projected in December. Passage of a $310 billion budget deal in early February, after the Fed's last meeting, also has led economists to mark up their GDP growth estimates and added to concerns that inflation could make a comeback.

Inflation and the risk of a hawkish Fed has come back on the radar of investors after the January jobs report showed average hourly wages growing 2.9% from a year ago, up from the Goldilocks readings near 2.5% that persisted in 2017.

Walmart ( WMT) announced in January that it was hiking base pay to $11 an hour, three years after it last announced a boost in starting pay to $9 an hour. On Thursday, CVS Health ( CVS) said it will adopt an $11 minimum wage in April. Both companies tied their wage hikes to their tax cuts, saying they would spend part of their tax windfall on higher compensation, but that's only part of the story. Competition for quality workers led Target ( TGT) to boost its wage to $11 starting last October, when tax reform was still up in the air. At the time, Target made a commitment to raise its base wage to $15 an hour by the end of 2020. Starbucks ( SBUX), JPMorgan Chase and Wells Fargo also are among the dozens of big employers who have hiked wages in the wake of tax cuts.

While details of the January employment report suggested that the reported acceleration in wage gains was misleading, it does appear that faster wage growth is on the way.

Although a faster pace of rate hikes can't be ruled out if wage gains and inflation exhibit momentum, Powell's remarks suggest that the Fed isn't predisposed to a faster pace of rate hikes and will continue to give the economy some running room.

Arguably, financial markets are leading the Fed and not the other way around. The 10-year Treasury yield touched a four-year high last week after the Fed minutes from the January meeting noted that "a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate."

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62. What Is Inflation, And Why Does It Matter To The Fed — And You?Вт., 27 февр.[−]

What is inflation? Consumers hate it. The Fed fears it. But what exactly is inflation?

X

You've probably noticed that prices for some things, like college tuition, prescription drugs and the rent for an apartment, reliably go up virtually every year. Prices of other things, like basic laptop computers, televisions and not-so-fashionable apparel have tended to fall over time.

The Labor Department's consumer price index measures the overall change in the price of goods and services based on an average person's budget, with roughly 30% spent on housing; 13% on food; 10% on health care; 8% on energy — electricity, gas and fuel for your car; and so forth.

Inflation is a general rise in the price of goods and services that erodes the value, or purchasing power, of the dollars in your wallet and bank account. The inflation rate is the percentage increase in prices over 12 months. The 2.1% rise in the consumer price index in 2017 essentially meant that $1 at the start of 2017 was only worth 97.9 cents at the start of 2018.

What Is Inflation, And What Are Inflation Causes?

Sometimes prices rise because demand exceeds supply, allowing the seller to raise prices — and profits.

Producers also may increase prices when they're faced with cost increases of their own. In a current inflation example, Wendy's ( WEN) raised menu prices 1% in early 2018, partly to offset higher commodity costs for the food items it buys in bulk.


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Wendy's also said the price increase was made to offset higher hourly wages. Wages are a major business cost and can contribute to inflation when they are increasing. Wages recently have risen both because of state and local minimum wage hikes, and because employers have to pay more to retain and attract quality workers at a time of low unemployment.

Wendy's price hike is an example of cost-push inflation, though companies often try to limit the cost increases they pass on to customers by finding ways to make their operations more efficient and their workers more productive. Among the ways that Wendy's and its franchisees have been doing that is by deploying self-order kiosks.

A price increase will generally dampen demand somewhat, but when a price hike nevertheless provides a lift to revenue, companies are said to have pricing power.

In robust economic times, when wages are rising nicely and people have more cash at their disposal, more companies are likely to have pricing power. That's why the inflation rate tends to be cyclical, rising when the economy is zipping along, and slackening when consumers become less optimistic and more tightfisted.


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


How Does Inflation Affect Interest Rates?

The job of the Federal Reserve, the central bank of the U.S., is to balance low inflation and maximum sustainable employment. In other words, the Fed is to supposed to keep the jobless rate as low as it can be without setting off an upsurge in inflation. The Fed has officially adopted a 2% annual inflation target, and it primarily uses interest rates to achieve its goal.

When the Fed's key interest rate — the rate it charges on overnight loans to banks — is low, banks can offer cheaper loans to businesses and consumers, helping the economy grow. By raising its key interest rate, the Fed restrains growth by making it costlier for individuals and firms to borrow.

Why would the Fed want to slow growth? After all, inflation has been pretty tame for the past couple of decades, and most people expect it to remain that way. Mainly, policymakers worry about the economy overheating. Inflation rising above 2% is more of a symptom that excesses are building up in the economy that could turn a boom into a recession, like happened with the Dot-Com and housing bubbles.

A little inflation is seen as healthy, but its costs begin to mount as inflation heads higher. When the value of money erodes at a faster pace, lenders are stuck getting paid back in cheaper dollars, and therefore have to charge higher interest rates to compensate their risk. Retirees and those nearing retirement who have much of their savings in bonds that aren't protected for inflation are at risk of seeing the value of their savings shrink when inflation gathers steam.

How Is Inflation Measured By The Fed

The consumer price index is the best-known inflation measure. But the Fed prefers a somewhat different measure of prices, the Commerce Department's personal consumption expenditures price index. The Fed's inflation target also focuses on core prices, excluding food and energy costs, which can be susceptible to big price swings. In addition to prices paid directly by consumers, the PCE price index also factors in bills that are paid on behalf of consumers, such as government reimbursement of hospital bills.

The CPI and PCE both measure prices on the consumer level. The Labor Department's Producer Price Index tracks wholesale inflation based on prices paid by one business to another.

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63. New-Home Sales Tumble To Slowest Pace Since AugustПн., 26 февр.[−]

U.S. sales of new homes unexpectedly fell in January to the lowest level since August as borrowing costs rose and winter weather depressed demand, according to government data released Monday.

Highlights of New-Home Sales

X Single-family home sales dropped 7.8% vs. January to an annualized 593,000, well below estimates for 647,000. December sales were revised higher. Median sales price increased 2.5% vs. a year earlier to $323,000 Supply of homes at current sales rate climbed to 6.1 months from 5.5 months; 301,000 new houses were on market at end of January, the most since March 2009.

Key Takeaways

The results, which are volatile on a month-to-month basis, showed a 14.2% slump in the South, the largest decrease since March 2015 and a 33.3% decline in the Northeast. The two areas experienced inclement weather.

Mortgage costs are picking up and property price appreciation continues to outpace wage growth. That's crimping affordability, especially for younger Americans and first-time buyers. Borrowing costs have sharply accelerated this month.

Nonetheless, steady hiring and elevated consumer confidence are expected to help underpin housing.

New-home sales, tabulated when contracts get signed, account for about 10 percent of the market. They're considered a timelier barometer than purchases of previously owned homes, which are calculated when contracts close and are reported by the National Association of Realtors.

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64. Inflation And The Fed Rate-Hike Outlook: What You Need To KnowЧт., 22 февр.[−]

The Phillips curve theory at the heart of the Federal Reserve's approach to raising interest rates as the economic expansion marches ahead is that lower unemployment gives rise to faster wage growth.

X Fed policymakers figure that inflation pressures won't follow too far behind wage pressures, as businesses pass along a portion of their higher wage bills.

Yet those assumptions central to proactive monetary policy — the steady diet of Fed rate hikes even when inflation remains below the Fed's 2% target — have taken some knocks lately.

With the jobless rate expected to sink below 4% this year and fall to 3.5% or lower in 2019, one of the biggest questions for financial markets is how much the link between unemployment, wages and inflation will finally assert itself?

Soon after tax reform passed in December, dozens of major companies — including Walmart ( WMT), CVS Health ( CVS), Bank of America ( BAC) and Starbucks ( SBUX) — announced wage hikes, a reflection of a tightening labor market. It's a good bet that wage growth is heading higher, but how much pricing power will companies really have?

Here are five keys to understanding the outlook for inflation and Fed rate-hike policy:

1) The Wage-Inflation Relationship In The Amazon Era

To understand why the link between wages and inflation isn't as clear as it once was, Target ( TGT) is a good place to start. In September 2017, the discount retailer announced a big wage hike and broad-based price cuts just three weeks apart.

The price cuts on thousands of items came shortly after Amazon.com ( AMZN) celebrated the close of its Whole Foods acquisition by cutting the upscale natural foods grocer's prices as much as 43% on select items like avocados and kale.

Then, in a bid to limit employee turnover and attract 100,000 seasonal workers in a tight labor market, Target hiked its minimum wage from $10 to $11 an hour and committed to a $15 hourly wage by the end of 2020.

Higher wages may not feed through to higher prices in the near term when a few huge companies have significant market power and incentives to put market share over profit. Amazon has been rewarded with a massive valuation because of sales growth and the growing reach of its Prime membership, even when its profits disappointed.

Internet-enabled transparency also keeps a lid on prices, and that's not just true of retail. Marriott International ( MAR) CEO Arne Sorenson has explained that the hotel group doesn't have as much ability to raise prices as it had in past cycles. While home-sharing via Airbnb has some impact on leisure travelers, he sees the bigger issue as "radical transparency in pricing."


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


2) Inflation And Rate-Hike Trends Since 1980

With just a few relatively modest trend reversals, inflation has been moving in only one direction since 1980: lower.

After sinking from more than 10% in 1980, core consumer price inflation, which excludes the sometimes-volatile food and energy categories, hasn't touched 3% since 1995. Aggressive Fed rate hikes under Paul Volcker pushed back inflation in the early 1980s, while pre-emptive Fed rate increases in the mid-1990s under Alan Greenspan ushered in the current low-inflation environment.

Amid technological advances that empower the consumer and the globalization of manufacturing supply chains, in part to capitalize on lower-wage labor, the Fed's preferred inflation gauge, the core personal consumption expenditures price index hasn't even touched 2.5% in decades and sat at 1.5% at the end of 2017.

Even if tight labor markets and near-3% GDP growth foster a bit more inflation, perspective is in order: Neither investors nor Fed policymakers are likely to get overly concerned.

3) The $1,000 Apple iPhone's Inflation Impact

You might guess that the Apple ( AAPL) iPhone X, which raised eyebrows with its near-$1,000 starting price when it was released in November 2017, sent the price index for phone equipment surging after its release, and you'd be right — to a point. The Labor Department, which adjusts price changes to account for technological advances, said that phone equipment costs fell 2.6% in January 2018 vs. a year earlier, which was the smallest decline since 2011.

The combination of quality improvements, productivity gains in manufacturing and global competition goes a long way to explaining why most inflation is in services. In the year through January, services inflation was running at 2.6%, while goods inflation was just 1.2%. Excluding food and energy, goods inflation was -0.7%.

4) How Health Care, Housing Costs Influence Inflation

An exception in the goods category is prescription drugs, whose prices always rise, bringing political scrutiny. But prescription-drug prices rose just 2.4% in January vs. a year earlier, roughly half the increase seen in the prior three years. Prescription benefit manager Express Scripts ( ESRX) said average per-member prescription costs of the employer plans it serves rose 1.5%, the lowest since 1993. One key: Generic fill rates rose 86% over the prior year. That likely reflects, in part, the FDA's new expedited generics approval approach, so the gains may be sustained.

Likewise, health care services prices rose a historically tame 2% in January. In regulated industries like health care, where prices are rarely transparent and government plays an especially large role, the power to raise prices is limited by the regulator.

The Fed's favored PCE price index, unlike the CPI, reflects prices that individuals pay, both directly and indirectly, such as for health care that is subsidized by government and employers. Health care accounts for just over 20% of the PCE index vs. about 9% of the CPI's weight. Meanwhile, housing accounts for a similar 20% of the PCE index, but more than 30% of the CPI. With shelter costs rising 3.2% from a year ago in January, that difference goes a long way to explaining why core CPI inflation typically exceeds core PCE inflation.

5) Productivity Boost Could Keep Inflation Tame

As labor markets tighten and workers have more opportunity to quit and find greener pastures, companies pressured to raise wages have three possibilities for dealing with their higher compensation costs: increase prices, accept lower profits or offset the higher wage bill by increasing worker output or finding other efficiencies.

To some extent, the earnings boost from the Trump tax cuts, which slashed the corporate tax rate to 21%, could make companies more willing to swallow higher wages without passing those costs on to customers. Incentives in the tax bill allowing for immediate expensing of equipment purchases could increase investment to make workers more productive.

A key question will be whether heightened wage pressures and bigger investment incentives can combine to get the U.S. out of the productivity rut it's been in for much of the past decade. If so, that could raise the growth ceiling on the economy without stoking inflation.

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65. Fed Minutes: Policymakers See Faster Growth; S&P 500, Dow Turn Negative, Bond Yields PopЧт., 22 февр.[−]

Federal Reserve policymakers saw "substantial underlying economic momentum," but continued to back gradual interest rate hikes, according to newly released minutes from the Federal Open Market Committee policy meeting on Jan. 30-31.

Fed officials raised their economic forecasts from December predictions, with the Trump tax cuts and the stock market soaring to record highs last month buoying short-term growth prospects. But policymakers said "gradual policy firming would be appropriate." Policymakers predicted "labor market conditions would strengthen further" but saw few signs of heavy wage pressures.

X That initially eased fears that the Fed might be more aggressive in 2018, but not for long.

The S&P 500 index, Dow Jones industrial average and Nasdaq composite initially added to already-solid gains following the Fed minutes release, with all three rising more than 1%. But the Nasdaq reversed to close down 0.2%. The S&P 500 sank 0.55% and the Dow Jones fell 0.7%, after both had retaken their 50-day moving averages intraday.

The 10-year Treasury yield, which edged lower soon after the report, rose 4 basis points to 2.94%, hitting fresh four-year highs.

Treasury yields have risen sharply in 2018 on strong global economic growth, accelerating wage gains and the U.S. getting a one-two punch of fiscal stimulus from tax cuts and higher government spending. That helped trigger the recent, short stock market correction.

The markets have largely priced in three rate hikes in 2018, starting with a quarter-point move at the March meeting, but a fourth hike has been less likely.

The odds of four hikes this year has risen to about 29%, according to CME Group's FedWatch tool. That's up from 24% soon after the release and from 27% before the release.

January's meeting was the last with Janet Yellen as chairman. Jerome Powell, already a Fed governor, is now the central bank chief.

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66. Existing-Home Sales Suffer Biggest Annual Drop In 3 Years — Before Mortgage Rates JumpedСр., 21 февр.[−]

Existing-home sales fell 3.2% to an annual rate of 5.38 million last month, the National Association of Realtors said Wednesday. Economists had expected home resales at an annualized pace of 5.65 million. January's numbers represent the slowest sales pace since September, while the 4.8% year-over-year decline was the worst since August 2014.

X Existing homes for sale rose 4.1% to 1.52 million, but were still down 9.5% vs. a year earlier. Tight supplies are limiting sales, NAR said. Home prices were up 5.8% vs. a year earlier.

The report gauges actual home sale closings, not contract signings. So the data likely don't reflect the sharp rise in mortgage rates in 2018.

However, demand for loans to buy homes fell 6% in the week ended Feb. 16, following a 6% drop in the prior week, the Mortgage Bankers Association said. Overall mortgage applications slid 6.6%. The average 30-year fixed-rate mortgage rose 7 basis points to 4.64%, the highest since January 2014. Year-over-year, purchase loan applications rose 3%, down a percentage point.

