The Federal Reserve broke huddle and quarterback Powell called a unanimous “no rate hikes today or for the rest of 2019” play. QB One said concerns over “global” economic conditions and muted inflation pressures” were the driving reasons behind the call not to mention the board was feeling good because this is the time of year in which we get to eat Girl Scout cookies and watch March Madness. The Dow had opened the day lower by triple digits but after the announcement by the Federal Reserve, shares recovered and went positive before selling into the close with a loss of 141 points at 25,746 on heavier volume. Meanwhile the NASDAQ posted another gain as people piled into FANG stocks.
Bank of America Merrill Lynch issued a report about the steel industry in the US. They say that while steel stocks should do well this year, they are forecasting a surge in production as new steel mills come online starting sometime in 2020 and running through 2022. The report notes that a huge 20% to 25% increase in US steel production is in the cards and could lead to a supply glut and shakeout in the industry as lower steel prices would lead US producers to shut high cost mills in favor of newer more efficient plants. HRC steel prices peaked at $900/ton July of last year and have since fallen to about $660/ton. Merrill thinks prices could range from $550/ton on the low side to $660 per ton on the high end. The bottom line is that they are bullish on steel stocks this year but have a bearish longer-term outlook. The report also notes that cleaner natural gas blast furnaces are starting to replace the old coal fired plants. The US steel industry is clearly on the rebound since President Obama first instituted tariffs in mid-2016 followed by President Trump’s expansion of this policy. The BAML report noted that a 20% increase in US steel production capacity has not been seen since the 1940’s and 50’s.
There are many signals these days of stress in developed economies outside of the US. While the Federal Reserve appears to be on top of this, other signs also abound. German car maker BMW, which is highly dependent on trade, warned that its profits for 2019 will be much lower dues to trade issues and rising investments. In the US, FedEx reported earnings which missed badly and sent shareholders bolting for the exits. The company posted an increase in revenues of 3% but a 19% drop in profits. The company lowered forward guidance to boot citing “weakness in international shipping and global trade”. Canada’s GDP growth has fallen from 3% to now less than 2%. The bottom line appears to be that strength in the US is being offset by weakness in global economies.
Sorry this blip is so long!