U.S. Trade Deficit Narrows As Oil Prices Fall
The U.S. trade deficit in goods and services lessened to $49.31 billion during November from $55.70 billion in October, revised from $55.49 billion. Exports declined 0.6% (+3.7% y/y) after an unrevised 0.1% easing in October, while imports fell 2.9% (+3.2% y/y) after a 0.4% gain in October, revised from 0.2%.
The deficit in goods trade declined to $70.5 billion in November from a record $77.1 billion in October. Exports of goods declined 0.9% (+4.6% y/y), but rose slightly in real terms. Foods, feeds and beverage exports rebounded 0.6% (-2.2% y/y) following four months of sharp decline. Auto exports fell 3.0% (-8.8% y/y) after a 1.9% drop, while non-auto capital goods exports weakened 5.0% (+1.4% y/y). Industrial supplies exports fell 2.9% (+11.4% y/y). Exports of petroleum declined 3.8% (+31.7% y/y) as prices fell. Constant dollar petroleum exports increased 6.4% m/m and by nearly one-quarter y/y.
Imports of goods decreased 3.6% (+3.4% y/y) in November after rising for six straight months. In constant dollars, imports fell 3.0% (+1.9% y/y) after little change in October. Nonauto consumer goods imports declined 7.5% (+2.2% y/y). Foods, feeds and beverages imports fell 1.2% (+3.8% y/y) while imports of capital goods improved 0.6% (1.8% y/y). Imports of automobiles gained 0.8% (6.4% y/y) and have risen steadily since May. Industrial supplies imports declined 6.9% (+2.4% y/y) but fell 5.2% in real terms (-4.1% y/y).
The trade deficit with China declined to $37.9 billion (NSA) in November. Exports to China fell 5.1% (-32.1% y/y), the fourth sharp decline in five months. Imports declined 10.9% (-3.3% y/y) after a 4.4% rise. (…)
Source: National Bank of Canada (via The Daily Shot)
THE CHINA SYNDROME
-
‘This One Here Is Gonna Kick My Butt’—Farm Belt Bankruptcies Are Soaring Throughout much of the Midwest, U.S. farmers are filing for chapter 12 bankruptcy protection at levels not seen for at least a decade, a Wall Street Journal review of federal data shows. Trade disputes over agriculture are adding pain to low commodity prices that have been grinding down American farmers for years.
A wave of bankruptcies is sweeping the U.S. Farm Belt as trade disputes add pain to the low commodity prices that have been grinding down American farmers for years.
Throughout much of the Midwest, U.S. farmers are filing for chapter 12 bankruptcy protection at levels not seen for at least a decade, a Wall Street Journal review of federal data shows.
Bankruptcies in three regions covering major farm states last year rose to the highest level in at least 10 years. The Seventh Circuit Court of Appeals, which includes Illinois, Indiana and Wisconsin, had double the bankruptcies in 2018 compared with 2008. In the Eighth Circuit, which includes states from North Dakota to Arkansas, bankruptcies swelled 96%. The 10th Circuit, which covers Kansas and other states, last year had 59% more bankruptcies than a decade earlier.
States in those circuits accounted for nearly half of all sales of U.S. farm products in 2017, according to U.S. Department of Agriculture data.
The rise in farm bankruptcies represents a reckoning for rural America, which has suffered a multiyear slump in prices for corn, soybeans and other farm commodities touched off by a world-wide glut, made worse by growing competition from agriculture powerhouses such as Russia and Brazil.
Trade disputes under the Trump administration with major buyers of U.S. farm goods, such as China and Mexico, have further roiled agricultural markets and pressured farmers’ incomes. Prices for soybeans and hogs plummeted after those countries retaliated against U.S. steel and aluminum tariffs by imposing duties on U.S. products like oilseeds and pork, slashing shipments to big buyers.
Low milk prices are driving dairy farmers out of business in a market that’s also struggling with retaliatory tariffs on U.S. cheese from Mexico and China. Tariffs on U.S. pork have helped contribute to a record buildup in U.S. meat supplies, leading to lower prices for beef and chicken. (…)
Low prices and mounting farm debts have sparked fears of more farm closures to come, among both large-scale farms that grew rapidly on rented land and small farms run by families working multiple jobs. (…)
More than half of U.S. farm households lost money farming in recent years, according to the USDA, which estimated that median farm income for U.S. farm households was negative $1,548 in 2018. Farm incomes have slid despite record productivity on American farms, because oversupply drives down commodity prices. (…)
Nationwide, the volume of loans to fund current operating expenses grew 22% in the fourth quarter from year-ago levels, hitting a quarterly record of $58.7 billion, according to the Federal Reserve Bank of Kansas City. The average size of these loans rose to $74,190, the highest fourth-quarter level in history when adjusted for inflation, the bank said. (…)
“We thought 2019 would be the year things turned around,” said Mr. Hudnutt. “Then the trade dispute happened and that really put a damper on things.” (…)
Nathan Kauffman, Omaha branch executive at the Kansas City Fed, called the recent rise in bankruptcies modest. He said that while further increases are likely, he doesn’t anticipate a sharp jump in filings, though the downturn in agriculture could drag on for years to come. (…)
Past Five Years Were Hottest on Record, Scientists Say The past five years have been the hottest in modern records, federal scientists said Wednesday, the latest in a series of warnings as House Democrats promise to combat climate change.
