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As the tariff battle between Washington and Beijing worsens, China has halted license applications from American companies in financial services and other industries until progress is made towards settling the trade dispute, reports AP, citing an official belonging to a business group.

The disclosure marks the first public acknowledgement that US companies expect their operations in China, or access to China’s markets, may be disrupted by the dispute over Beijing’s technology policy.

China is running out of American imports for penalties in response to U.S. President Donald Trump’s tariff hikes, which has prompted worries that Chinese regulators might target operations of U.S. companies.

The license delay applies to industries Beijing has promised to open to foreign competitors, according to Jacob Parker, vice president for China operations of the U.S.-China Business Council. The group represents some 200 American companies that do business with China. –CNBC

In meetings held over the last three weeks, Cabinet-level officials told USCBC reps that applications from US firms will be put off “until the trajectory of the US-China relationship improves and stabilizes,” according to Parker.

Chinese officials, meanwhile, have promised to increase non-US foreign access to several areas, including banking, insurance, securities and asset management.

“There seem to be domestic political pressures that are working against the perception of U.S. companies receiving benefits” amid the dispute, said Parker, who added that Chinese officials want an end to Trump’s tariff hikes as well as a negotiated settlement.

Beijing matched Trump’s earlier tariff increase on $50 billion of imports but is running out of American goods for retaliation due to their lopsided trade balance. China bought American goods worth about $1 for every $3 of goods it exported to the United States.

Trump is poised to decide whether to raise duties on $200 billion of Chinese goods. Beijing has issued a $60 billion list of goods for retaliation. –CNBC

…click on the above link to read the rest of the article…

Global Stocks, Futures Slide As China Shatters Trade Calm

September 11, 2018

Global Stocks, Futures Slide As China Shatters Trade Calm

Just when it seemed that the tenuous trade ceasefire between the US and China could result in more stable market sentiment, European stocks dropped -0.5% to session lows led by mining and autos, with S&P futures sliding as volume surged, joining Asia in the red after Reuters reported that China would ask the World Trade Organization for permission to impose trade sanctions on the U.S. rekindling fears over trade relations among the world’s two biggest economies.

The latest trade rumbling pushed the MSCI index of global stocks into the red, as Asian markets dropped for the ninth straight day. The MSCI index of Asia-Pacific shares ex-Japan eased 0.05 percent, but held just above last July’s lows.

There was a hint that China may do something earlier when the Shanghai Composite dipped 0.2 percent, with the index fading all gains set during the morning session. Chinese automakers were among the worst performers in Hong Kong after August sales dropped from a year earlier, adding to investor jitters about the vehicle market’s outlook. Local auto giant Geely Auto fell as much as 4.6% to lowest since June 2017.

After opening broadly higher, European shares were down on the day, with the Stoxx 600 sliding as much as 0.5%, while the Stoxx 600 basic resources index dropped 0.7%, entering a bear market down 20% from its June 6 peak, amid speculation that winter curbs on mills may be milder than had been expected, increasing the possibility of increased supply.

The pound initially rose to five-week highs against the dollar, hitting a high of $1.3087, after the European Union’s chief negotiator Michel Barnier said on Monday a Brexit deal was possible within weeks. Sterling had risen 0.8 percent on Monday.

…click on the above link to read the rest of the article…

Global Trade Hit By Rare Decline As “Supply Chains Seize Up”

September 9, 2018

Global Trade Hit By Rare Decline As “Supply Chains Seize Up”

With the Trump administration about to slap tariffs of up to 25% on an additional $200 billion in Chinese goods, new data suggests that the global slowdown has already begun. Confirming our observations from two weeks ago, in which we showed that the latest freight data indicated global trade volumes are slowing…

…on Friday Bloomberg highlighted that the world trade monitor compiled by the CPB Netherlands Bureau for Economic Policy Analysis showed the rolling three-month trade volumes are not only in decline but have entered into negative territory, an ominous harbinger of economic trouble.

As Bloomberg notes, “the drop is particularly striking given that commodities, one of the largest and most volatile subsets of globally traded goods, have been doing quite well – the CPB’s indexes of fuels and non-fuel commodities both reached the highest levels since 2014 in May.”

Instead, confirming the ominous recent developments in Brazil, where a clustering of supply-chain linked problems has resulted in a near paralysis in the country’s shipping industry, Bloomberg notes that “the weakness is coming not from materials but from manufactured goods, as global supply chains seize up.”

With the CPB index printing negative throughout the second quarter of the year, that echoes the numerous reports of a slowdown in the US. Manufactures “reported higher prices and supply disruptions that they attributed to the new trade policies,” according to the Federal Reserve’s July Beige Book, in addition to “higher input prices and shrinking margins.”