Treasury yields have been rising amid strong global economic growth and a double dose of fiscal stimulus via Trump tax cuts and a sharp rise in federal government spending. Solid hiring and improving wage growth, along with a wave of millennials having families, support housing demand despite the rise in still-low mortgage rates.

Last week, the Commerce Department reported stronger-than-expected housing starts for January.

The IBD-Building-Residential/Commercial group was 2017's top performer out of 197 industries tracked by IBD. A surprise profit miss by NVR Inc. ( NVR) triggered a sharp sell-off among homebuilders, providing an early warning ahead of the stock market correction. Earnings by D.R. Horton ( DHI), KB Home ( KBH) and others failed to stop the group retreat until the market began rallying.


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The SPDR S&P Homebuilders ( XHB) ETF found support at its 200-day moving average during the correction, much like the S&P 500, and has been rising since. The XHB ETF is up 0.7% intraday on the stock market today.

Meanwhile, the Federal Reserve will release minutes from its January policy meeting at 2 p.m. ET. Investors will be looking for any hints that policymakers are leaning toward four rate hikes in 2018. The market currently has priced in three hikes.

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67. U.S. Housing Starts Reach Highest Level In More Than A YearПт., 16 февр.[−]

U.S. new-home construction rose in January to the highest level since October 2016, helped by a surge in apartment building, as momentum in the housing market continues into 2018, government figures showed Friday.

Highlights Of Starts (January)

X Residential starts rose 9.7% to a 1.33 million annualized rate (est. 1.23 million ) after revised 1.21 million pace in prior month. Multifamily home starts jumped 23.7%; single-family rose 3.7%. Permits, a proxy for future construction of all types of homes, climbed 7.4% to 1.40 million rate (est. 1.3 million), highest since June 2007

Key Takeaways

The results are a positive sign that homebuilding will continue its advance after the best year for new construction in a decade. Demand is expected to be supported by steady hiring and elevated confidence to make big purchases.

The only region to suffer a setback in beginning construction last month was the Midwest, which was impacted by severe winter weather.

In an indication that builders will be busy in coming months, 158,000 homes were authorized but not yet started in January. That was the most since June 2008. The number of homes currently under construction reached the highest level since August 2007.

A gauge of homebuilders' confidence is near the highest level since 1999, indicating developers expect a good year. Nonetheless, the industry faces hurdles that include a recent spike in mortgage rates, a shortage of workers, rising costs for materials and a scarcity of ready-to-build lots.

Other Details

  • Single-family home starts rose to an 877,000 rate from 846,000 the prior month
  • Groundbreaking on multifamily homes, two or more units such as apartment buildings and condominiums, surged to an annual rate of 449,000; data on these projects can be volatile
  • Starts in the West increased 10.7% to 393,000, the highest since December 2006; construction in South rose 9.3% to 655,000
  • Building permits in the South and West advanced to the highest levels since 2007
  • Report shows wide margin of error, with a 90% chance that the January figure was between a 7.1% drop and 26.5% gain

The post U.S. Housing Starts Reach Highest Level In More Than A Year appeared first on Investor's Business Daily.


68. Hot Inflation Lifts Bond Yields, Fed Rate Hike Odds, But Nasdaq, S&P 500 Reverse HigherСр., 14 февр.[−]

Core consumer prices, excluding food and energy, rose a faster-than-expected 0.3% in January and 1.8% from a year ago, the Labor Department reported on Wednesday, raising the odds of Federal Reserve interest rate hikes.

X The overall consumer price index rose 0.5% on the month and 2.1% from a year ago, amid higher energy prices.

Food at home prices rose 0.1% on the month as Amazon.com ( AMZN) continues to inject even more intensive competition into the grocery business since closing its acquisition of Whole Foods last summer.

Wall Street expected the core CPI to rise 0.2% on the month and 1.7% from a year ago. The consensus called for a 0.3% monthly and 2.0% annual rise in the broad CPI.

After the report, futures for the Dow Jones industrial average, S&P 500 index and Nasdaq composite reversed from solid gains to down more than 1% at one point. The major averages fell modestly at the open but the Nasdaq led an upside reversal.

Menawhile, the 10-year Treasury yield was at 2.88%, back at four-year highs. The odds of a Fed rate hike at the March meeting rose to 83.1% at CME Group's FedWatch Tool, up from 76.1% on Tuesday. There's now a 24.2% chance of four or more rate hikes in 2018, up from 17% on Tuesday.

Separately, retail sales unexpectedly fell 0.3% in January and were flat excluding autos.

The CPI report had been as a potential market mover as investors are suddenly nervous about the prospect of faster wage growth, rising inflation and a more aggressive Federal Reserve.

The upside surprise in core prices came as prices for medical services rose 0.6% in month, coming after minimal increases over the past year that left the annual rise at 2.0%. Prices for transportation services rose 0.8% on the month and 4.0% on the year. Meanwhile, apparel prices jumped 1.7%, even as the annual trend remained down 0.7%


IBD'S TAKE: After the Thursday, Feb. 1, market action — when the Dow Jones industrial average was still within 2% of its record high — IBD changed its market outlook to "uptrend under pressure" from "confirmed uptrend," the equivalent of a green light turning yellow. Make sure to read The Big Picture column each day to stay on top of the market's prevailing trend, so you'll know when will make sense to get aggressive again.


Thanks to a just-arriving fiscal boost from tax cuts and more stimulus coming from last week's $320 billion deficit-hiking spending deal, the balance of economic risks has shifted to the upside. JPMorgan economists are now expecting the jobless rate to fall to 3.2% by the end of 2019, and they think the Fed could raise rates eight times by then.

After January's jobs report showed that average hourly wage growth accelerated to 2.9% in January from a year ago, after being stuck around 2.5% for most of 2017, markets suddenly started to price in a risk that dormant wage and price inflation may shift into higher gear.

Wage growth is seen a prelude to higher inflation, and there is reason to expect better wage gains, even if the wage acceleration that showed up in January's employment report was a misleading product of a shorter workweek.

Walmart ( WMT) announced in January that it was hiking base pay to $11 an hour, three years after it last announced a boost in starting pay to $9 an hour. Last week, CVS Health ( CVS) said it also will adopt an $11 minimum wage in April. Both companies tied their wage hikes at least loosely to their tax cuts, but that's only part of the story. Competition for quality workers led Target ( TGT) to boost its wage to $11 starting last October, when tax reform was still up in the air. At the time, Target made a commitment to raise its base wage to $15 an hour by the end of 2020. Starbucks ( SBUX), JPMorgan Chase ( JPM) and Wells Fargo ( WFC) also are among the dozens of big employers who have hiked wages in the wake of tax cuts.

Even with tax cuts, the risk that wage growth will feed through to higher inflation had appeared modest enough for investors to mostly discount, as consumers have grown to expect internet price transparency and the ever-expanding reach of Amazon to keep inflation in check.

Those competitive dynamics and the need to boost productivity help explain why Walmart, even as it hiked its minimum wage in January, also shut dozens of Sam's Clubs employing about 10,000 workers, cut 3,500 store co-manager positions and thinned the ranks at its headquarters.

If companies don't have the luxury of raising prices to offset higher wages, pay hikes stand to cut into profits, which is among the reasons that CVS shares traded lower after announcing wage increases.

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The post Hot Inflation Lifts Bond Yields, Fed Rate Hike Odds, But Nasdaq, S&P 500 Reverse Higher appeared first on Investor's Business Daily.


69. Trump Seeks Mulligan On Fiscal Restraint, Starting With InfrastructureВт., 13 февр.[−]

The federal deficit is getting so unwieldy that not even fake math can make it disappear.

The White House's budget proposal released Monday projects a $984 billion deficit in 2019 under President Trump's preferred policies, nearly double its $526 billion projection a year ago. For the full 10-year budget window, cumulative deficits are now seen totaling $7.1 trillion, well more than double last year's projection that magically ended in a budget surplus by 2027.

Even those upwardly revised totals may be too optimistic. The Committee for a Responsible Federal Budget last week said that the new budget deal will raise the 2019 deficit to $1.2 trillion. Assuming that individual tax cuts don't phase out and programmatic spending stays on the same trajectory, that would put the U.S. on track to run up deficits of roughly $15 trillion over the coming decade.

"The country is facing a massive fiscal challenge, and the President's budget doesn't own up to these realities and fails to call for a suite of credible policies that would help change course. The budget has too many gimmicks, exaggerated savings, and rosy assumptions," Maya MacGuineas, president of the committee, said in a written statement. "Most troubling, it doesn't make the credible hard choices necessary to help bring the debt back to more manageable levels."

She did say, however, that "the budget does include a number of thoughtful and serious policies to improve the effectiveness and efficiency of the Medicare program — along with a number of other smart policies to reduce government spending. We encourage the administration to pursue these ideas."

Yet Wall Street may find some good news in President Trump's budget proposal, as traders now are worried about too much fiscal stimulus and trillion-dollar deficits: Trump's big infrastructure funding plan looks like a nonstarter for Democrats and is likely a bridge to nowhere.

"This is not a real infrastructure plan — it's simply another scam, an attempt by this administration to privatize critical government functions, and create windfalls for their buddies on Wall Street," Rep. Peter DeFazio, the top Democrat on the House Transportation Committee, said Sunday in the Democratic weekly address.

The Dow Jones industrial average, S&P 500 index and Nasdaq composite rallied for a second day on Monday, with the major indexes all up at least 1.2% at midday.

The emergence of better wage growth and the explosion of the federal deficit, even as the Federal Reserve gradually reverses government bond purchases made to aid recovery from the financial crisis, had sent the 10-year Treasury yield to a four-year high in a wake-up call for stock market investors.

The White House budget calls for a $1.5 trillion boost to infrastructure spending, but only $200 billion of that would come from the federal government, with state and local governments and private investors ponying up the rest in a competition to secure federal grants. What makes it an especially hard sell for Democrats is that the $200 billion federal contribution would come from cost savings in the rest of the budget, including the Department of Transportation spending plan.

After last week's budget deal that will hike deficits by $320 billion over two years, and after passing tax cuts that are expected to add more than $1 trillion to the deficit over a decade, the White House is signaling that it's drawing a line on further fiscal laxity — just in time for the infrastructure debate. The new budget plan calls for $3 trillion in savings, including discretionary domestic program cuts of 2% a year after 2019.


IBD'S TAKE: Make sure to read The Big Picture column each day to stay on top of the market's prevailing trend, so you'll know when it makes sense to be aggressive and when you should move to the sidelines.


The political calculation for Democrats is whether they're better off settling for less than half a loaf and giving the White House a victory, or campaigning on a much bigger building plan and blaming the GOP for prioritizing corporate tax cuts over infrastructure. There's little doubt that the more combative approach will win out in this critical election year.

The White House said it isn't making a take-it-or-leave-it offer, so it's possible Trump will try to make a deal Democrats can't refuse, but it's not clear if the rest of the GOP would be willing to further increase the deficit.

Investors seem to have reined in expectations for Trump's infrastructure push. Shares of big cement maker Martin Marietta Materials ( MLM), which reports earnings on Tuesday morning, were off 0.8% on the stock market today.

After missing out on 2017's big stock market gains, Martin and Vulcan Materials ( VMC) both cleared buy points as the stock market was peaking in late January, but both stocks sunk back below their 200-day moving averages and are basically back where they were in the week Trump was elected. IBD's Building-Cement/Concrete/Aggregates industry group is ranked a lowly 144 out of 197 industry groups based on stock-price performance and momentum.

Still, shares of Vulcan rose 1.35% on Monday, while Summit Materials ( SUM) gained 1% and Eagle Materials ( EXP) 1.2%.

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The post Trump Seeks Mulligan On Fiscal Restraint, Starting With Infrastructure appeared first on Investor's Business Daily.


70. This Shock Economic Outlook May Keep Stock Market On EdgeСб., 10 февр.[−]

That $320 billion, two-year budget deal signed by President Trump on Friday will speed up economic growth and push the jobless rate to 3.2% by the end of 2019, an updated forecast from JPMorgan estimates. That's the kind of fiscal jolt that could keep stock markets jittery for an extended period.

X By the end of next year, JPMorgan Chase economists expect the Federal Reserve to hike its key interest rate a whopping eight times — three more than Fed policymakers projected in December. As far as unemployment, Fed projections see it stabilizing at 3.9% next year vs. the current 4.1%

JPMorgan's Fed forecast is an outlier, at least for now, but it highlights why stock markets have entered a new phase that may not quickly be left in the rearview mirror.

The Dow Jones industrial average, S&P 500 index and Nasdaq composite sold off sharply on Thursday as the 10-year Treasury yield jumped all the way back to 2.88%, within a whisker of last week's four-year high. That triggered a move to a stock market correction. On Friday, the major averages tumbled on the stock market today until the S&P 500 briefly undercut its 200-day moving average. That trigger a sharp rebound, with the Dow, S&P and Nasdaq closing up 1.4%-1.5%.

Bond and stock markets are suddenly concerned that interest rates will vault higher as the Fed gradually reverses government bond purchases it made to aid recovery from the financial crisis, Treasury issuance balloons to fund the return of trillion-dollar deficits, and the economy shifts into overdrive. It's no help that the deficit outlook will continue to worsen, with $2 trillion annual deficits on their way within a decade.


IBD'S TAKE: The stock market is now in a correction. Read our weekly cover story on why stocks sold off and what you should do now.


On Friday, Moody's said that the "pre-eminent" financial and economic position of the U.S. will preserve its triple-A credit. But Moody hinted that its deteriorating fiscal position could jeopardize the U.S. rating amid evidence of "declining growth potential, coupled with emerging aversion to open trade and foreign labor."

One interesting aspect of JPMorgan's forecast is that even after the bank's economists boosted their forecast of GDP growth by 0.4 percentage point this year to reflect the budget deal, they're still expecting less-than-stellar 2.6% growth this year. In 2019, they see the budget deal lifting growth by 0.3 percentage point above their earlier forecast, but still only to 2.2%.

In other words, they suspect that the economy may not have to grow all that fast to generate the kind of wage and inflationary pressures which haven't been seen since before the last recession and which most financial market participants seemed to think were history.

It's possible that JPMorgan will be proved wrong by faster productivity growth and labor force growth than it expects. Yet the bank's forecast highlights why Wall Street may no longer be comfortable counting on benign economic outcomes.

After Friday's jobs report showed that average hourly wage growth accelerated to 2.9% in January from a year ago, markets suddenly started to price in a risk that dormant wage and price inflation may shift into higher gear, fueled by the Trump tax cuts.

Now, after the latest budget deal, the balance of economic risks has pretty clearly shifted to the upside, meaning the risk is that growth will come in too hot.

While details of the January employment report suggested that the reported acceleration in wage gains was misleading, it does appear that faster wage growth is on the way.

Walmart ( WMT) announced in January that it was hiking base pay to $11 an hour, three years after it last announced a boost in starting pay to $9 an hour. On Thursday, CVS Health ( CVS) said it also will adopt an $11 minimum wage in April. Both companies tied their wage hikes to their tax cuts, but that's only part of the story. Competition for quality workers led Target ( TGT) to boost its wage to $11 starting last October, when tax reform was still up in the air. At the time, Target made a commitment to raise its base wage to $15 an hour by the end of 2020. Starbucks ( SBUX), JPMorgan Chase ( JPM) and Wells Fargo ( WFC) also are among the dozens of big employers who have hiked wages in the wake of tax cuts.

