Dow Opens to Minor Monday Gains as US-China Trade Talks Ramp up

The Dow Jones Industrial Average opened to minor gains on Monday morning as the US stock market continued to wait to see whether renewed negotiations between the world’s two largest economies would bring an end to the US-China trade war.

Dow, S&P 500 Teeter as World’s Largest Economies Meet for Trade Talks

As of 9:32 am ET, the Dow had gained 38.27 points or 0.16 percent , while the S&P 500 added 0.08 percent to its impressive Friday run. The Nasdaq, which had been the worst performer in pre-market trading, fought its way back into the green for a 0.27 percent gain.

Dow (blue), S&P 500 (red), and Nasdaq (orange) futures mostly traded sideways ahead of Monday’s opening bell.

Those muted movements marked a severe departure from Friday’s close when all three indices punctuated the week with massive rallies. The Dow rose 746.94 points or 3.29 percent to close at 23,433.16, and the S&P 500 closed at 2,531.94 for a daily gain of 3.43 percent. The Nasdaq managed to surge even further, gaining 4.26 percent ahead of the closing bell.

In what has quickly become the “new reality” for investors, the stock market has been intensely volatile in recent weeks. Now, though, it appears that the Dow and other major indices are waiting for more details on renewed US-China trade talks to determine whether it will build on Friday’s recovery or slip back into the red.

Will US-China Trade Talks Reach a Resolution?

On Monday, Deputy US Trade Representative Jeffrey Gerrish led a delegation to China for two days of trade negotiations. The first day of talks brought an unexpected visit from Chinese Vice Premier Liu He, the country’s top economic policymaker and the direct head of the trade discussions.

The standoff between the two countries has begun to make itself known in the markets, with tech bellwether Apple forced to slash revenue guidance due to poor fundamentals in China, the first major indication that US companies stand to take severe losses if the “tariff truce” expires on March 1 without a new trade agreement.

Some analysts have speculated that a weak stock market could force US President Donald Trump’s hand, but US Trade Representative Robert Lighthizer has reportedly been adamant that he wants to prevent Trump from cutting a deal that includes “empty promises” from the Chinese.

Consequently, it seems like traders are holding their fingers off the trigger until more details from the trade talks emerge. Liu’s appearance at the talks is likely a positive sign, though it’s still not clear from reports how great a role he played in Monday’s discussions.

Top Movers

Toymaker Mattel (MAT) extended its Friday rally, rising 4.9 percent to headline the S&P 500. Micron Technology (MU) and Dollar Tree (DLTR) led the Nasdaq, with the former rising on analyst predictions that MU shares have “bottomed out” and the latter popping in response to reports that activist investment firm Starboard Value wants to shake things up at the discount retailer.

PG&E Corp (PCG) was far and away the worst performer in either the Dow, S&P 500, or Nasdaq following the opening bell, with shares plunging 22 percent on reports that the California utility company faces a minimum of $30 billion in liability for fires in 2017 and 2018, including the Camp Fire — believed to be the deadliest wildfire in California’s history.

Government Shutdown: Week 3 with No End in Sight

The partial shutdown of the US federal government has now entered its third week.

On the domestic front, the markets could soon begin to see the impact of the partial government shutdown, which has now entered its third week with no end in sight.

The Democratic-led House of Representatives and the Trump Administration continue to spar over funding for the president’s proposed border wall, with neither side caving to pressure to strike a deal to fund the nine federal departments that ran out of money on Dec. 22. An estimated 800,000 federal employees have been placed on unpaid furlough or forced to work without pay, leading to mass callouts in the Transportation Security Administration (TSA) and other high-visibility departments.

As of Monday morning, the 16-day shutdown is tied for the third-longest in US history, and the number of federal employees refusing to show up to work will only increase as people grow tired of working without pay or seek temporary employment to help cover their monthly expenses.

US Taxpayers Get Cold Shoulder from IRS amid Shutdown

A prolonged shutdown would have a much wider impact moving into tax season, as the Internal Revenue Service (IRS) is one of the agencies currently operating at limited capacity. While US taxpayers must still submit their annual tax returns and estimated quarterly tax payments, the IRS said that it may delay refund processing if filing season opens with the shutdown still in force.

More than just a frustration for US residents, delayed refund processing could deprive the economy of a regular source of consumer spending since many taxpayers use their annual refund checks to fund or place down payments on vehicles and other large purchases.

Price Charts from TradingView.


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Author: Josiah Wilmoth
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Apple Allays iPhone Worries, Adds $100 Billion to Buyback Plans

Smartphone revenue rises 14% as pricier iPhone X offsets slowing growth in shipments

Apple Inc. flexed its financial muscle with a record $100 billion plan to buy back stock from investors, as it reported strong gains in revenue and profit even as growth in the number of iPhones sold remained weak.

