August 8, 2018

Stocks opened lower today on escalating trade tensions with China. The Dow is currently down 38 pts and the SPX is flat.  Losses are led by energy as well as the defensive sectors. On the other hand, banks, semiconductors and retailers are higher in early trading. Most European markets are poised to close lower by .3% and China’s stock market gave up the prior session’s gains last night. WTI crude oil sank nearly 4% to trade at $65.50/barrel after Chinese import data revealed modestly lower oil demand over the last few months. Traders are eager to jump to the conclusion that trade tariffs are damaging commodity demand. The fact is that economists are expecting global oil demand to grow 1.5% this year vs. the historical average 1%. So don’t be surprised if oil prices continue the uneven march higher. Bonds are mixed in today’s trade. The iShares 20+ Year Treasury Bond ETF (TLT) is up .1% (but is still down 6% this year). Corporate bonds—represented by the iShares IBOXX Investment Grade Corporate Bond ETF (LQD) are down about .1% today. Yields aren’t moving much. The yield curve remains pretty flat; the spread between the 2-year and 10-year Treasury yields is hovering around .30%.

China announced retaliatory trade tariffs on $16bil of imported US goods. The new 25% import tax will affect 333 items such as cars, motorcycles, coal, asphalt, fiberoptic cable, fuel, and plastic products. This move is a direct response to the Trump Administration’s recent announcement of tariffs on $16bil of imported Chinese goods. Since the trade spat began earlier this year, new tariffs have been imposed on $50bil in goods on both sides. 

Yesterday, Tesla (TSLA) stock shot up 11% after two very positive headlines broke. First, Saudi Arabia’s sovereign wealth fund announced it has purchased a 3-5% ownership stake in the company. That equates to a roughly $2bil investment. Second, CEO Elon Musk tweeted that he is considering taking the company private at $420/share. Wall Street is taking him seriously, and boards members say they’ve met with Musk several times to discuss a possible transaction. This is by no means assured, of course. So far as we know, the board hasn’t yet received a formal offer, hasn’t retained an investment bank or negotiated the price. And Musk hasn’t said anything about how the deal would be financed.

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