Even with tax cuts, the risk that wage growth will feed through to higher inflation had appeared modest enough for investors to mostly discount, as consumers have grown to expect internet price transparency and the ever-expanding reach of Amazon.com ( AMZN) to keep inflation in check.

Those competitive dynamics help explain why Walmart, even as it hiked its minimum wage in January, also shut dozens of Sam's Clubs employing about 10,000 workers, cut 3,500 store co-manager positions and thinned the ranks at its headquarters.

Yet now the risk of investors being caught flat-footed by a rise in inflation is growing as Washington prepares to unleash a second dose of fiscal firepower.

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71. Did Congress, Trump Just Crush The Stock Market Rebound?Пт., 09 февр.[−]

Just about the last thing the stock market needed as it tries to recover from the Dow Jones industrial average's 4.6% plunge to start the week was a $300 billion deficit-boosting budget deal.

X The Dow Jones industrial average, S&P 500 index and Nasdaq composite sold off sharply as the 10-year Treasury yield jumped all the way back to 2.88%, within a whisker of last week's four-year high. By the close on the stock market today, the Dow sank 4.15%, the S&P 500 3.75% and the Nasdaq 3.9%. The S&P 500 and Nasdaq undercut Tuesday's intraday lows. Yet the renewed weakness in the stock market only dragged the 10-year Treasury yield moderately lower to 2.83%.

The S&P 500 and other major averages had already reversed lower Wednesday in part as the increased spending agreement took hold, lifting yields.

The trading action makes it look as if the stock market isn't just climbing a wall of worry, it's climbing a wall of debt, and that wall just got steeper. Already, Wall Street had been expecting $1 trillion in Treasury issuance in 2018, nearly double last year's total. Now, the deal to boost spending on defense and domestic programs, while sending more money to hurricane-hit regions, could raise that total by $150 billion or more, with no letup in years to come.


IBD'S TAKE: After the Thursday, Feb. 1, market action — and before Friday's and Monday's market drubbings — IBD changed its market outlook to "uptrend under pressure" from "confirmed uptrend," the equivalent of a green light turning yellow. Make sure to read The Big Picture column each day to stay on top of the market's prevailing trend, so you'll know when it makes sense to be aggressive and when you should move to the sidelines.


The heavier load of Treasury debt that needs to be issued to fund widening deficits comes as the Federal Reserve has begun gradually reversing government bond purchases it made to aid recovery from the financial crisis. The rise in Treasury yields needed to clear all of the new supply is generally seen as a negative for stocks, because higher interest rates can curb borrowing appetites and make stocks look like less of a bargain.

After Friday's jobs report showed that average hourly wage growth accelerated to 2.9% in January from a year ago, markets suddenly started to price in a risk that dormant wage and price inflation may shift into higher gear, fueled by the Trump tax cuts.

Now, after the Senate budget deal that got a stamp of approval from House Speaker Paul Ryan, markets have reason to double down on those concerns. Whether or not Fed policymakers come right out and say it when they next meet in March, and New York Fed President William Dudley's comments on Thursday suggest they probably will, the balance of economic risks has now clearly shifted to the upside, meaning the risk is that growth will come in too hot.

While details of the monthly employment report suggested the concern about accelerating wage gains was premature, it does appear that faster wage growth is coming. Walmart ( WMT) announced in January that it was hiking base pay to $11 an hour, three years after it last announced a boost in starting pay to $9 an hour. On Thursday, CVS Health ( CVS) said it also will adopt an $11 minimum wage in April. Both companies credited the tax cuts for their decision, though the competition for quality workers led Target ( TGT) to boost its wage to $11 starting last October, when tax reform was still up in the air. At the time, Target made a commitment to raise its base wage to $15 an hour by the end of 2020. Starbucks ( SBUX), JPMorgan Chase ( JPM) and Wells Fargo ( WFC) also are among the dozens of big employers who have hiked wages in the wake of tax cuts.

Even with tax cuts, the risk that wage growth will feed through to higher inflation has appeared modest enough for investors to mostly discount, as consumers have grown to expect internet price transparency and the ever-expanding reach of Amazon.com ( AMZN) to keep inflation in check.

Those competitive dynamics help explain why Walmart, even as it hiked its minimum wage in January, also shut dozens of Sam's Clubs employing about 10,000 workers, cut 3,500 store co-manager positions and thinned the ranks at its headquarters.

Yet now the risk of investors being caught flat-footed by a rise in inflation is growing as Washington prepares to unleash a second dose of fiscal firepower.

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The post Did Congress, Trump Just Crush The Stock Market Rebound? appeared first on Investor's Business Daily.


72. IBD/TIPP Poll: Economic Optimism Hits 13-Year High On Trump Tax CutsВт., 06 февр.[−]

The IBD/TIPP Economic Optimism Index climbed 1.6 points to 56.7 in February, riding a wave of tax-cut-fueled pay hikes, bonuses and stock-market gains to a 13-year high.

X The polling from Jan. 25 to Feb. 2, reflecting 900 responses, was conducted as President Trump delivered an upbeat economic message at his State of the Union Address. That followed a six-week period in which hundreds of companies announced one-time bonuses and dozens handed out pay raises, giving credit to the tax legislation. Among those hiking pay in January were Walmart ( WMT), which raised its starting wage from $9 an hour to $11, and JPMorgan Chase ( JPM), which boosted pay for 22,000 tellers and customer-service agents from a range of $12-$16.50 an hour to $15-$18.

The Economic Optimism Index is now in solidly optimistic territory (readings of 50 are neutral) and at its highest point since October 2004.

All income groups exhibited optimism, though higher earners ($50,000 and up) were relatively more optimistic than those below that threshold, with readings above 58 and below 54, respectively. Rural residents, at 65.8, were more optimistic than at any time in more than a decade, vs. 54.5 for suburbanites and 51.5 for city dwellers. The disparity likely reflects political persuasion to no small extent. Optimism also was at its highest in more than a decade for investors, at 59.5.


IBD'S TAKE: After Thursday's market action — and before Friday's and Monday's market drubbings — IBD changed its market outlook to "uptrend under pressure" from "confirmed uptrend," the equivalent of a green light turning yellow. Make sure to read The Big Picture column each day to stay on top of the market's prevailing trend, so you'll know when it makes sense to be aggressive and when you should move to the sidelines.


The Economic Optimism Index is a composite of three major subindexes that track views of near-term economic prospects, the outlook for personal finances over the coming six months, and views of how well government economic policies are working.

The gauge of the six-month economic outlook gained 2 points to 57.5, its highest level since October 2012.

The six-month personal financial outlook index dipped 0.2 point to 63.8, easing from January's 14-year high.

The final day of polling came as the Dow Jones industrial average dived 666 points on Feb. 2, capping the worst week for the Dow industrials, S&P 500 index and Nasdaq composite in two years. The Dow lost 4.6% and the S&P 500 index 4.1% in Monday's stock market trading, their worst one-day percentage loss since August 2011. Stocks open sharply lower Tuesday but quickly reversed high. If the stock market slide is short-lived then the impact on the economy and economic optimism will be negligible.

Meanwhile, the measure of confidence in federal economic policies jumped 3 points to 48.7. While Americans, as a whole, are still modestly pessimistic about government policies, Republicans, at 80.6, are more positive about economic policy than at any time in the history of the IBD/TIPP Economic Optimism Index, dating back to early 2001.

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The post IBD/TIPP Poll: Economic Optimism Hits 13-Year High On Trump Tax Cuts appeared first on Investor's Business Daily.


73. IBD/TIPP Poll: Economic Optimism Index For February 2018Вт., 06 февр.[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

X The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.3, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

Tax Revenues Jump 13% To Record High In April — When Will Dems Admit They Were Wrong About Trump's Tax Cuts?Economy: The federal government collected far more taxes this April than it did a year ago, despite the "budget busting" Trump tax cuts. So, we'll ask again: Are the tax cuts paying... Read More

IBD/TIPP Economic Optimism Index: Overall

View Questions And Full Results

The IBD/TIPP Economic Optimism Index climbed 2.9% in February to reach 56.7. This is the highest reading for this index since October 2004, and marks the 17th straight month that it has been over 50 — which signals overall optimism about the economy. It is also well above its long-term average of 49.3. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index gained 3.6% in February, after shooting up 11.4% in January, to reach 57.5. This is the highest reading for this index since just before the 2012 presidential elections. It is also well above its long-term average of 46.2. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months slipped slightly in February, down 0.3% compared with January, to stand at 63.8. The index is close to its all-time high of 65.3 in January 2004, when the Bush-era tax cuts began to take full effect. The Personal Financial Outlook is one of the most consistently optimistic indexes in the IBD/TIPP data set. It is currently well above its long-term average of 57.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component gained 6.6% in February as the impact of the Trump tax cuts started to become clear. It now stands at 48.7, which is a full four points above its 17-year average. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

RELATED:

Main IBD/TIPP Poll Page

IBD/TIPP Presidential Approval Index

IBD/TIPP Election 2016 Tracking Poll

Past Results

January 2018

December 2017

November 2017

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

January 2017

December 2016

Media Contact

Terry Jones
Investor's Business Daily Commentary Editor
terry.jones@investors.com | 310.448.6377

Marisa Lam
GMK Communications
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The post IBD/TIPP Poll: Economic Optimism Index For February 2018 appeared first on Investor's Business Daily.


74. Government Spending Spree Risks Overheating Economy, Icing StocksПн., 05 февр.[−]

The trigger for Friday's stock-market freakout that carried through to Monday was the sudden emergence of respectable wage growth, most analysts agreed. The trigger for the next freakout is very likely to be the federal budget.

X While wage hikes from the likes of Walmart ( WMT), Starbucks ( SBUX), and JPMorgan Chase ( JPM) in the wake of tax reform provide some reason to expect a pickup from the lackluster gains of recent years, IBD presented three reasons why the January pay raise reported by the Labor Department was less than meets the eye. Still, investors' reaction reflects Wall Street's nervousness about leaving behind a Goldilocks era of so-so economic growth and tepid inflation, accompanied by strong stock market gains.

The Dow Jones industrial average, S&P 500 index and Nasdaq composite all saw accelerating losses on the stock market today, as a key fear gauge hit its highest level since November 2016.

Now that Wall Street has gotten a case of nerves because tax cuts have helped kick the economy into higher gear, markets are going to be none too comfortable with the big spending increase Congress is moving toward.

In order to clear away Democratic opposition to a boost in military spending, Republicans are prepared to offer a nearly comparable increase in outlays on domestic programs — above and beyond the increases to Social Security, Medicare and Medicaid, whose funding runs on autopilot.

Politico reported on Friday that Republicans are eyeing a $300 billion increase in spending over two years. On an annual basis, that would boost government spending by about 0.75% of GDP. But the actual boost to government spending is likely to be significantly higher, once continued emergency funding for recovery from last year's big hurricanes is included. There's a package of $81 billion in emergency aid now waiting approval.

With all of that extra government spending on top of the fuel provided by front-loaded tax cuts that will cost the Treasury about $250 billion in the first full year, the U.S. economy is set to get a fiscal boost of a scale that's rarely been seen — particularly with 4.1% unemployment.


IBD'S TAKE: After Thursday's market action — and before Friday's market drubbing — IBD changed its market outlook to "uptrend under pressure" from "confirmed uptrend," the equivalent of a green light turning yellow. Make sure to read The Big Picture column each day to stay on top of the market's prevailing trend, so you'll know when it makes sense to be aggressive and when you should move to the sidelines.


Even before a deal to boost spending on defense and domestic programs, Treasury said it expects to issue nearly $1 trillion in debt this year, nearly double last year's total.

The backup in Treasury yields is hardly surprising amid a combination of rising deficits and a Federal Reserve that's gradually shrinking its balance sheet, reversing government bond purchases made to aid recovery from the financial crisis.

What seems to be driving the market action is a sudden realization that it's time to hedge against the risk that the economy will overheat. Even with tax cuts, that risk has appeared modest enough for investors to mostly discount, as consumers have grown to expect internet price transparency and the ever-expanding reach of Amazon.com ( AMZN) to keep inflation in check.

Those competitive dynamics help explain why Walmart, even as it hiked its minimum wage to $11 an hour in January, also shut dozens of Sam's Clubs employing about 10,000 workers, cut 3,500 store co-manager positions and thinned the ranks at its headquarters.

Yet now the risk of investors being caught flat-footed by a rise in inflation is growing as Washington prepares to unleash a second dose of fiscal firepower.

Of course, those fears may prove wrong as well, particularly if immigration politics blocks a budget deal and provokes a prolonged government shutdown. While the government is set to run out of funds on Feb. 9, Congress is expected to pass another short-term extension. The near-term trajectory of federal budget policy won't be clear until March, when lawmakers are likely to face three big hurdles in short order: a new government funding deadline, a potential debt-ceiling crisis, and the expiration of protections for Dreamers who came to live in the U.S. without authorization when they were kids.

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75. Big Wage Gain Sinks Stocks, Bonds: 3 Reasons To Doubt The DataПт., 02 февр.[−]

Wall Street was caught off guard on Friday as the Labor Department reported average hourly wage growth of 2.9%, the fastest since 2009 and a pretty sharp break from the kind of Goldilocks readings markets enjoyed throughout 2017.

X The Dow Jones industrial average, S&P 500 index and Nasdaq composite sold off on the stock market today, despite a 6% surge in Amazon.com ( AMZN) after its fourth-quarter earnings beat. The 10-year Treasury yield jumped to a 4-year high of 2.84%, as markets continue to ratchet up the odds of three Federal Reserve rate hikes in 2018.

But the market reaction to the jobs report may be overdone. While faster wage growth may be on the way, helped by the combination of a tight labor market and corporate tax cuts that companies like Walmart ( WMT), Starbucks ( SBUX) and Wells Fargo ( WFC) have credited for new wage hikes, Friday's report offers plenty of reasons to doubt whether wages really accelerated last month. Here are three:

1. Low-Wage Workweek Slumps

Big industries that pay low wages saw some of the biggest drops in hours worked. The retail workweek, for example, shrank by a half-hour, or 1.6%, to 30.6 hours per week, the shortest since BLS began tracking it for all employees in 2006. Retail pays its nearly 16 million workers $18.41 an hour, on average, far below the $26.74 average earned by private-sector workers last month.

Meanwhile, the average workweek dropped 0.8% in the leisure and hospitality sector, which pays its 16.25 million workers $15.73 an hour, on average.

Those two industries, which account for 1 in 4 private-sector workers, saw disproportionately large declines in their workweek. Average hourly wages reflect total weekly wages divided by total hours worked in all industry groups, so when low-wage workers put in fewer hours, the average wage rises.

Harm Bandholz, chief U.S. economist at UniCredit Bank, notes that the overall 0.5% decline in working hours was the biggest since April 2013. In addition to the tendency of lower-paid hourly wage workers to have their workweek cut, Bandholz notes that workers with a fixed salary appear to get a pay raise when they work fewer hours. He figures the shorter workweek artificially inflated earnings by nearly 0.2 percentage point.

2. Look Who Didn't Get Bigger Pay Gains

Production and supervisory workers, about 80% of total private-sector employment, saw steady hourly wage growth of 2.4% in January. If their wages aren't breaking out to the upside, then chances are it's not a real economywide trend.

Likewise, goods-producing industries saw wage growth tick down to 2.3% from 2.4% in December.

Taken together, that means the wage acceleration, if there is one, is focused on service-sector managers.