Next Wednesday, another Beige Book is due, and it is likely to show more evidence of slowing trade as a result of escalating trade wars.

…click on the above link to read the rest of the article…

Beware of Political Uncertainty

September 7, 2018

Beware of Political Uncertainty

QUESTION: Mr. Armstrong; I take it your concern over Trump from the market perspective is the sheer uncertainty that is evolving. How do you see this playing out for the world economy?

Thank you. I agree. These people who hate Trump just hate him so passionately.

MRU

ANSWER: Markets do not like UNCERTAINTY. These people who want to see Trump gone have no clue what may result in the aftermath. My concern is global. This is far beyond Trump. We have chaos in Turkey, Argentina spilling over into other Emerging Markets. We have politicians trying to punish Britain and German companies asking what are they just nuts in Brussels? Britain is the BIGGESTmarket for Germany cars in Europe. We have building uncertainty in Southern Europe. We have the head of Australia playing the game of musical chairs. We have new political parties emerging in Canada and Ireland. We have private debt concerns in China. We have South Africa following the mistakes of Zimbabwe and we have major change sweeping the Middle East. The discontent in Iran is building toward yet another revolution and in Japan, Abe Economics is failing. South America is in turmoil which has spread even to Mexico.

In all honesty, throughout my career, there have been places that are in turmoil and it was crystal clear where capital would move. I honestly have to say I have NEVER witnessed a period quite like this. There is no place that is a safe haven at this point. The entire world is just coming unglued. All we can do is now rely on the computer for personal opinions will be renders probably the most dangerous things upon which to base forecasts.

…click on the above link to read the rest of the article…

Will World Trade Collapse After America Withdraws From WTO? Don’t Bet on It!

September 7, 2018

Will World Trade Collapse After America Withdraws From WTO? Don’t Bet on It!

With Trump slapping tariffs right, left and center on friends and foes alike, and threatening to withdraw America from WTO, concerns about declining global trade have heightened. Trading nations like China and Japan are wary and worried about the prospects for world trade, as are developing countries in Asia which have embarked on industrialisation and look to foreign markets for their manufactured goods in addition to their traditional agricultural produce.

The threat to growth in world trade didn’t begin with Trump’s “America First” policy. Way back in 2008 when the WTO Doha Round broke down on liberalization of agricultural trade, many already saw the writing on the wall. Countries in East Asia started to negotiate and enter into bilateral and regional FTAs.

The most significant FTA concluded in the new millennium in Asia was between the 10 member states of Association of Southeast Asian Nations (ASEAN) and China, dubbed ACFTA. China and ASEAN have a combined population of 1.9 billion and aggregate nominal GDP of almost $16 trillion in 2017 or 22% of global total. ACFTA is the largest trade grouping in terms of headcount, and the second largest measured by GDP, which ranks a close second to NAFTA’s 28%. After ACFTA came into effect in 2010, China’s bilateral trade with ASEAN members soared from under $200 billion in 2009 to more than half a trillion dollars last year, a whisker shy of China-EU trade of $540 billion, and a fifth less than China-US trade. Close to 90% of products are transacted at ZERO tariffs under ACFTA.

Earlier this year, all the TPP signatories sans the US agreed on a slightly modified version of TPP called CPTPP with a combined GDP (excluding America’s) representing 13% of the global total.

…click on the above link to read the rest of the article…

The Biggest Threat To The Oil And Gas Indust

September 3, 2018

The Biggest Threat To The Oil And Gas Industry

Trump’s trade war is taking a toll on the oil and gas industry.

There has been some eleventh-hour drama over the renegotiation of NAFTA, but the energy industry is likely going to dodge a bullet on that front, with the most contentious issues revolving around agriculture and automobiles.

But even if the NAFTA renegotiation succeeds, the oil and gas industry has already taken a hit from Trump’s broader trade war.

The most obvious impact comes from the 25 percent steel and 10 percent aluminum tariffs that the Trump administration has placed on a variety of countries, which have pushed up the cost of steel in the U.S., leading to cost inflation for oil and gas projects. Worse, the application system for waivers is cumbersome and time-consuming, and some companies are angry because precisely who obtains an exemption from the federal government seems to be arbitrary.

For instance, as Reuters reported, Chevron received a waiver for importing a 4.5-inch steel pipe used for oil exploration while a small company called Borusan Mannesmann Pipe saw its application rejected by the U.S. Commerce Department for a similar steel pipe used in well casing. The Commerce Department has been accused of not providing adequate information on why it rejects certain cases, offering only vague language such as the availability of domestic steel. A common thread in the rejections seems to be opposition submitted from steel producers.