International Student Enrollment Drops for Second Year, Report Says The international market for U.S. graduate education is softening. For the second year in a row the number of students from abroad who enrolled in U.S. graduate schools fell by 1%.
SENTIMENT WATCH
Still an unloved bull market:
Yesterday, the WSJ had a lead article titled Don’t Obsess Over the Earnings Season Earnings are overrated.
Today:
Tepid Earnings Forecasts Are Next Test for Bull Market The yearslong expansion in U.S. corporate profits may be coming to an end sooner than investors expected, another warning sign for the nearly decadelong bull market.
More than 30 companies in the S&P 500, including Netflix Inc., Delta Air Lines Inc.DAL -0.04% and Estée Lauder Cos., have offered first-quarter earnings forecasts that fell short of analysts’ estimates in recent weeks, citing deteriorating outlooks for the global economy as well as uncertainty around trade policy.
The flurry of tepid forecasts has put companies in the broad stock-market index on track to report a 1.4% decline in profits in the first quarter from a year earlier—a marked deterioration from September when earnings for the period were projected to grow by about 7%.
If those numbers pan out, it would mark the first year-over-year profit decline for large U.S. companies since the second quarter of 2016. It would also show momentum flagging after multinationals, ranging from technology firms to retailers, delivered robust results for the end of 2018, carrying the S&P 500 to its fifth consecutive quarter of double-digit earnings growth. (…)
The cuts to first-quarter estimates have affected all 11 sectors of the S&P 500, with energy and technology companies seeing the biggest revisions in January. Now, seven of those sectors are projected to report a decrease in earnings for the first quarter. (…)
“What the markets like least in the world is negative earnings growth,” said Jerry Braakman, chief investment officer of First American Trust, which manages $1.3 billion for clients in Santa Ana, Calif. (…)
Morgan Stanley analysts, who have been among the more bearish of Wall Street firms in the past year, said this week that they “wouldn’t be surprised” if S&P 500 companies wound up delivering lower earnings every quarter of 2019.
Goldman Sachs analysts said, in a recent note, that lower oil prices and pockets of economic weakness in the U.S. support a more conservative earnings outlook for the year. “More estimate reductions are likely rather than boosts to forecasts,” the analysts wrote.
EARNINGS WATCH
With 282 companies in, the beat rate is 70% and the Surprise Factor rises further to +3.4% bringing the blended growth rate to 16.1%, exceeding the Jan. 1 estimate of 15.8% for the first time this season. Companies that have reported showed an 18.0% earnings growth rate, raising the possibility that Q4’18 earnings growth may actually get even better.
Revenues are in a similar situation as companies having reported showed a 6.8% growth in revenues while the current expected growth is 5.8% and the revenue beat rate is 61% with a 0.5% surprise factor.
Trailing EPS are now $162.57, above the full year forecast of $161.98.
Refinitiv/IBES data continue to show Q1’19 earnings rising 0.3% (0.8% ex-Energy).
Tech Rally Puts Nasdaq on Cusp of Exiting Bear Market Optimism about U.S.-China trade deal and U.S. monetary policy has pushed shares of large technology firms higher
The Nasdaq Composite is on the cusp of exiting a bear market, rebounding nearly 20% from its Christmas Eve low and highlighting the resilience of the technology shares that have long powered the market higher. (…)
If the index achieves the feat in the next five days—closing at or above 7431.504—it would mark its second fastest such rebound since its inception in the 1970s, according to Dow Jones Market Data. Despite the recent surge, the index is still down 9.1% from its Aug. 29 high.
Meanwhile, the S&P 500 and Dow Jones Industrial Average, which narrowly avoided entering a bear market, have also surged since Christmas. The indexes are both up more than 16% from their lows. (…)
FYI, 86% of the 37 Technology companies that have reported (31 remaining) beat their estimates with a +2.1% surprise factor. Analysts are forecasting this important sector (20% of the market) to post negative growth in each of the next 3 quarters and be the only sector other than Energy to post negative earnings growth in 2019.
Not that the past will necessarily repeat itself, but let’s recall that, since Q4’16, Technology companies’ beat rate averaged 89.6% and their surprise factor +7.2%.
SENTIMENT WATCH II
JPMorgan Says Boost Your Risk Positions. And Unwind Those Hedges
The bank’s global strategists continue to favor equities relative to bonds, saying in a monthly report that markets are still some way off from fully pricing in less tightening from the Fed. With valuations more supportive, they scrapped hedges that helped cushion performance going into December. They lifted allocations to emerging-market stocks and bonds.
“This decisive dovish shift, to the extent it is sustained, is removing some of the headwinds that caused the 2018 market rout and raises the prospect of 2019 being an asset-reflation year,” JPMorgan strategists led by London-based Nikolaos Panigirtzoglou wrote in the Feb. 6 note. (…)
“This dynamic is not only related to a more optimistic view on U.S.-China trade negotiations, but also the possibility that the lagged effects from previous stimulus combined with new stimulus measures will make China look better than last year from a stimulus-traction point of view,” they wrote.
Please, also consider these charts:
Source: CNN (via The Daily Shot)
NDR’s Daily Trading Sentiment Composite (courtesy of CMG Wealth) also switched to optimism (bearish):
Source: Ned Davis Research
Right when we are bumping against the (now rising) 200 dmas:
Source: 