3. Bonus Money

"Some of that (wage) increase may have been influenced by one-time bonuses paid by some corporations after the passage of the tax reform bill," wrote Jefferies economist Thomas Simons. In other words, the spike in bonuses paid just after the start of the year may have skewed the average hourly wage calculation.


IBD'S TAKE: After Thursday's market action, IBD changed its market outlook to "uptrend under pressure" from "confirmed uptrend," the equivalent of a green light turning yellow. Make sure to read The Big Picture column each day to stay on top of the market's prevailing trend, so you'll know when it makes sense to be aggressive and when you should move to the sidelines.


Although January's wage acceleration was likely overstated, the report generally appears to indicate continued labor market strength. The U.S. economy added a better-than-expected 200,000 jobs in January, while the unemployment rate held at 4.1%, as expected.

There is reason to expect stronger wage gains in coming months. Walmart hiked its base wage to $11 an hour, but that won't show up in paychecks for another month or so. The retail giant also reportedly cut 3,500 store co-manager positions, while adding about 1,700 somewhat lower paid assistant manager positions. Meanwhile, Wells Fargo boosted its minimum wage to $15 an hour, as did a host of other banks.

November and December job gains were revised down by a combined 24,000, leaving the average monthly job gain at 192,000 over the past three months, the government said.

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76. Fed Leaves Rate Unchanged As Yellen Departs; Sets Up March HikeСр., 31 янв.[−]

Federal Reserve officials, meeting for the last time under Chair Janet Yellen, left borrowing costs unchanged while adding emphasis to their plan for more hikes, setting the stage for an increase in March under her successor Jerome Powell.

X "The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate," the policy-setting Federal Open Market Committee said in a statement Wednesday in Washington, adding the word "further" twice to previous language.

The changes to the statement, collectively acknowledging stronger growth and more confidence that inflation will rise to the 2% target, may spur speculation that the Fed will pick up the pace of interest-rate increases. Officials also said inflation "is expected to move up this year and to stabilize" around the goal, in phrasing that marked an upgrade from December.

At the same time, the Fed repeated language saying that "near-term risks to the economic outlook appear roughly balanced."

With her term ending later this week after President Donald Trump chose to replace her, Yellen is handing the reins to Powell, who has backed her gradual approach and is widely expected to raise interest rates at the FOMC's next meeting for the sixth time since late 2015. Fed officials are hoping to keep a tight labor market from overheating without raising borrowing costs so fast that it would stifle the economy.

"Gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low," the Fed said, removing previous references to disruptions from hurricanes. "Market-based measures of inflation compensation have increased in recent months but remain low."

Missed Target

With a gradual pace of rate increases, policy makers want to nudge inflation back up to their 2% target, a goal they have mostly missed for more than five years. Even with a brightening outlook for global growth and Fed tightening, financial conditions continue to ease.

The vote by U.S. central bankers to keep the benchmark overnight lending rate in a 1.25% to 1.5% target range was unanimous. Fed officials also voted to continue with their program to reduce the central bank's balance sheet, which began in October.

The FOMC said in a separate statement Wednesday that it elected Powell as its chairman, effective Feb. 3. He will be sworn in as chairman of the Board of Governors on Feb. 5.

"On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2%," the FOMC said, removing a previous reference to declines in inflation in 2017.

Inflation has picked up slightly since the middle of 2017 while remaining short of the central bank's 2% goal. The Fed's preferred price gauge, a Commerce Department index linked to consumer spending, rose 1.7% in the 12 months through December. Excluding volatile food and energy costs, inflation was 1.5%.

Yellen isn't scheduled to hold a press conference after this meeting; her final such event was in December. Fed policy makers will update their economic projections in March, when Powell is also expected to hold his first press briefing as chairman.

New Members

An annual rotation among the 12 regional Fed presidents who vote on the FOMC saw Loretta Mester of Cleveland, Thomas Barkin of Richmond, Raphael Bostic of Atlanta, and John Williams of San Francisco join as members at this meeting. Barkin and Bostic are voting for the first time since taking their posts.

The committee also reviewed its long-run policy goals statement at the January meeting and reiterated its support for the 2% inflation target, approving a statement that updated the long-run normal rate of unemployment to 4.6% — the median in projections from December.

Several Fed officials have called for a rethink of the central bank's policy framework, which could include aiming for a higher inflation target, or allowing prices to rise faster to make up for the time that they were too low.

During Yellen's four years at the helm, U.S. unemployment has fallen to 4.1%, the lowest since 2000, as she navigated the Fed away from its crisis-era emergency policies and inched interest rates away from zero. Yellen exploited low inflation to maintain low interest rates that helped pull millions of more Americans back into jobs, and the Fed under her leadership began to pay more attention to labor-market inequality.

"She is going out on a high note," Diane Swonk, chief economist for Grant Thornton LLP in Chicago, said before Wednesday's decision.

Powell takes over an economy that expanded at an annualized 2.6% pace in the final three months of the year, helped by stronger business investment and consumer spending. Tax cuts signed into law by Trump in December are also likely to lift growth in 2018, though the Fed and most analysts see little long-term boost, if any, to the economy.

The Fed statement didn't contain any reference to the tax legislation.

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77. Why Trump's State Of The Union Might Move Markets Up — Or DownПн., 29 янв.[−]

President Trump will bask in the glow of a strong economy, record stock market and the coming boost to take-home pay from tax cuts, as he delivers his State of the Union address Tuesday night.

X But what investors really want to hear about are the agenda items that could kick the economy into still-higher gear, undercut its momentum or alter the fortunes of various industry groups. Steel tariffs, infrastructure funding, dealmaking over immigration to avoid a government shutdown, and the future of Nafta all could feature in Tuesday's speech.

Ahead of the speech — in which Trump could announce whether he'll impose new restrictions on steel imports — steel stocks were among the better-performing groups on the stock market today, though most of the early gains faded. Steel Dynamics ( STLD) rose 0.1%, U.S. Steel ( X) 0.5% and AK Steel ( AKS) 0.7%, while the Dow Jones industrial average, S&P 500 index and Nasdaq composite traded modestly lower.

Trade

The theme of Trump's speech is a "safe, strong and proud America," so it wouldn't be surprising for him to preach a hard line on trade disputes. The real question is whether he'll announce new trade measures, double-down on his threat to walk away from Nafta, or whether he'll be satisfied to tout his recent actions slapping tariffs on solar cells and big washing machines.

The Commerce Department on Jan. 11 announced that it has completed its national security investigation into the impact of steel mill product imports, giving President Trump 90 days to decide whether to impose any remedies. CNBC reported last week that Commerce recommended a wide range of options to deal with aluminum and steel dumping in the U.S., including potentially higher tariffs.

Yet Monday's stock gains may have been fueled by an announcement from AK Steel that it was hiking current spot-market base prices for all carbon flat-rolled steel products by a minimum of $30 per ton — its second announced price hike this year.

"Domestic steel inventory levels have moderated," Steel Dynamics CEO Mark Millett said last week in an earnings statement. "World steel demand and pricing have structurally improved and domestic steel demand remains healthy."


IBD'S TAKE: Martin Marietta Materials is ranked No. 4 by IBD in the Building-Cement/Concrete/Aggregates industry group based on earnings, sales, margin and stock performance trends. Visit IBD Stock Checkup to see the leaders in each category. Cement makers have been laggards, ranked No. 135 out of 197 groups. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks in leading groups that break above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


The steel industry has tried to keep pressure on the White House to come to its aid, but given the improving fundamentals, it's not clear how far Trump will want to go in risking what could be a messy trade dispute and likely hike prices for domestic steel customers.

Meanwhile, the latest round of Nafta negotiations appears to be ending on a concerning note, with Reuters reporting that the countries won't issue a joint statement about the path forward for settling their differences. Wall Street remains concerned that Trump could start a six-month clock to a unilateral withdrawal from the trading pact, but Trump may secretly be satisfied with the status quo. We'll probably have a better idea after Tuesday night.

Working With Democrats

The other two big agenda items revolve around how Trump will work Democrats, both on immigration and infrastructure, since there's not much he can do with the slimmest of majorities in the Senate.

On infrastructure, the White House has reportedly embraced a strategy to lure more than $1 trillion in private, state and local funding with the hook of $200 billion in federal funds. Prospects for such a deal passing Congress appear slim, though, in part because Democrats want more federal funding, and Republicans are expected to demand spending cuts to offset any new spending commitments.

Yet IBD's Building-Cement/Concrete/Aggregates industry group is finally showing signs of life after mostly missing out on 2017's big stock market gains. Martin Marietta Materials ( MLM) and Vulcan Materials ( VMC) both cleared buy points in the past week and remain within the 5% chase zone. Martin Marietta shares slipped 1.4% on Monday, while Vulcan Materials was off 1.7%.

An unexpected boost to federal infrastructure spending would be gravy on top of lower corporate tax rates and a strengthening economy, so investors will be listening to see if Trump offers a deal Democrats can't refuse.

As long as Trump doesn't pull the plug on Nafta, and it seems unlikely that he will, then the clearest risk to economy and stock market comes from the potential for a prolonged government shutdown. While Democrats backed down after a 3-day shutdown last week, the reprieve was only temporary, with government funding extended through Feb. 8.

Trump's words on Tuesday about what kind of immigration changes he'll demand in exchange for preserving legal status for Dreamers, which is set to lapse starting March 5, will set the tone for the negotiation ahead, but the signals so far look ominous. Democrats denounced the White House's proposal last week to end family unification immigration, also known as chain migration, beyond spouses and children.

The key unknowns are whether there are 41 Democrats who will refuse to take "no" for an answer when it comes to Dreamers and whether Trump will give them any deal they'll accept. The potential for politics to drag down the economy seems real — especially because the government is set to hit its borrowing limit in late March, raising the risk of a debt default.

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78. Will The Trump Tax Cuts Make Wages, Growth Sizzle? Here's The EvidenceСб., 27 янв.[−]

Starbucks ( SBUX) says it's getting a $350 million tax cut this year from a 7-percentage-point reduction in its effective tax rate to 26%.

" The majority of the savings will go to the bottom line," CFO Scott Maw told analysts on Thursday. The other 40%-plus will go to investments in workers, via wage and benefit enhancements, as well as digital investments.

X Starbucks joined companies like Wal-Mart ( WMT), FedEx ( FDX) and Wells Fargo ( WFC) in tying wage increases to the Trump tax cuts. Meanwhile, dozens of other companies including AT&T ( T), Disney ( DIS) and Verizon ( VZ) have awarded bonuses to well more than 1 million workers, crediting tax cuts for their generosity.

With the U.S. economy seemingly ready to finally shift into high gear and wage growth overdue for a pickup amid 4.1% unemployment, the flurry of wage-hike and bonus announcements has raised hopes that the GOP tax reform will provide rocket fuel for a late-1990s-style growth spurt. In a sign that economic growth is breaking out to the upside, the 10-year Treasury yield rose as high as 2.67% on Friday, a level not seen since early 2014.

Yet there are reasons to be skeptical that a major economic and wage acceleration is at hand. Take Verizon, which on Tuesday said that tax reform would shrink its 2018 tax bill by $3.5 billion-$4 billion. Yet the company hasn't settled on any plans for deploying that cash windfall, other than sending about 10% of it, or $380 million, to employees via a bonus grant of 50 shares of stock per full-time worker. While those Verizon shares are worth about $2,700 at Friday's close on the stock market today, economists generally believe that consumers are much more likely to spend ongoing income gains than gains in paper wealth.


IBD'S TAKE: Starbucks is ranked No. 11 by IBD in the Retail-Restaurants industry group based on earnings, sales, margin and stock performance trends. Visit IBD Stock Checkup to see the leaders in each category. Restaurants have turned in a middling performance as a group, ranked No. 84 out of 197 groups. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks in leading groups that break above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


On a static basis, leaving out growth effects, tax cuts are supposed to provide roughly $200 billion in 2018 to the corporate and household sectors, equal to about 1% of GDP. While lower federal tax withholdings are set to take effect in February, raising household take-home pay, tax cuts are initially geared more to the business sector. That's in part because the new withholding will reflect the elimination of personal exemptions, but not the doubling of the child tax credit, which won't get paid until tax season in 2019.

That means this year's boost from tax cuts will depend a whole lot on what companies do with their windfalls, though it's also looking like Congress will reach a spending deal that further boosts deficits and gives the economy a lift — assuming the government doesn't shut down again.

Yet company after company seems to be signaling that they have fairly modest plans for putting their extra cash to work. UnitedHealth Group ( UNH) told analysts last week that corporate tax reform would boost earnings and cash flow by $1.7 billion in 2018 after an additional investment and added operating expenses of $200 million to $300 million in artificial intelligence, data analytics, digital health and other initiatives.

Iron-ore miner Cleveland-Cliffs ( CLF) said it's getting a $250 million cash infusion over the next several years and will owe no tax for years to come. It's still figuring out how to put the cash to work but said it "will be primarily deployed towards debt reduction, as well as future CapEx needs associated with our core business, and last but not least, potential capital returns to shareholders," according to a Seeking Alpha transcript.

Railroad operator Union Pacific expects tax cuts to add $1 billion to free cash flow this year but doesn't have any extra investment plans for now. "The lower tax rate and increased cash flow resulting from it does not change the calculus that we used for the returns that are attractive to our shareholders and for reinvesting in the railroad," CEO Lance Fritz told analysts. "Just because we have increased cash, it doesn't increase the pool of either projects or markets that are effective to us."

It's still very possible that the economy finally breaks the 3% GDP growth barrier this year. The economy may not need all that much extra fuel right now with labor markets already quite tight.

Although income gains outweigh stock market gains, a long, powerful bull market will surely loosen purse strings. Wal-Mart's minimum-wage hike to $11 an hour may lead other employers to follow suit, if the experience from their last big wage hike in 2016 is any guide.

The upfront bonuses, while surely appreciated by those who get them, are mostly meant to buy goodwill — probably both for the employers and the Republican Party, whose control of both the House and Senate are at risk in the coming elections.

Still, the effectiveness of corporate tax cuts and their power to trickle down to employees can't really be judged in the short term.

The whole idea is that improving the relative attractiveness of the U.S. as a place of business will, over time, lead to more productivity-enhancing investment, faster growth, more demand for labor and higher wages. Yet the real legacy of the tax cuts over the longer term will depend in part on just how bad budget deficits get, which may determine whether the tax cuts can be sustained over time.

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79. U.S. Economy Expanded At Below-Forecast 2.6% Pace In Q4, But Underlying Growth Best Since 2014Пт., 26 янв.[−]

The U.S. economy expanded at a slower-than-projected pace in the fourth quarter on drags from trade and inventory depletion, offsetting strength in consumer spending and business investment that signals solid momentum entering 2018.

X Gross domestic product rose at a 2.6% annualized rate after a 3.2% in the prior period, Commerce Department data showed Friday. The median forecast in a Bloomberg survey called for 3%. Consumer spending, the biggest part of the economy, rose 3.8%, the best in more than a year and slightly above views. Business equipment investment grew at the fastest pace in three years.

Separately, new orders for durable goods soared 2.9%, much better than expected. But orders for long-lasting manufactured goods excluding transports rose 0.6%, in line. Core capital goods, a proxy for business investment, unexpectedly fell 0.3%.

While the GDP report dashed expectations for the longest streak of 3 percent-or-better growth since 2005, a key measure of underlying demand delivered the strongest performance since 2014 and inflation picked up, which will help keep the Federal Reserve on track to raise interest rates in coming months.