The results for Apple’s fiscal second quarter reflect a fundamental transformation reshaping the world’s most valuable company, turning a business centered on how many devices it ships into one built around high-end features and services for those devices.

Apple’s report Tuesday capped a string of strong earnings from U.S. tech giants including Amazon.com Inc., Google parent Alphabet Inc., and Facebook Inc., all of which continued to thrive despite business challenges and rising concern from regulators, politicians and others about the technology industry’s power and practices. On average, the four companies saw their revenue rise 28% in the first three months from a year ago.

Revenue from the iPhone, which still accounts for most of Apple’s sales and profit, rose 14% to $38 billion in the quarter, which ended in March. That came despite a modest 3% increase in the number of iPhones shipped, thanks to higher average prices driven by the $1,000 iPhone X launched last year.

Apple further assuaged concerns about its future with a forecast for total revenue in the current quarter of between $51.5 billion and $53.5 billion, which would represent a healthy increase from a year ago.

Meanwhile, Apple said the number of paid subscriptions for services ranging from HBO to Apple Music rose to 270 million in the period, an increase of 100 million people in a year. Revenue from the services business jumped by nearly a third to $9.19 billion, accelerating from the previous quarter.

 

The combination drove total revenue up 16% to $61.14 billion in the latest period, Apple said. Profit rose 25% to $13.82 billion, its highest level for a March quarter.

“With the services that we have now and others that we are working on, I think that this is just a huge opportunity for us and feel very good about the track that we’re on,” Chief Executive Tim Cook said during a call with analysts.

Apple’s $100 billion share-repurchase plan is the largest ever announced by a U.S. company, according to data from research firm Birinyi Associates. Apple said its board also approved a 16% increase in its quarterly dividend. That put it on track to spend $14.82 billion a year in dividends, making it the largest dividend payer, according to S&P Dow Jones Indices.

Apple already had paid out $275 billion to shareholders through March since it resumed returning capital to them in 2012, including $200 billion in share repurchases.

The increase in Apple’s capital return comes after it announced in January it would bring the majority of its $269 billion in overseas cash holdings back to the U.S. That followed the major U.S. tax overhaul President Donald Trump signed into law late last year, which requires companies to pay a one-time tax of 15.5% on overseas profits held in cash.

Apple didn’t give a timetable for implementing the new buybacks. Luca Maestri, Apple’s chief financial officer, said in an interview that given the size of the planned buybacks “it’s going to take us some time to execute,” but “our plan is to do it at a fast pace.”

Total Return on Investment since May 2003:

Sluggish growth in the number of iPhones shipped over the past six months has fueled investor concerns about the outlook for Apple’s marquee business, as people hold on to smartphones longer and competition from homegrown rivals intensifies in China, once its fastest-growing market.

Apple’s stock has stalled this year, after investors sent its share price up 45% last year on hopes that the feature-rich X model would help recharge growth. The device’s price tag has damped demand, say analysts, who now expect another year of low, single-digit growth in the number of iPhones Apple ships.

Apple shares closed at $169.10 on Tuesday ahead of the earnings report, even as shares in other tech giants including Amazon Inc. have continued to rise. The shares rose more than 3% in after-hours trading.

“The high end of the smartphone market where Apple is dominant is very mature,” said Arif Karim, a senior investment analyst at Ensemble Capital Management, a Burlingame, Calif., wealth manager that counts Apple among its largest holdings. He said the huge shipment increases the iPhone once enjoyed are “dead.”

The price tag for the iPhone X, though, has counteracted that.

Apple’s revenue forecast of between $51.5 billion and $53.5 billion for the current quarter is on track with analysts’ recent consensus estimate of $51.9 billion, a number that has fallen in recent weeks as Apple suppliers such as Broadcom Inc. and Taiwan Semiconductor Manufacturing Co. warned of slowing smartphone sales world-wide.

Growth in China, which cratered in 2016 after soaring the year before, continued to accelerate. Sales in Greater China, which includes Hong Kong and Taiwan, rose 21% to $13 billion.

Mr. Cook played down concerns about recent trade tensions between the U.S. and China, saying he was optimistic that the U.S. and China can find a way that both can win economically and grow the global pie, “not just allocate it differently.”

The services business has become one of Apple’s biggest growth engines, with revenue in its last fiscal year rising 23% to $30 billion. Apple aims to lift that number to $50 billion by 2020.

The company has 1.3 billion iPhones and other devices in active use and earns an estimated $30 per device on music subscriptions, app store purchases and other services, according to Morgan Stanley, which expects services to account for about 60% of Apple’s revenue growth over the next five years.

The division that includes Apple’s smartwatches and AirPods wireless earbuds also posted another period of strong gains, with sales rising 38% to $3.95 billion in the period.

“They are reinventing the growth story,” said Daniel Morgan, vice president at Synovus Trust Company, which has $14 billion under management and counts Apple among its largest holdings. “They see the iPhone numbers like everyone else does and know they have to grow other aspects of their business.”

