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Are Transportation Stocks The Market’s Canary In A Coal Mine?

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Are Transportation Stocks The Market's Canary In A Coal Mine?

The U.S. transportation sector, which many see as a proxy indicator of the economy’s health, has retreated 3.1 percent from its Sept. 14 record, hinting to some analysts that the longest bull market on record has entered its late stages.

Railways, freight carriers and package deliverers get less attention than heavy-hitting momentum stocks like Apple Inc and Amazon.com, but the sector could be showing cracks in what analysts and the U.S. Federal Reserve characterize as a robust economy.

Several constituents of the Dow Jones Transportation Average (DJT) have provided disappointing guidance in recent months. As the third-quarter reporting season approaches, investors will watch to gauge whether trade, fuel and dollar risks are affecting the sector’s bottom line.

The 20-company DJT has recently diverged from the broader market after a strong run since late June, suggesting these headwinds could be taking a toll.

As the DJT has retreated, the broader Dow Jones Industrial Average has moved in the opposite direction. The Dow reached its most recent all-time high on Tuesday, 13 trading days after the DJT’s Sept. 14 record.

Diverging highs between the two indexes can signal growing market instability. Similar divergences occurred leading into the recessions of 2001 and 2008-2009, and most recently heading into the market correction that began in late January.

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“The transports have been going sideways and haven’t confirmed the new highs in the industrials,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. “If the transports were to break down further from these levels, if you saw them declining another 2 or 3 percent in the near future, you would call that a bearish non-confirmation.”

On Friday, both indexes closed lower, with the DJT slipping 0.8 percent and the Dow Jones Industrial Average dropping 0.7 percent.

Delta Air Lines Inc is due to report on Oct. 9, a week after lackluster forecasts from the company and its peer United Continental pulled U.S. airline stocks lower. The bulk of the companies in the DJT are expected to post results in the latter half of October.

FedEx Corp, the first in the group to post quarterly earnings on Sept. 17, missed Wall Street estimates as costs weighed on margins. The global package delivery company has been challenged this year by the ongoing trade disputes between the United States and its major bilateral trading partners, notably China and Europe.

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Although a preliminary deal to replace the North American Free Trade Agreement has boosted railway stocks, looming tariffs threaten to increase the cost of transporting goods and services, further testing other DJT constituents.

“There may well be blood in the water before we actually get some kind of agreement on trade between the US and China,” said Bernard Baumohl, managing director and chief global economist at the Economic Outlook Group in Princeton, New Jersey. “It could do some serious damage in the long run as China seeks to establish new supply chain routes from other countries and rely less on the United States.”

Analysts see costs of transportation fuels, which include gasoline, diesel and jet fuel, continuing to climb due to tightening supply and increasing demand.

Rising fuel costs are “depressing stocks that make up the transportation index,” Baumohl added.

Brent Crude prices have risen nearly 26 percent since the beginning up the year and energy analysts see the trend continuing well into 2019.

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“In the near-term we’ve seen prices increase as a result of Iranian sanctions reducing the supply of crude oil to the market,” said Andrew Lipow, consultant at Lipow Oil Associates in Houston. “I expect that over the next year, the price in transportation fuel is going to be increasing.”

The climbing dollar could also pressure transportation companies as U.S. goods grow less affordable to foreign consumers, which might result in fewer shipments abroad.

The dollar index, which measures the greenback against a basket of major world currencies, has risen almost 4 percent so far this year.

“The net effect is that (the strong dollar) could impact the transportation index over the course of the next 12 months,” Baumohl said.

Meanwhile, investors will get a clearer picture in coming weeks of the extent to which trade jitters, fuel costs and the rising dollar may have turned transports into a warning sign.

“There are a lot of wild cards out there now,” said Baumohl.

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CBN, SEC Grant Approval In Principle To Access And Diamond Bank Amid Merger

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CBN SEC Grant Approval IN Principle To Access And Diamond Bank On Proposed Merger

The Central Bank of Nigeria and the Securities Exchange Commission have granted an approval in principle to Access Bank and Diamond Bank on their proposed merger.

An Access Bank Executive Director, Victor Etuokwu, says the banks were expecting the final approval to come after the banks’ shareholders meetings.

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Etuokwu said the banks have received two of three approvals needed for the process, and that the final approval would be completed in the next sixty days.

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Etuokwu said the new bank that would emerge after the merger would focus on retail and corporate banking.

Robert Giles in charge of retail at Diamond Bank says customers will be able to use Automated Teller Machines, ATMs, of either bank at no cost.

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Maritime Expert Urges FG To Develop Policies To Boost Ship Ownership In Nigeria

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Maritime Expert Urges FG To Develop Policies To Enable Ship Ownership In Nigeria

The federal government has been asked to develop policies that would help increase local ship ownership that would help in the training of Nigerian seafarers.  Currently, there are no locally-owned ships operating in international waters.

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The call was made in Abuja on Tuesday by Mfon Ekong Usoro, secretary-general of the Abuja M.O.U. On Port State Control for West and Central African Region.

She said the absence of locally-owned vessels trading at the international stage has reduced opportunities for hand-on experience for Nigerian seafarers.

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Usoro said this has reduced the abilities of Nigerian seafarers to compete against their contemporaries around the world in areas of international shipping.

She called on NIMASA to invest in a training ship like that of South Africa’s Samsa and create berths for sea training for Nigerian seafarers.

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China Central Bank Injects $83 Billion Into Economy

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China: Central Bank Injects $83 Billion Into Economy

China’s central bank has on Wednesday injected a record $83 billion into the country’s financial system in order to avert a cash crunch that could destabilise the country’s economy.

The country’s weakening economy has made policymakers to step up stimulus measures in protecting jobs,

But a raft of measures last year from big rail projects to tax cuts seem to have had little impact so far, with recent data suggesting activity is cooling more quickly than expected.

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A senior economist in Hong Kong, Trinh Nguyen said, it is very obvious the economy of China needs help and so many authorities agreed to that.

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Wednesday’s injection was aimed at ensuring there are ample funds in the financial system, which is facing strains as tax payments peak in mid-January, and as demand for cash picks up ahead of the Lunar New Year holidays starting in early February, People’s Bank of China (PBOC) said.

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The injection which is the bank’s largest net single-day injection came a day after China’s state planner, central bank and finance ministry all offered reassurances to investors, signaling more spending and other types of policy support.

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