President Trump's move to cut taxes may give the economy an additional boost in 2018, though reaching his goal of sustained 3% GDP growth will prove challenging, in part because household purchases are projected to cool. Weak productivity and slow labor-force expansion will also pose hurdles in the longer term, and higher borrowing costs could crimp gains as well.

"The economy's performance over the course of 2017 has been more mixed than overwhelmingly positive," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note before the report. Still, "economic momentum will remain strong, and may accelerate further, in 2018."

Fourth-quarter GDP was dragged down mainly because the trade deficit widened, as imports rose at double the pace of exports. Net exports subtracted 1.13 percentage points from GDP growth, the most in a year. A change in inventories subtracted 0.67 percentage point, the most since early 2017.

For a better sense of underlying domestic demand, economists look at final sales to domestic purchasers, which strip out inventories and trade, the two most volatile components of GDP. Such sales grew 4.3% last quarter, the most since 2014, after a 1.9% increase.

For the full year, GDP, the value of all goods and services produced, grew 2.5% in the fourth quarter from a year earlier, the Commerce Department report also showed. On that basis, it was the strongest annual performance since 2014's 2.7%. The expansion is now in its ninth year and is poised to become the country's second-longest on record later in 2018.

Household purchases, which account for about 70% of the economy, added 2.58 percentage points to overall GDP growth.

Another standout was corporate demand. Business equipment investment expanded at a 11.4 % annualized rate after a 10.8% gain in the prior period. That added 0.62 percentage point to fourth-quarter growth.

The economy also got a boost from housing for the first time in three quarters. Residential construction increased at a 11.6% annualized rate, contributing 0.42 percentage-point to growth.

While the boost from tax cuts and a strong labor market may provide support to the economy, growth may be less robust. GDP gains are projected to cool to 2.5% as early as this quarter, according to economists' forecasts compiled by Bloomberg.

One reason is that household spending will be hard pressed to accelerate further. Wage gains remain tepid even with steady hiring and the lowest unemployment rate since 2000. Gasoline expenses are ticking up, consumer debt is rising, and borrowing costs are projected to keep rising gradually as the Fed tightens monetary policy.

First-quarter GDP has also been limited in recent years by so- called residual seasonality, or quirks in the data that the government is trying to address.

Other Details

A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.9% annualized pace after a 1.3%increase.

Nonresidential fixed investment — which includes spending on equipment, structures such as office buildings and factories, and intellectual property — increased 6.8% and added 0.84 percentage point to growth.

Amid post-hurricane rebuilding efforts, government spending rose at a 3 percent pace, the most since 2015, adding 0.5 percentage-point to GDP growth; state and local outlays increased 2.6%, while spending by federal agencies grew 3.5%.

After-tax incomes adjusted for inflation climbed at a 1.1% annual rate; the saving rate decreased to 2.6%.

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80. The Government Shutdown Is Ending — At Least For NowВт., 23 янв.[−]

The Senate voted Monday to reopen the government after a three-day shutdown, temporarily funding the federal budget through Feb. 8. The House is expected to quickly follow suit.

Republicans needed at least nine Democratic senators to join them to pave the way for a funding bill that could win the 60 votes needed to overcome a filibuster.

The reversal signals that Democrats think they're at risk of losing the battle over public opinion if they they continue to pit the future of 700,000 Dreamers against the relatively smooth running of the federal government and ongoing strength of the U.S. economy. Democrats appear to be worried that they're jeopardizing prospects of victory in the midterm elections, when 10 Democratic senators face reelection in states carried by President Trump in November 2016.

Democrats are hinting that they'll be in a stronger position to threaten a shutdown in early February — if the Senate passes immigration legislation in the interim. In that case, they'd be better able to blame the shutdown on House Republicans' refusal to put a bipartisan Senate immigration bill to a vote. Yet it's unclear that Senate Majority Leader Mitch McConnell will let the immigration debate proceed in a way that plays into Democrats' hands.

The Dow Jones industrial average, S&P 500 index and Nasdaq composite opened lower Monday but soon turned higher on the stock market today. The Dow, S&P 500 and Nasdaq hit record intraday highs, adding to gains as the Senate outcome became clear. Meanwhile, the 10-year Treasury yield was little changed at 2.65%, holding near a three-year high, as markets weighed the potential fallout from the government shutdown.

Bridging the political divide over immigration will be difficult, so some analysts had warned of a possibility that the current standoff could keep the government closed longer than the 16-day shutdown in 2013 and the 21-day closure in 1995.

That risk appears much lower after Monday's deal, but it's not entirely off the table. Democrats will face pressure from their political base to take a forceful stand, rather than let Dreamers see their legal status removed, as is set to happen by early March due to Trump's ending of President Obama's Deferred Action for Childhood Arrivals program.

House Republicans aren't committing to any vote on Dreamers, and President Trump isn't saying whether he'd sign such legislation, so it's possible that any shutdown reprieve could be temporary.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


Nonessential federal employees were instructed to stay home from work on Monday. In 2013, when the government closed for 16 days, 850,000 federal workers were furloughed, for a total of 6.6 million lost workdays. Work also was interrupted for hundreds of thousands of private-sector employees working for federal contractors.

Eventually, the furloughed workers received back pay for work they didn't perform — about $2 billion worth — and the economy marched onward. The problem would come if a shutdown is drawn out for significantly longer. Meanwhile, military personnel and essential civilian staff are set to work without pay, unless Congress passes legislation that keeps their paychecks coming.

A number of Wall Street firms only expect the tax cuts to boost growth by about 0.3% this year. If that's right, then a shutdown could reverse most or all of the gain from tax cuts for as long as it continues. The 16-day 2013 shutdown was estimated to cut 0.3 percentage point from fourth-quarter GDP growth.

Eventually, a government shutdown could turn into a debt-ceiling crisis. Treasury market analysts say the debt ceiling will have to be raised by the second half of March to avoid default.

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81. Why This Government Shutdown May Hurt Economy, Stocks More Than UsualСб., 20 янв.[−]

Government shutdowns always have been primarily over government spending, but this one will be mostly over an ideological divide on immigration, with budget issues playing a secondary role.

That raises the risk that the partial government shutdown could be a long one and have more serious economic consequences than investors expect.

Senate Democrats blocked a Friday night effort to fund the government for a few weeks, leading to a partial shutdown at midnight Eastern.

The Dow industrials, S&P 500 index and Nasdaq composite rose on the stock market today, with the S&P 500 and Nasdaq hitting all-time highs. Meanwhile, the 10-year Treasury yield hit a three-year high of 2.64%, hardly a sign that markets are bracing for a negative economic shock.

If this looked like a run-of-the-mill government shutdown, the undaunted market response would make perfect sense. Typically, a government shutdown is a fleeting event that leaves no economic scars. That's still possible, and given the robust state of the U.S. economy entering 2018, a shutdown should be of even less concern at the moment.

Yet this fight looks potentially more disruptive because one or both political parties will have to give ground on an issue that has deep significance to their core supporters.

Democrats have seized upon President Trump's explosive remarks during a meeting over the future of so-called Dreamers last week in which he took issue with legal immigration from Haiti and from African countries, which he is alleged to have denigrated using an expletive. They think this is their best shot politically to force Trump's hand to provide certainty to some 800,000 immigrants who arrived in the U.S. without authorization when they were children.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


Trump, as well as many Republicans, have expressed openness to, even desire for, a deal on Dreamers. But Trump has given plenty of mixed signals and has made clear of late that any deal granting continued legal status or perhaps citizenship to Dreamers has to come at a price. That price is building a wall covering a substantial portion of the Southern border, which was the most central of Trump's campaign pledges.

Backing down from that demand now could seriously wound Trump's standing among hard-line immigration supporters. Yet Democrats, if they stay united — which is no sure thing in an election year that has 10 Democratic senators standing for reelection in states carried by Trump — would leave the White House in a pickle, either give up the wall or watch the economy suffer through an extended shutdown.

The 2013 shutdown was estimated to cut 0.3 percentage point from fourth-quarter GDP growth. That shutdown lasted 16 days, before House Republicans backed down from their insistence that the Affordable Care Act be defunded.

That shutdown saw 850,000 federal workers furloughed, for a total of 6.6 million lost workdays. Work also was interrupted for hundreds of thousands of private-sector employees working for federal contractors.

Eventually, the furloughed workers received back pay for work they didn't perform — about $2 billion worth — and the economy marched onward. The problem would come if a shutdown is drawn out for significantly longer.

A number of Wall Street firms only expect the tax cuts to boost growth by about 0.3% this year. If that's right, then a shutdown would reverse most or all of the gain from tax cuts for as long as it continues.

That's about the last thing President Trump wants right now, so an extended shutdown probably won't happen. But this time, it can't be ruled out.

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82. Fed Says Almost All Districts Saw Modest To Moderate GrowthСр., 17 янв.[−]

Almost all of the 12 Federal Reserve districts reported "modest to moderate gains" in economic activity at the start of 2018, a Federal Reserve survey showed.

X The central bank's Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks on or before Jan. 8, said the Dallas Fed bank was the exception, reporting "a robust increase."

"The outlook for 2018 remains optimistic for a majority of contacts across the country," according to the report, released Wednesday in Washington.

The report appears generally to support the Fed's outlook for 2018, which forecasts 2.5% economic growth and three interest-rate increases. Investors, judged by prices in fed funds futures contracts, have fully priced in at least two more hikes.

Labor 'Tightness'

Joblessness in the U.S. remained at 4.1% in December, a level that hasn't been bettered since 2000. "Most districts cited on-going labor market tightness and challenges finding qualified workers across skills and sectors, which, in some instances, was described as constraining growth," the Beige Book said.

Most districts said wages increased at a "modest" pace, while a few "observed that firms were raising wages in a broader range of industries and positions since the previous report."

The Beige Book said most districts reported "modest to moderate" price growth. Firms in some districts said they were able to boost selling prices.

The Fed's preferred measure for inflation, after excluding volatile food and energy components, was just 1.5% in the 12 months through November. That measure has lagged below the Fed's 2% target for most of the past five years.

Tax Bill

U.S. central bankers raised their 2018 growth forecast to 2.5% from 2.1% in September, according to their median estimate from their Dec. 12-13 policy meeting. President Donald Trump signed a $1.5 trillion tax-cut bill into law on December 22.

Fed Chair Janet Yellen said at her press conference that Fed officials "generally identified changes in tax policy as a factor supporting this modestly stronger outlook."

Almost all contacts in the Chicago Fed's district said the tax bill would have a positive impact on their firms. "Most respondents expected to spread the tax savings across outlays for capital, labor, debt repayment, and profit distributions to owners," the Chicago Fed said.

After contributing almost nothing to gross domestic product in the fourth quarter of 2016, nonresidential investment bounced back in the first three quarters of 2017.

"Reports indicated that some manufacturers increased capital expenditures over the reporting period," the Beige Book said.

The report said residential real estate activity "remained constrained" across the country, with homes sales limited by tight housing inventory.

The Atlanta Fed prepared the January Beige Book.

The post Fed Says Almost All Districts Saw Modest To Moderate Growth appeared first on Investor's Business Daily.


83. Five Reasons Why Trump Won't Pull Out Of NaftaПт., 12 янв.[−]

Thursday may be remembered as one of the low points of Donald Trump's presidency because of his widely denounced immigration remarks, but it could have been a banner day, with the announcement by Fiat Chrysler ( FCAU) that it will move production of its Ram heavy-duty pickup from Mexico to Michigan.

X Financial markets were thrown for a modest loop Wednesday afternoon when reports emerged that Canada now expects President Trump to put into motion the U.S. withdrawal from Nafta, possibly in the next few weeks. Shares of General Motors ( GM) and Kansas City Southern ( KSU) were among those sliding on the speculation. Yet Fiat Chrysler's news is among the recent developments that now make a near-term Nafta exit all but unthinkable.

Here are five reasons why it is extremely unlikely that Trump will move to pull out of the 1994 trade agreement:

1. Tax Cuts

Trump's strategy to boost American manufacturing always has involved both carrots and sticks. Now that he's got his carrots passed into law with a 21% corporate tax rate, making the U.S. a more attractive location to produce goods, the urgency of applying punitive tariffs has abated. Fiat Chrysler's move gives Trump tangible results to prove that his policies are making a difference in the Rust Belt.

2. Fire and Fury

To the extent that Steve Bannon's worldview still held influence in the Oval Office after his dismissal in August, that abruptly ended with the release of Michael Wolff's best-seller in which Trump's one-time campaign manager lobbed bombs at the president's children. Now Trump seems to be virtually alone, both in the White House and in the Republican Party, in his belief that the U.S. should walk away from Nafta.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


3. The Russia Probe

It may not be an overstatement to say that Trump is bracing for a war to preserve his presidency. Trump's comments this week raising doubt about whether he would submit to an interview with Special Counsel Robert Mueller underscore the possibility that the midterm elections could be a matter of political life and death for Trump. Even if no proof of collusion emerges, Democrats could seize on Trump's unwillingness to cooperate with the investigation to impeach him for obstructing justice. While a two-thirds vote in the Senate is needed for conviction, Trump's priority No. 1 is keeping the House in Republican hands, and when you're in a war, you don't go looking for unnecessary battles.

4. The Economy, Stupid

Most economists expect a fairly modest boost to growth from the tax cuts this year, with Goldman Sachs and JPMorgan economists forecasting a 0.3-percentage-point rise in GDP. While it's possible that those estimates are too conservative, as companies like Wells Fargo ( WFC) and Wal-Mart ( WMT) respond by hiking their minimum wage, the economy is the best thing that the GOP has going for it in an election year. Trump won't want to disrupt the positive trends by spreading uncertainty at a time when businesses have new incentives to invest in growth.

Amid growing odds of a potentially prolonged government shutdown over the status of so-called Dreamers, an announced plan to leave Nafta could offset much of the good economic news.

5. The Power of Inertia

Trump pulled out of the Paris climate agreement, disavowed the Iran nuclear deal, and ordered the wind-down of the deferred action program for Dreamers, so what makes Nafta different? In those first three cases, Trump moved when he faced deadlines to either break with existing policy or actively carry out President Obama's programs. In the case of DACA, for example, the Trump administration had to decide whether to defend Obama's executive action in court. Nafta is different: There's no deadline for making a decision — unless Trump starts the six-month clock for withdrawal — and the current uncertainty he's created about Mexico's status as a preferred U.S. trading partner is probably sufficient to influence business decisions like Fiat Chrysler's.

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84. IBD/TIPP Poll: Economic Optimism Index For January 2018Пт., 12 янв.[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

X The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over nearly 16 years has been 49.3, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

Tax Revenues Jump 13% To Record High In April — When Will Dems Admit They Were Wrong About Trump's Tax Cuts?Economy: The federal government collected far more taxes this April than it did a year ago, despite the "budget busting" Trump tax cuts. So, we'll ask again: Are the tax cuts paying... Read More

IBD/TIPP Economic Optimism Index: Overall

View Questions And Full Results

The IBD/TIPP Economic Optimism Index climbed a sharp 6.2% in January to reach 55.1. The index has now been above 50 — which signals overall optimism about the economy — for 16 straight months, signaling strong continued optimism. It is also above its long-term average of 49.3. The index stood at 44.4 in of December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index shot up 11.4% to reach 55.5 in January. That is well above its long-term average of 46.2. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months also showed a strong increase in January, with an 8.3% gain to 64. This, too, is the highest since Trump took office, and close to the all-time high of 65.3 in January 2004, when the Bush-era tax cuts began to take full effect. The Personal Financial Outlook is one of the most consistently optimistic indexes in the IBD/TIPP data set. It is currently well above its long-term average of 57.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component slumped again in January to 45.7, a 2.1% loss. This index briefly moved into optimistic territory in February for the first time in 10 years. But it is still 1 point above its long-term average of 44.7. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

RELATED:

Main IBD/TIPP Poll Page

IBD/TIPP Presidential Approval Index

IBD/TIPP Election 2016 Tracking Poll

Past Results

December 2017

November 2017

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

January 2017

December 2016

Media Contact

Terry Jones
Investor's Business Daily Commentary Editor
terry.jones@investors.com | 310.448.6377

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GMK Communications
marisa@gmkcommunications.com | 650.232.7188

The post IBD/TIPP Poll: Economic Optimism Index For January 2018 appeared first on Investor's Business Daily.