 


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Author: Tripp Mickle
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President Xi Jinping Vows to Further Open Chinese Markets

Chinese President Xi Jinping promised foreign companies greater access to China’s financial and manufacturing sectors, pledging Beijing’s commitment to further economic liberalization amid rising trade tensions with the U.S.

In a speech that officials had billed as a major address, Mr. Xi said Tuesday that plans are under way to accelerate access to the insurance sector, expand the permitted business scope for foreign financial institutions and reduce tariffs on imported automobiles and ownership limits for foreign car companies.

Throughout his 40-minute address, Mr. Xi never mentioned the trade friction with the U.S. or President Donald Trump. His remarks seemed designed to offer some policy initiatives, if not concessions, while drawing a contrast with President Trump’s “America First” agenda and portraying China as a steady global partner committed to the international trade order.

“In a world aspiring for peace and development, the Cold War and zero-sum mentality look even more out of place.” Mr. Xi told the Boao Forum, a government-backed gathering of business and political leaders on the tropical island of Hainan.

“Putting oneself on a pedestal or trying to immunize oneself from adverse developments will get nowhere,” he said.

Washington and Beijing’s trade spat has become a source of financial-market turbulence in recent weeks and raised concern about an outright trade war that could drag down the global economy. President Trump has threatened to slap tariffs on as much as $150 billion in Chinese products, in an effort to cut the bilateral trade imbalance that the U.S. says favors China by $375 billion. Beijing, on the other hand, vowed strong retaliation and blamed the U.S. for wrecking global trade order.

In apparent, if unacknowledged, answer to some of the U.S.’s criticisms, President Xi said China would increase imports, improve the protection of intellectual property and provide a more transparent, rule-based environment for foreign investment. He also pointed to Beijing’s announcement late last year that it would raise foreign-equity caps in the banking, securities and insurance industries, and promised those measures would be implemented.

“We have every intention to translate the measures into reality sooner rather than later,” Mr. Xi said, though he didn’t provide a clearer timetable for those or the other measures announced.

Many of the initiatives Mr. Xi offered up have been previously proposed. That, along with the lack of definite schedules for action, drew some skeptical reviews from foreign business executives and Chinese researchers alike.

Those factors also left the speech falling short of its billing by Chinese officials, who had said Mr. Xi would offer up important policy changes in suitable commemoration of the launch of China’s market-oriented reforms 40 years ago by former leader Deng Xiaoping. Those earlier reforms allowed China to benefit from globalization, paving for the country to become the world’s factory floor and, as Mr. Xi noted in his speech, the world’s second-largest economy and biggest trading nation.

Still, given the tit-for-tat tariff threats, some saw reasons for cautious optimism in Mr. Xi’s remarks. “President Xi was trying to strike a balance today,” said Myron Brilliant, executive vice president of the U.S. Chamber of Commerce. “President Xi spoke in terms of China’s own need and commitment for market reform and liberalization, but no doubt he was also sending a signal to the U.S. government that he wants there to be cooperation and dialogue, not conflict and a trade war.”

“Whether this message can help defuse bilateral trade tensions, we will see,” Mr. Brilliant said.

At the heart complaints by the Trump administration, as well as among some officials in Europe, are policies they say are at odds with Beijing’s earlier era of market liberalization. They point to continuing restrictions to access to the country’s market, as well as Beijing’s industrial policies that they say favor state-owned firms at the expense of private and foreign-owned ones.

President Trump has taken particular aim at what the U.S. calls unfair Chinese practices that force American companies to transfer technology and that permit cybertheft. In announcing a plan earlier this month to slap new levies on $50 billion of Chinese goods, the White House singled out items in biomedicine, aerospace, new-energy vehicles and others, mainly key components in a government initiative known as “Made in China 2025.” The program, backed by Mr. Xi, is designed to make China dominate the frontiers of manufacturing in coming decades.

China has denied such allegations and responded in kind, mainly targeting products made by farm states that helped Mr. Trump win the election in 2016.

While China has benefited from globalization, Mr. Xi and his government are in many ways ambivalent about unfettered interaction with the rest of the world. Mr. Xi is an unabashed nationalist, who believes in the Communist Party’s right to rule and resents the West’s lecturing on democracy, according to Chinese officials and analysts. Mr. Xi has sought to bulk up state-run companies and kept China’s internet isolated behind its Great Firewall.

Previous Chinese leaders, including Mr. Deng, sought to use foreign investment and competition to spur changes within the country. Under Mr. Xi, some Chinese officials and analysts said, the days when Beijing would make concessions to foster change are now gone.

“This time is different,” said Li Yang, chairman of the National Institution for Finance and Development, a government think tank in Beijing. Mr. Li pointed to the declining share of trade in China’s overall economy.

“We’ll open up the economy according to our own pace,” he said.

 


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Author: Lingling Wei
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