85. IBD/TIPP Economic Optimism Index Surges Even As Views Of Government SourПт., 12 янв.[−]

The IBD/TIPP Economic Optimism Index climbed 3.2 points to 10-month high of 55.1 in January as tax cuts and record highs on Wall Street buoyed Americans' views of their personal financial outlook to a 14-year high.

X Outside of three months early in 2017, when expectations were running high for what President Trump could accomplish with a GOP Congress, the IBD/TIPP Economic Optimism Index hit its highest level since November 2006.

The Economic Optimism Index is now in solidly optimistic territory (readings of 50 are neutral) and just over a point off the decade high of 56.3 in February 2017.

The poll, which included 901 responses from Jan. 2 to Jan. 10, was conducted after Trump signed tax legislation and amid reports that multiple banks including Wells Fargo ( WFC) were boosting their minimum wage to $15 an hour and other major employers including AT&T ( T) and Comcast ( CMCSA) announced $1,000 bonuses for their workers.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


The Economic Optimism Index is a composite of three major subindexes that track views of near-term economic prospects, the outlook for personal finances over the coming six months, and views of how well government economic policies are working.

The gauge of the six-month economic outlook vaulted 5.7 points to 55.5 after slipping into mildly pessimistic territory in December.

The six-month personal financial outlook index jumped 4.9 points to 64.0, the highest since January 2004.

Meanwhile, the measure of confidence in federal economic policies slipped 1 point to 45.7.

In short, Americans feel really positive about their financial prospects, they feel good about the economic outlook, but they're even more unhappy about government than they were before the tax cuts.

Looking below the surface, Republicans feel better about federal policies — a sky-high 76.0 reading — than at any time since the month after the 9/11 terrorist attacks. Democrats, on the other hand, have rarely felt worse about government policies, reflected by a 25.7 reading. Independents are moderately negative at 42.5, down from 45.8 in December.

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86. Core Inflation Accelerates As Shelter Costs JumpПт., 12 янв.[−]

The underlying pace of U.S. inflation unexpectedly accelerated in December amid increased shelter costs, reinforcing the outlook for the Federal Reserve to raise interest rates several times in 2018.

X Excluding food and energy, the so-called core consumer price index increased 1.8% from a year earlier after a 1.7% advance, including a 0.3% monthly gain that topped analyst projections and was the most in almost a year. Including all items, the broader CPI showed a smaller gain in December in line with estimates, as energy prices declined, a Labor Department report showed Friday.

The results may boost already-firm expectations for a March interest-rate increase and could help calm an increasingly heated debate among Fed officials over why inflation has stayed relatively placid despite solid economic growth and the lowest unemployment rate since 2000. Central bankers have penciled in three rate hikes in 2018 following three last year.

A separate Commerce Department report on Friday showed U.S. retail sales rose in December and November's gain was revised upward, indicating a robust holiday-shopping season.

Economist Estimates

The 0.3% monthly increase in the core CPI topped the 0.2% median estimate of economists surveyed by Bloomberg. Shelter costs rose 0.4%, the most since August, including a 0.4 percent increase in rents and 0.3% in owners' equivalent rent, one of the categories designed to track rental prices.

Prices of medical care rose 0.3%, as the index for prescription drugs advanced 1%.

The pickup in the core CPI data may help reinforce expectations that the Fed is making progress on stable inflation, one of its twin goals along with maximum employment.

At the same time, the central bank's preferred gauge of inflation — a separate figure based on consumer purchases and issued by the Commerce Department — has mostly missed its 2% goal in the past five years. The measure excluding food and energy is also below their target. December figures are due Jan. 29.

Other Details

  • Energy prices fell 1.2% after November's 3.9% gain.
  • Food costs advanced 0.2% following no change.
  • Lodging away from home rose 0.8% after a November decline.
  • Used-vehicle prices posted a 1.4% gain, while the CPI for new vehicles advanced 0.6%.
  • Prices of airfares fell 0.5%, apparel also down 0.5%.
  • Hourly earnings adjusted for inflation rose 0.4% from December 2016, according to a separate report from the Labor Department.

The post Core Inflation Accelerates As Shelter Costs Jump appeared first on Investor's Business Daily.


87. Here Comes A $1 Trillion — Scratch That — $2 Trillion U.S. Federal DeficitЧт., 11 янв.[−]

Just about everything (other than inflation) is lining up against investors in long-term Treasuries: stronger tax-cut-fueled growth; a Congress that is arguing over how much to hike spending; an unwinding of global central bank bond buying; and talks between North Korea and South Korea on easing military tensions. Add to that Wednesday's report that China is souring on purchases of U.S. government bonds.

X All of these factors helped push the 10-year Treasury yield up as high as 2.59% on Wednesday, before easing to 2.55% amid speculation that the U.S. will pull out of Nafta. That's still not far below the four-year-high 2.63% touched in March.

Yet, in one respect, markets may be underestimating upward pressure on long-term Treasury yields. While a number of Wall Street firms have said that a trillion-dollar deficit could return in fiscal 2019, the realization hasn't hit that annual deficits could approach $2 trillion, about 7% of GDP, by 2027.

The Dow Jones industrial average, S&P 500 index and Nasdaq composite rallied modestly early Thursday after retreating Wednesday but well off intraday lows. Bank stocks pushed higher in Wednesday's stock market trading, helped by prospects for wider net interest margins that would come from rising long-term rates without an equivalent rise in short-term Treasuries. Bank stocks edged higher early Thursday.

Shares of Wells Fargo ( WFC) rose 1.4%, Bank of America ( BAC) 0.9% and JPMorgan Chase ( JPM) 1.1%.

Meanwhile, homebuilder stocks sought to rebound after tumbling on the prospects for higher mortgage rates. Luxury homebuilder Toll Brothers ( TOL) rose 1% after sinking 2.9% on Wednesday. D.R. Horton ( DHI) gained 1.5% after Wednesday's 3.5% retreated. Lennar ( LEN), which sailed past fourth-quarter revenue estimates Wednesday but missed earnings due to a tax-related shift, was an exception, climbing 2.4% Wednesday. Lennar rose 1.4% Thursday morning.

Some analysts noted that Beijing's reported warning, which may be an effort to gain leverage in trade disputes with the U.S., may not be such a big deal because "China has not been a big buyer of Treasuries for several years now," as Jefferies economists Thomas Simons and Ward McCarthy wrote.

$1.5 Trillion And Counting

Even before the Trump tax cuts passed, the Congressional Budget Office was forecasting a $1.5 trillion deficit in 2027 as entitlement spending swells. How could that get as high as $2 trillion? The first step would be to extend individual tax cuts that are set to sunset after 2025, as the GOP vows to do. That could add about $150 billion to the 2027 deficit.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


Next, factor in behavioral changes that government scorekeepers didn't expect. Already California, New York and other blue states, whose upper-middle-class taxpayers could be hit by new limits on the deduction of state and local taxes, are trying to nail down ways to protect their residents from paying higher federal taxes. One idea is to allow individuals to make voluntary tax-protected contributions to state government, in lieu of tax payments. Limiting deductions was supposed to save $100 billion a year by 2025.

Further, some analysts believe that the official score of the legislation underestimates the revenue loss from pass-through businesses, which account for the vast majority of enterprises, opting to incorporate to take advantage of the new 21% corporate tax rate or otherwise reorganize to minimize tax bills.

Here's another coming shock: The Trump tax legislation was supposed to cut government health care spending by $53 billion in 2027 by repealing the individual mandate, but ObamaCare may end up costing substantially more — not less — due to Trump's policies. Despite repeal of the individual mandate and a sign-up period for HealthCare.gov that was half as long, the number of people signing up for coverage barely fell from a year ago, and the total could end up being higher once unpaid enrollment is winnowed out, because millions more were eligible for free ObamaCare bronze plans this year.

Sabotage Is Expensive

Even still, most of the 4.5 million uninsured Americans who were eligible for free coverage likely didn't sign up because they didn't realize it or missed the sign-up window. The surge in free bronze plans is a result of President Trump's decision to halt payments for cost-sharing subsidies, which the Affordable Care Act promised to insurers to reimburse their expense for dramatically shrinking deductibles and other out-of-pocket costs for low-income households who buy silver coverage.

Trump, who had the authority to end the payments funded by President Obama without a congressional appropriation, had long threatened the move as an act of sabotage. But most state health insurance officials seized an opening to jury-rig their exchanges in a way that made the government's cost of subsidies soar and turned the attempted sabotage into a life raft.

If Democrats reclaim the White House, expect them to seize on the expansion of free health coverage under Trump with more intensive enrollment efforts, or else states could pursue auto-enrollment initiatives to enroll modest-income households in free plans, substantially boosting the federal government's cost.

Putting everything together, as deficits widen from tax cuts that don't expire, state and individual behavioral shifts that further reduce tax revenues, and higher-than-expected ObamaCare costs, debt service costs will balloon as well.

A new projection is out from the Committee for a Responsible Federal Budget that the annual federal deficit will hit $2.1 trillion in 2027 on the current trajectory, including a fuller range of tax extensions, disaster relief, a lifting of annual spending limits known as the sequester and all the additional debt service.

One near-term development that could stand in the way of deeper sell-off in long-term Treasuries is the prospect for a government shutdown. The likelihood of a shutdown seemed to dim late Tuesday, when a federal judge ordered the Trump administration to renew protections for Dreamers under President Obama's Deferred Action for Childhood Arrivals program. While Trump is expected to challenge the dubious ruling in court, the issue may not be a barrier to keeping the government open for business beyond Jan. 19, when the most recent budget authorization expires. Still, Democratic leaders in Congress are talking about the reprieve as temporary and continue to tie a DACA fix to a longer government funding resolution.

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88. China Officials Are Said To Be Wary Of U.S. Debt, Sparking DropСр., 10 янв.[−]

China added to bond investors' jitters on Wednesday as traders braced for what they feared could be the end of a three-decade bull market.

X Officials in Beijing reviewing the nation's foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter. Benchmark bonds reversed earlier gains on the news, with the yield on 10-year Treasuries climbing for a fifth day.

China holds the world's largest foreign-exchange reserves, at $3.1 trillion, and regularly assesses its strategy for investing them. It isn't clear whether the recommendations of the officials have been adopted. The market for U.S. government bonds is becoming less attractive relative to other assets, and trade tensions with the U.S. may provide a reason to slow or stop buying American debt, the thinking of these officials goes, according to the people, who asked not to be named as they aren't allowed to discuss the matter publicly. China's State Administration of Foreign Exchange didn't immediately reply to a fax seeking comment on the matter.

"With markets already dealing with supply indigestion, headlines regarding potentially lower Chinese demand for Treasuries are renewing bearish dynamics," said Michael Leister, a strategist at Commerzbank AG. "Today's headlines will underscore concerns that the fading global quantitative-easing bid will trigger lasting upside pressure on developed-market yields."

The Chinese officials didn't specify why trade tensions would spur a cutback in Treasuries purchases, though foreign holdings of U.S. securities have sometimes been a geopolitical football in the past. The strategies discussed in the review don't concern daily purchases and sales, said the people. The officials recommended that the nation closely watch factors such as the outlook for supply of U.S. government debt, along with political developments including trade disputes between the world's two biggest economies when deciding whether to cut some Treasury holdings, the people said.

The yield on 10-year Treasuries was four basis points higher at 2.59 percent as of 12:16 p.m. in London, reversing a decline to 2.54 percent earlier Wednesday. The rate on comparable bunds was one basis point higher at 0.53 percent.

Any reduction in Chinese purchases would come just as the U.S. prepares to boost its supply of debt. The Treasury Department said in its most recent quarterly refunding announcement in November that borrowing needs will increase as the Federal Reserve reduces its balance sheet and as fiscal deficits look set to widen.

"It's a complicated chess game as with everything the Chinese do," said Charles Wyplosz, a professor of international economics at the Graduate Institute of International and Development Studies in Geneva. "For years they have been bothered by the fact that they are so heavily invested in one particular class of U.S. bonds, so it's just a question of time before would try to diversify."

Some investors said that the market could take the China news in its stride considering the nation's net purchases of Treasuries have already slowed "significantly."

"If China ceases to be a net purchaser of U.S. Treasuries, this is unlikely to have a significant impact on the overall yield curve unless China divests a large share of its total holdings in a short time period," said Rajiv Biswas, Singapore-based chief Asia-Pacific economist at IHS Markit.

Yields were already climbing this week amid expectations the improving global economy will boost inflation pressures round the world, just as major central banks scale back their asset purchases.

Markets are also braced for a deluge of debt supply this week. The U.S. is scheduled to reopen $20 billion of 10-year debt later today, followed by $12 billion of 30-year bonds on Thursday. Germany sold 4.03 billion euros of 0.5 percent 10-year bonds on Wednesday with syndications in Italy and Portugal to follow.

The post China Officials Are Said To Be Wary Of U.S. Debt, Sparking Drop appeared first on Investor's Business Daily.


89. Trump Tax-Cut Windfall Mounts: Higher Pay, Lower Utility BillsСр., 10 янв.[−]

The Trump tax cuts were met with bleak poll numbers and high skepticism among Americans about their tilt in favor of corporations and the highest-income groups. Yet barely two weeks after passage, roughly 1 million workers have been awarded bonuses that companies attribute to the GOP tax legislation, according to a running list by Americans for Tax Reform, and a few million more are in line to get small cuts in their utility bills.

X Still others will benefit from bigger corporate matches for 401(k) accounts, as well as a new $15 minimum wage adopted by at least 20 banks, including Wells Fargo ( WFC), U.S. Bancorp ( USB) and PNC Financial Services ( PNC), in the wake of tax cuts.

Among the biggest announcements have been $1,000 bonus awards by American Airlines ( AAL) (127,000 employees); AT&T ( T) (200,000); Bank of America ( BAC) (145,000); Comcast ( CMCSA) (100,000); Southwest Airlines ( LUV) (55,000); and U.S. Bancorp (60,000). The generosity of those announcements was undercut somewhat by reports that AT&T and Comcast were in the midst of layoffs.

Meanwhile, a number of electric utilities have announced plans to cut power bills, sharing their tax-cut windfall. Customers of Berkshire Hathaway ( BRKB) subsidiary Pacificorp and Exelon ( EXC) subsidiaries Pepco, Baltimore Gas & Electric, and Commonwealth Edison stand to benefit.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


Even before the tax cuts begin to show up in paychecks in February, take-home pay has been surging at a rate that's almost unmatched since recession hit in 2007, the exception being a spurt that coincided with 2017's bonus season that runs through the end of March.

Over the past 10 weeks, federal withheld employment and income taxes have surged 7.4% from the same period a year ago, an IBD analysis of Daily Treasury Statements finds. That's far faster than the roughly 5% growth in tax receipts implied by 2.5% average wage gains and the roughly 2% growth trend in aggregate hours worked in the economy, so bonuses and other incentive pay likely explain the surge to a large extent.

The big political question is whether such displays of corporate generosity begin to shift sentiment about the Republicans' legislative achievement and improve GOP prospects in the midterm elections. From an economic standpoint, the question is how fast will the economy grow in 2018 and how much growth will result from this instant gratification from tax cuts.

Most economists have fairly moderate expectations for growth this year, with JPMorgan Chase's economics team seeing 2.5% GDP growth in 2018, thanks to a 0.3-percentage-point lift from tax cuts. But JPMorgan CEO Jamie Dimon said on Tuesday that he thinks " 4% economic growth this year is possible."

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The post Trump Tax-Cut Windfall Mounts: Higher Pay, Lower Utility Bills appeared first on Investor's Business Daily.


90. Economy Added 148,000 Jobs In December As Goldilocks Sticks AroundПт., 05 янв.[−]

The U.S. economy added 148,000 jobs in December, while the unemployment rate held at 4.1%, the Labor Department said on Friday.

Wall Street economists expected a gain of 190,000 jobs and steady 4.1% jobless rate.

X Average hourly wages rose 9 cents to $26.63 an hour, up 2.5% from a year earlier. That was in line with the expected 2.5%, still the Goldilocks reading markets enjoyed throughout 2017.

Dow, S&P 500 and Nasdaq futures moved higher after the jobs report, with the major indexes hitting record highs early Friday. The 10-year Treasury yield slipped after the jobs and wage data that bolstered the case for the Federal Reserve to go slow in hiking its key interest rate.

The continuation of tepid average wage gains comes amid a recent surge in federal withheld employment and income taxes. Over the last couple of months, Americans' paychecks have been growing at nearly the best rate in a decade.

The stronger tax receipts may reflect a sugar high padded by early Christmas bonuses — AT&T ( T) and Comcast ( CMCSA) were among the companies pledging $1,000 bonuses for hundreds of thousands of employees as tax legislation crossed the finish line.

Meanwhile, a host of big banks including Wells Fargo ( WFC), PNC Financial Services ( PNC) and Fifth Third Bank ( FITB) have announced a $15 minimum wage since tax cuts passed. Wells Fargo is hiking its base wage from $13.50 an hour, but those won't show up until later this year.

To help boost recruitment in a tight job market, Target ( TGT) hiked its minimum wage to $11 an hour from $10 in October, with plans to get to $15 an hour by the end of 2020. Target announced 100,000 seasonal hires, up from 70,000, while Amazon.com ( AMZN) planned to add 120,000 seasonal jobs, same as a year ago.


IBD'S TAKE: The surest way to keep from missing out if this bull market still has legs and to avoid piling up losses should a bear market take hold is to read IBD's The Big Picture column each day to stay on top of the market trend, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


For the second straight year, Wal-Mart ( WMT) said it would give employees more hours rather than hire seasonal workers, so longer workweeks on top of solid payroll gains could be padding paychecks. Wal-Mart last raised its base wage to $10 an hour in February 2016.

Labor Department data showed that the retail sector shed 20,000 jobs in December. Nonstore retailers such as Amazon added just 200 jobs.

The ADP employment report out Thursday indicated that 250,000 private-sector jobs were added in December. Mark Zandi, chief economist at Moody's Analytics, which helps produce the ADP report, credited a strong Christmas selling season. "Robust Christmas sales prompted retailers and delivery services to add to their payrolls."

October and November job gains were revised own by a combined 9,000, leaving the average monthly job gain at 204,000 over the past three months, the government said.

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The post Economy Added 148,000 Jobs In December As Goldilocks Sticks Around appeared first on Investor's Business Daily.


91. Americans' Paychecks Just Got A Lot Fatter, New Tax Data ShowЧт., 04 янв.[−]

As President Trump and the GOP celebrate their $1.5-trillion-tax-cut victory, Americans' paychecks are growing like they haven't for a decade.

X The big question is whether this is a sugar high padded by early Christmas bonuses — AT&T ( T) and Comcast ( CMCSA) were among the companies pledging $1,000 bonuses for hundreds of thousands of employees as tax legislation crossed the finish line — or the start of a sustainable pickup for wage growth and the economy, and Friday's jobs data may start to provide some early hints.

Wall Street expects another solid payroll reading — thought not as robust as Thursday's ADP report showing a 250,000 rise in private-sector payrolls — with 190,000 nonfarm jobs added in December and the unemployment rate holding at a 17-year-low of 4.1%. Still, forecasters expect Labor Department data to show that the tepid 2.5% annual gain in average hourly wages continued last month.

Yet federal employment and income taxes withheld from worker paychecks are telling a merrier story. Over the past 10 weeks, federal withheld taxes have surged 6.8% from the same period a year ago, an IBD analysis of Daily Treasury Statements finds. That's far faster than the 5% growth in tax receipts implied by 2.5% average wage gains and the roughly 2% growth trend in aggregate hours worked in the economy.

A multitude of factors is likely contributing to the faster rise in aggregate pay. Faster wage growth, spurred by the tightening labor market, could be among them. Target ( TGT) hiked its minimum wage to $11 an hour from $10 in October. A host of big banks including Wells Fargo ( WFC), PNC Financial Services ( PNC) and Fifth Third Bank ( FITB) announced a $15 minimum wage after tax cuts passed, but those didn't take effect in time for December's jump in tax receipts. Wells Fargo hiked its base wage from $13.50 an hour.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


Mark Zandi, chief economist of Moody's Analytics, which helps produce the ADP employment report, attributed its strength to a strong Christmas selling season. "Robust Christmas sales prompted retailers and delivery services to add to their payrolls."

Target's wage hike came as it was seeking to recruit 100,000 workers for the holidays. Meanwhile, for the second straight year, Wal-Mart ( WMT) said it would give employees more hours rather than hire seasonal workers, so longer workweeks on top of solid payroll gains could be padding paychecks. Wal-Mart last raised its base wage to $10 an hour in February 2016.

A bigger Christmas bonus season is likely part of the story. After a year of huge stock gains and in anticipation of tax cuts in 2018, it wouldn't be surprising if bonuses were running ahead of the prior year's pace. The year-end bonus season runs through March 31, the deadline for deducting them from the prior year's pretax profits. And tax receipts spiked at the end of bonus season last March, briefly sending the growth in tax receipts to levels not seen since 2007.

Now tax receipts are again breaking above the trend that has prevailed for a decade. Yet, given the individual and corporate tax cuts, the logical time for companies to pay bonuses will be early in 2018. That will allow corporations to deduct them against 2017 profits, when they'll face a higher tax rate, yet allow individuals to recognize the income in 2018, when they'll face a lower tax rate.

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The post Americans' Paychecks Just Got A Lot Fatter, New Tax Data Show appeared first on Investor's Business Daily.


92. Most Fed Officials Backed Continued Gradual Rate HikesСр., 03 янв.[−]

Federal Reserve officials in December debated the risks to the U.S. economic outlook, with some concerned about low inflation and others pointing to robust growth that was about to get a further boost from tax cuts.

X Most participants reiterating support for "continuing a gradual approach to raising the target range" for the benchmark policy rate, according to minutes of the Federal Open Market Committee's Dec. 12-13 meeting released Wednesday in Washington. U.S. central bankers raised interest rates by a quarter percentage point and penciled in three more hikes for 2018, according to the median estimate.

Fed officials discussed several risks that could result in a faster pace of increases. "These risks included the possibility that inflation pressures could build unduly if output expanded well beyond its maximum sustainable level," owing to fiscal stimulus or "accommodative" financial conditions, the minutes said.

Policy makers continued to wrestle over the outlook for inflation, the minutes showed. Economists were surprised in 2017 by the failure of wages and prices to rally despite a strengthening job market. Even as unemployment dropped to 4.1 percent, the Fed's preferred measure of inflation dipped to as low as 1.4 percent, before rebounding to 1.8 percent in the 12 months through November.

Yield Curve

Fed officials said the pace of rate hikes could be slower if inflation failed to move up toward their 2 percent target. "While participants generally saw the risks to the economic outlook as roughly balanced, they agreed that inflation developments should be monitored closely," the minutes said.

The yield curve, or differences between short and longer-term rates on benchmark Treasury securities, received some discussion at the December meeting. Investors have raised concerns that the so-called flatness of the curve, where the spread between short- and long-term rates narrows, could portend a recession.

Fed officials "generally agreed that the current degree of flatness of the yield curve was not unusual by historical standards," the minutes said. "However, several participants thought that it would be important to continue to monitor the slope of the yield curve."

A week after the FOMC meeting, lawmakers passed a $1.5 trillion cut in corporate and personal taxes. Goldman Sachs Group Inc. economists estimate the changes will add 0.3 percentage point to growth this year and next. President Donald Trump signed the bill into law on Dec. 22.

Many Fed officials, the minutes said, expected the tax cuts to provide a lift to consumer spending and "a modest boost to capital spending."

The post Most Fed Officials Backed Continued Gradual Rate Hikes appeared first on Investor's Business Daily.


93. ISM Manufacturing Index Shows Factory Growth Accelerated In DecemberСр., 03 янв.[−]

The Institute for Supply Management's manufacturing survey index out Wednesday rose to 59.7 from November's 58.2, as the factory sector's run of strong growth showed no sign of letting up.

X Wall Street economists expected the ISM gauge to dip to 58.1. Readings above 50 signal expansion, while those south of 50 suggest contraction.

The new orders index surged to 69.4 from 64.0, while the current production gauge accelerated to 65.8 from 63.9. The employment gauge cooled moderately to a still-strong 57.0 from a red-hot 59.7.

The Dow Jones industrial average, S&P 500 index and Nasdaq composite stayed firm following the ISM release. The Dow, S&P 500 and Nasdaq all hit fresh record highs. The 10-year Treasury yield moved only a touch higher after the report.

Meanwhile, automakers were reporting December U.S. auto sales. Ford ( F) reported an unexpected increase in sales. General Motors ( GM) reported a smaller-than-expected decline while Fiat Chrysler ( FCAU) sales tumbled as the automaker slashes low-margin fleet sales.


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Minutes of the Federal Reserve's December meeting will be released at 2 p.m. ET and could shed light on the outlook for monetary policy in 2018 amid uncertainty about whether muted inflation will persist.

The factory report may lead to more questions over whether growth may be getting too strong. There were more signs on Wednesday that the economy could get extra juice from tax cuts early in 2018. Southwest Airlines ( LUV) and American Airlines ( AAL) were the latest to announce a $1,000 bonus for employees.

Before Christmas, Wells Fargo ( WFC) and other banks announced a rise in their minimum wage to $15 an hour.

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94. Trump Tax Cut Victory Hurts Infrastructure Spending Bill Prospects In 2018Пт., 29 дек. 2017[−]

With the celebration over his tax-cut victory still in full swing, President Trump tweeted last week that his big i nfrastructure plans are coming up next on the agenda. Yet the chances of passing any major building program look slim, at best, now that the Trump tax cuts have tapped a key potential source of infrastructure funding and arguably maxed out the federal government's borrowing commitments.

X To seal their $1.5 trillion tax-cut victory, Republicans had to take a $339 billion bite out of the overseas cash holdings of Apple ( AAPL), Microsoft ( MSFT), Google-parent Alphabet ( GOOGL) and other U.S. multinationals.

The final version of the tax legislation imposed a 15.5% tax on cash held overseas by those tech titans and other companies to avoid being taxed at the current 35% corporate rate, along with an 8% tax on illiquid assets such as real estate. Apple has $252 billion parked overseas, while Microsoft holds $128 billion and Alphabet $52 billion.

The move, which taxed away $150 billion more from multinationals' foreign cash stashes than an initial Senate plan released one month earlier, took away the prime source of funds eyed by a bipartisan group of lawmakers and considered by President Trump to fund a national infrastructure investment plan in the U.S.

One sign that Wall Street may have low expectations for Trump's infrastructure push is that IBD's Building-Cement/Concrete/Aggregates group ranks a lowly 171 of 197 industry groups by IBD based on stock performance trends. Shares of the group's heavyweights, Vulcan Materials ( VMC) and Martin Marietta Materials ( MLM), haven't made any headway since the week of Trump's election. Several midsize players, Eagle Materials ( EXP), Summit Materials ( SUM) and U.S. Concrete ( USCR) fared better in 2017.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


The tax legislation, which is expected to mark a generational turning point in fiscal policy as the federal government heads for a $1 trillion annual budget deficit by 2019, already has congressional Republicans talking about shifting their focus to cutting spending.

That leaves little room for compromise with Democrats, who have pushed for far bigger increases in infrastructure spending than the GOP is prepared to consider and who are sure to fight any spending curbs as the byproduct of tax cuts. Expect a replay of the aftermath of President George W. Bush's tax cuts, when Democrats refused to consider any spending cuts unless upper-income tax cuts were repealed.

At a time when the Federal Reserve is gradually reversing its financial-crisis era asset purchases by letting maturing mortgage and Treasury holdings run off the balance sheet, a burgeoning federal deficit could begin to put upward pressure on Treasury yields.

The Committee for a Responsible Federal Budget figures that the tax cuts could end up increasing federal deficits by $2 trillion or more over a decade, assuming that individual tax cuts don't sunset after 2025. The Congressional Budget Office said earlier in 2017 that legislation boosting deficits by $2 trillion would contribute to a near doubling of debt as a share of the economy over 20 years, from 77% in 2017 to 150% by 2047.

If there's a wild card for the economic outlook in 2018, it's fiscal policy. If a government shutdown can be avoided, then fiscal policy could provide an added boost to growth, thanks to emergency spending on rebuilding from the damaging hurricanes that hit at the end of last summer.

Nomura Chief U.S. Economist Lewis Alexander expects tax and fiscal policy to boost 2018 GDP by a half percentage point to 2.7%, but he sees potential for upside, if Republicans agree to Democratic demands to match an increase in military spending with additional outlays for domestic programs.

Yet there's also a risk that Democrats will lay out demands that Republicans refuse to meet, including an extension of President Obama's program that deferred deportation and provided work authorization for so-called Dreamers. While a prolonged government shutdown might not provide a major hit to growth, it would create uncertainty about the path of tax and spending policy ahead, dampening the enthusiasm created by the tax cuts.

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95. Home Prices In 20 U.S. Cities Increase By Most Since 2014Вт., 26 дек. 2017[−]

Housing prices in 20 U.S. cities accelerated more than forecast in October, rising by the most since mid-2014 as lean inventories continued to prop up values amid steady demand, S&P CoreLogic Case-Shiller data showed on Tuesday.

Highlights

The 20-city property values index increased 6.4% vs. a year earlier. That was above estimates for 6.3% and the biggest gain since July 2014. The National home-price gauge rose 6.2%, the most since June 2014. The seasonally adjusted 20-city index advanced 0.7% vs. the prior month vs. views for 0.6%.

Key Takeaways

A lingering shortage of previously owned homes is keeping housing prices elevated. That's allowed homeowners to recover the equity lost during the housing collapse and recession a decade ago. Sales, meanwhile, are strengthening as the labor market remains robust and borrowing costs stay close to historically low levels.

For those looking to buy for the first time, conditions are less favorable. Growth in property values is outpacing wage gains and limiting affordability, representing a headwind for the market.

Economist Views

"Home prices continue their climb supported by low inventories and increasing sales," David Blitzer, chairman of the S&P index committee, said in a statement. But that climb may be interrupted by the Federal Reserve hiking interest rates next year, he said. "Since home prices are rising faster than wages, salaries, and inflation, some areas could see potential homebuyers compelled to look at renting."

Other Details

  • All 20 cities in the index showed year-over-year gains, led by a 12.7% increase in Seattle and a 10.2% advance in Las Vegas.
  • After seasonal adjustment, Las Vegas had the biggest month-over-month rise at 1.4%, followed by San Francisco with a 1.2% increase. Home prices rose 0.1% in Miami from the prior month, marking the smallest advance of all cities.

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96. Do Trump Tax Cuts Deserve Credit For Wells Fargo, Fifth Third Pay Hikes?Чт., 21 дек. 2017[−]

Republicans got an unexpected boost of good publicity after Congress sent the $1.5 trillion package of tax cuts to President Trump's desk on Wednesday. Within hours, Wells Fargo ( WFC) and Fifth Third Bancorp ( FITB) both announced an increase in their minimum wages to $15 an hour, which seemed to provide immediate evidence that the tax cuts would be good for workers.

Those announcements came as Comcast ( CMCSA) and AT&T ( T) each said they'll pay out $1,000-apiece bonuses to employees. Trump heaped praise on AT&T in his tax-cut victory speech, and the company may be looking to earn some goodwill as it faces a legal challenge over its proposed acquisition of Time Warner ( TWX).

The surprise is that the potential gain to workers from corporate tax cuts is supposed to materialize over time, as companies boost productivity-enhancing investment and a more attractive business climate encourages more U.S.-based production. Those supply-side increases, along with lower individual taxes that boost demand, should intensify the bidding war for labor and push wages higher. But none of that stuff has happened yet.

So do tax cuts really deserve the credit for wage hikes? Probably at least a little, because they're giving companies an extra shot of confidence about the strength of the economy and a profitable future, but there are other catalysts that may be more important.


IBD'S TAKE: Read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


Take Wells Fargo, which is trying to turn over a new leaf after having its reputation bruised and battered by the disclosure of improper sales practices. What better publicity opportunity than immediately turning corporate tax cuts into employee wage hikes?

The biggest reason Wells Fargo is hiking its minimum wage is likely the current state of the labor market, with unemployment at a 17-year-low of 4.1%, which is putting upward pressure on wages and making it harder to find and retain qualified workers. Wells Fargo previously hiked its minimum wage to a range of $12 to $16 an hour, depending on location, in March 2016. Then, after Bank of America ( BAC) said it would raise its minimum wage to $15 an hour in December 2016, Wells Fargo followed the next month by lifting its base wage to a range of $13.50 to $17.

It's not clear whether the latest increase to $15 an hour, which will take effect in March, will be accompanied by much of a boost to entry-level workers whose hourly pay already exceeds $15.

The focus of the announcements on a $15 minimum wage suggests that part of the credit likely goes to the $15 wage movement and its success in spurring a number of states and cities, as well as private employers like Target ( TGT), to hike their minimum wages. In January, California's minimum wage will rise to $11 an hour and $12 a year later, on the way to $15 by 2022. New York City's minimum wage will hit $15 at the end of 2018. Since the minimum wage applies to the lowest-skilled work, bank tellers expect to make well above the minimum wage.

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The post Do Trump Tax Cuts Deserve Credit For Wells Fargo, Fifth Third Pay Hikes? appeared first on Investor's Business Daily.


97. GOP Takes Bigger Bite From Apple, Microsoft, Google To Seal Trump Tax CutsСб., 16 дек. 2017[−]

Republican tax negotiators finalized their nearly $1.5 trillion in tax cuts on Friday after another raid on the overseas piggy banks of Apple ( AAPL), Microsoft ( MSFT) and Google-parent Alphabet ( GOOGL).

The finalized version of the Tax Cuts and Jobs Act imposes a 15.5% tax on cash held overseas by those tech titans and other companies to avoid being taxed at the current 35% corporate rate, along with an 8% tax on illiquid assets such as real estate, raising $339 billion.

That's $40 billion more than the bill that passed the Senate in early December and $154 billion more than the initial Senate plan released one month ago. That original version would have set a 10% tax rate on cash and 5% on illiquid assets. Apple has $252 billion parked overseas, while Microsoft holds $128 billion and Alphabet $52 billion.

The S&P 500, Dow Jones industrial average and Nasdaq composite all rallied strongly Friday, hitting record highs on the stock market today amid growing confidence that the tax deal was nearing completion and had

Republicans are racing to get the legislation passed next week, before the GOP Senate majority shrinks, following Democrat Doug Jones' victory in Alabama's special election on Tuesday. At the moment, the bill can pass if two GOP senators oppose it, but the margin of error shrinks to one after Jones is sworn in sometime after Christmas. Yet those concerns pretty much evaporated on Friday afternoon, when Tennessee Sen. Bob Corker, the lone Republican to vote against the bill in early December, said he plans to vote for the final version. Maine's Susan Collins, another wavering vote, also signaled she was a yes Friday evening.

Major changes from the bill that passed the Senate include a 21% corporate tax rate, instead of 20%, but a start date of 2018, not 2019. The GOP deal also allows individuals to deduct $10,000 in state and local taxes of any kind, not just property taxes, as in the original version, to mollify California Republicans. The final bill also lowers the top individual tax rate to 37%.


IBD'S TAKE: The bull market won't go on forever, so read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


Republicans also satisfied Sen. Marco Rubio's demand that a bigger slice of the expanded child tax credit be made refundable in order to help working-class families with no income-tax liability.

The GOP bill expanded the child tax credit by $1,000, but the prior version only made $100 of the additional credit refundable. On Friday, Republicans bumped the expanded refundable portion to $400.

In addition to the corporate tax cut, the vast majority of businesses whose profits are taxed via individual tax returns also get tax cuts. Individual tax cuts, including a doubling of the standard deduction, lower rates and a bigger child tax credit are expected to expire after 2025, in line with the Senate bill. If those tax cuts are extended, as Republicans say they will be, the legislation will end up costing far more than the $1.5 trillion price tag.

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98. Retail Sales Rise Much More Than Expected In Broad AdvanceЧт., 14 дек. 2017[−]

U.S. retail sales rose more than forecast in November and the previous month was revised higher, indicating a broad strengthening of consumer demand as the holiday shopping season got underway, according to Commerce Department figures released Thursday.

Highlights

  • Overall sales climbed 0.8% vs. the estimated 0.3% gain. That follows a 0.5% October gain, revised up from 0.2%. Sales excluding motor vehicle dealers increased 1% after an upwardly revised 0.4% gain.
  • Core retail sales — used in GDP calculations and exclude food services, auto dealers, building materials stores and gasoline stations — rose 0.8% following a revised 0.4% increase.
  • 11 of 13 major retail categories showed gains.

Key Takeaways

The firm advance along with the October revision bodes well for consumer spending, the biggest part of the economy. Solid hiring, gains in stock prices and property values, and limited inflation are expected to sustain household demand in the final stretch of this year following two quarters of above-3% economic growth.

Sales in the retail control group increased at a three-month annualized pace of 6.6%, the most since June 2014.

Economists usually look at November-December sales together to assess performance during the holiday shopping period. Early accounts of the Thanksgiving weekend — the traditional start to the season — had suggested consumers were willing to spend more, though brick-and-mortar stores failed to boost customer traffic while online shopping stayed popular.

Other Details

  • Excluding automobiles and gasoline, sales jumped 0.8%, after a 0.4% gain the previous month.
  • Sales at auto and parts dealers fell 0.2%, reflecting cooling purchases of vehicles.
  • Receipts at gasoline stations increased 2.8% on higher prices.
  • Sales at electronics and appliances stores jumped 2.1%, the biggest gain since March.
  • Sales rose 2.5% online sites and other non-store merchants, the most since October 2016.
  • Purchases at furniture outlets rose 1.2%.
  • Receipts at restaurants increased 0.7%, the most since January.

The post Retail Sales Rise Much More Than Expected In Broad Advance appeared first on Investor's Business Daily.


99. Federal Reserve Gives Trump Tax Cuts A Green LightЧт., 14 дек. 2017[−]

The Federal Reserve stuck to script on Wednesday, raising its key overnight lending rate and maintaining a projection of three more rate hikes in 2018. Fed policymakers, including chief Janet Yellen, didn't wave red flags over Trump tax cuts being finalized in Congress.

X The good news is that Fed policymakers, factoring in imminent tax cuts, boosted their projection of 2018 economic growth to 2.5% from September's 2.1% forecast without increasing inflation estimates. That signals they expect the economy to pick up speed without causing monetary policymakers to hit the brakes.

Ahead of the news, shares of Apple ( AAPL) and Caterpillar ( CAT) helped push the S&P 500 index and Dow Jones industrial average into record territory on the stock market today, thanks to Republican momentum toward finalizing tax legislation and a benign inflation report.

Stocks got a lift as policymakers kept all signs of hawkish talons out of view, but gains faded heading into the close.

The S&P 500 index closed fractionally lower. The Dow industrials rose 0.3% and the Nasdaq composite 0.2%, off intraday highs after the Fed decision and Yellen's final quarterly press conference.

Bank of America ( BAC) and JPMorgan Chase ( JPM) saw slim losses after core consumer prices came in cooler than expected, rising just 1.7% from a year ago. JPMorgan and Bank of America fell a bit more after the Fed decision, trading down 1.25% and 1.6%.

Net interest margins of Bank of America, JPMorgan Chase and the rest of the banking sector are pinched when the gap between short-term interest rates and long-term rates narrows, and that's what happens when markets worry that the Fed is being too aggressive in raising rates.

After the Fed announcement, 10-year Treasury yields slipped further.

Fed Chair Janet Yellen noted that while tax cuts are likely to boost demand in the economy, she also expects a lower corporate rate and tax incentives for investment to boost supply and, potentially, productivity, curbing their inflationary impact.

Yellen did raise a longer-term concern about tax cuts adding to U.S. public debt, "taking what is already a significant problem and making it worse." She added that Congress may have less "fiscal space" for stimulus to help lift the economy out of future recessions.

Yellen also touched on Bitcoin, noting that it is not a "stable asset." Bitcoin futures were already down sharply Wednesday.

The Labor Department reported early Wednesday that overall consumer prices rose 2.2% from a year ago in November, as expected, amid higher energy prices. Meanwhile, prices for food consumed at home slipped 0.1% on the month, continuing the weak stretch that began in August as Amazon.com ( AMZN) closed its Whole Foods acquisition by slashing some prices.


IBD'S TAKE: The bull market won't go on forever, so read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


Historically tame health care price increases also have helped curtail overall inflation. Prices of medical commodities, such as prescription drugs, rose 0.6% in November, but were still up just 1.8% from a year ago. CVS Health ( CVS) said in a November earnings call that pharmacy same-store sales fell 3.4% in the third quarter, dragged down by generic-drug introductions. The profit squeeze on both its retail business and prescription benefit management unit, along with the looming threat of competition from Amazon, is behind CVS' acquisition of Aetna ( AET).

Leading up to Wednesday's Fed policy statement, markets were pricing in just two rate hikes in 2018. In the short term, soft inflation readings and hawkish Fed signals could further flatten the yield curve at a time when the gap between the two-year and 10-year Treasury yield is already close to its narrowest point since shortly before the 2007 recession began.

Yellen said yield curve inversion, with short-term rates exceeding long-term rates, might not mean recession this time.

Yet there's reason to expect 10-year Treasury yields to rise amid solid growth and tax cuts, as well as simple supply and demand. In October, the Fed began to let its mortgage securities and Treasuries, which were accumulated to aid the recovery from the financial crisis, gradually run off its balance sheet as they mature. In addition, larger deficits thanks to tax cuts should create more issuance.

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The post Federal Reserve Gives Trump Tax Cuts A Green Light appeared first on Investor's Business Daily.


100. House, Senate Reach Tax Deal, Settle On 21% Corporate RateЧт., 14 дек. 2017[−]

House and Senate Republicans have reportedly agreed on compromise legislation that hashes out the differences in their earlier bills, settling on a 21% corporate tax rate, as the GOP faces new urgency to get the bill to President Trump's desk before the end of the year.

X The stunning Democratic victory in Tuesday's special Senate election in one of the reddest states in the nation means that Republicans' two-vote margin of error in the Senate will shrink to just one at the start of 2018. That gives potential holdouts such as Maine Sen. Susan Collins more reason to drive a hard bargain and could further complicate efforts to nail down a 20% corporate rate.

Yet financial markets seem unconcerned that any Republicans will exercise their leverage to an extent that risks derailing the legislation. After rallying on Tuesday amid reports that the bill will come to a vote next week, S&P 500 and Dow Jones industrial average futures briefly weakened overnight as the election results came in. The S&P 500 and Dow industrials hit record highs Wednesday, though the S&P 500 index closed fractionally lower on the stock market today following the Federal Reserve's interest rate hike.

GOP tax negotiators floated a 22% corporate rate last week, and after another week of talks, the goal of a 20% rate still seems out of reach. Republican lawmakers are looking for a way to offset the cost of eliminating the corporate alternative minimum tax and to limit the potential impact of repealing the state and local income-tax deduction in order to win over blue-state colleagues.

From Wall Street's perspective, details of the emerging tax package contained what might be viewed as halfway decent news for luxury homebuilders such as Toll Bros. ( TOL). The deal forged to help win over Republicans in blue states with high taxes and high home prices would preserve the deductibility of mortgage interest up to $750,000, splitting the difference between the House and Senate bills.


IBD'S TAKE: The bull market won't go on forever, so read IBD's The Big Picture column every day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines. As long as the current "confirmed uptrend" — the equivalent of a green light — stays in place, leading stocks breaking above a buy point are more likely than not to have the wind at their backs. Here's a good place to start looking for stocks that may be poised to move higher.


On a Dec. 5 earnings call, Toll Bros. CEO Douglas Yearley downplayed the impact of tax incentives on its buyers' behavior. "With the Senate bill coming out last week, the headlines have only increased; yet this past week had the highest sales for our first week of December since 2005," he said.

Republican tax writers already have shaken loose about every bit of loose change they can find. That became clear the other week, when GOP senators escalated a new tax on the foreign profits that U.S. multinationals like Apple ( AAPL) and Google-parent Alphabet ( GOOGL) hold overseas, in part to avoid the 35% corporate rate. After initially proposing a 10% tax on cash and 5% tax on illiquid assets, the Senate hiked those to 14.5% and 7.5%, respectively, raising an extra $113 billion. Apple held $252 billion in cash overseas at the end of its fiscal fourth quarter.

Another part of the emerging deal apparently includes somewhat smaller tax cuts for the vast majority of firms whose profits are taxed via individual returns and a lower, 37% tax bracket for the highest earners. That last provision is already getting some pushback from Collins. Meanwhile, Florida Sen. Marco Rubio isn't happy that the GOP wants to bump up the corporate tax rate to offset high-income tax cuts, rather than use the room to give a bigger child tax credit to working-class families that don't owe income tax.

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The post House, Senate Reach Tax Deal, Settle On 21% Corporate Rate appeared first on Investor's Business Daily.



 
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