Reuters says that Commerce has received over 37,000 applications for waivers from U.S. companies, but the agency has only issued decisions on 2,871 of those requests as of August 20. Roughly two-thirds of the applications were approved, but nearly 1,100 were rejected.

…click on the above link to read the rest of the article…

Loonie Slides As Canadian Officials Reportedly Doubt NAFTA Deal Will Get Done

August 31, 2018

Loonie Slides As Canadian Officials Reportedly Doubt NAFTA Deal Will Get Done

Despite outwardly optimistic appearances from Canada’s Freeland, talks between Canadian and U.S. trade negotiators reportedly turned sour last night and Trudeau government officials are now expressing concern that a final NAFTA deal will not be concluded on Friday.

“That was a long, intensive conversation with Ambassador Lighthizer and his team. The atmosphere remains constructive. …We are making progress,” Ms. Freeland said after a session that ended at 8:30 p.m.

She returned at 10:15 p.m. for another meeting that lasted just five minutes. Ms. Freeland told reporters that she had “a couple things to say” to Mr. Lighthizer and she would meet him again Friday.

According to The Globe reports, USTR Lighthizer has refused to budge on eliminating Chapter 19 – which allows Ottawa to challenge punitive American tariffs on imports before binational panels – and refusing to keep current cultural protection provisions in a redrafted North America free-trade agreement.

Ms. Freeland, who said on Thursday a deal is possible, had offered the Americans concessions on increased U.S. dairy exports to Canada U.S. and on intellectual property, but Mr. Lighthizer was unwilling to offer any concessions of his own on the two key Canadian demands.

As The Globe reports so ominously:

There is now deep concern within the Canadian negotiating team that the talks which continue this morning will end in failure.

However, on the back of The Globe’s ‘sources’, the loonie is slipping lower – erasing all the early week hope-filled gains…

1.3050 seems like a line in the sand for the Loonie for now, any further negative headlines and a break of that level will push the canadian dollar notably lower.

Finally, we note that Citi points out that sources have been saying all sorts of things, with some suggesting there’s been enough progress.

These 4 Charts Show How World Trade Has Collapsed In Just One Year

August 30, 2018

These 4 Charts Show How World Trade Has Collapsed In Just One Year

Lately, nothing seems able to shake Wall Street’s bullish attitude.

Investors and the mainstream continue to still ignore the worsening trade war – which is evolving into a currency war – with China.

But since early May – we at Palisade have maintained that there’s going to be a worldwide earnings recession sometime in summer 2019. . .

I haven’t been shy writing about this topic – and if you haven’t read my thesis of why I think this yet, you can check it out here – and here.

If you looked at the markets enthusiasm today – and share prices – you’d think I was dead wrong.

But if you look between the lines – things are getting even worse for global corporations.

Goldman Sachs recently published some damning data that only bolsters my global earnings recession hypothesis. . .

To summarize: world trade has continually declined since early 2017 – long before the trade war talks – and the recent data only suggests this trend is worsening.

The U.S. Dollar has rallied significantly since March of this year – after declining nearly 15% between January 2017 and February 2018.

This paired with the Federal Reserve’s tightening has created chaos for the emerging markets and their currencies throughout much of 2018.

And yet, instead of weaker currencies boosting foreign exports, things have only worsened since. This signals that there’s a deceleration in world wide demand.

Just take a look at the following charts. . .

If you study the growth of ‘global air and sea freight volumes’ year-over-year (YoY), there’s significant declines over the last 24 months – especially for air freight volume. It recently dipped into negative YoY growth.

Making matters worse – China’s economy has slowed down considerably the last couple of years. This no doubt has affected world trade.

But it’s not just China that’s seeing a slowdown in trade activity. . .

…click on the above link to read the rest of the article…

Inflation Has Run Amok – Danielle DiMartino Booth

August 30, 2018

Former Fed insider Danielle DiMartino Booth is sure the Fed is going to raise interest rates again at the September meeting. Why? DiMartino Booth explains, “I think he’s (Jerome Powell) the most independent Fed Chair in the past 30 years, and I think he’s going to raise rates regardless of what is happening in politics. . . . You don’t kowtow to political pressure when you need to do right by the economy. . . . Powell thinks the inflation numbers are under-reported. He’s listening to companies saying their profit margins are being squeezed . . . non-labor costs are outpacing labor costs by the greatest extent in three years, and what that tells you is inflation has run amok. . . . I think the Fed is going to continue to raise rates. . . . I think the markets have priced in the (September) rate hike by 90%. We may be looking forward to Jay Powell backing off come December. So, I am not really worried right now about a skyrocketing dollar.”

DiMartino Booth points out the biggest problem the world faces now is record global debt near $250 trillion “that few can conceive a workable solution.” Di Martino Booth says, “It really does keep me up at night because of the nature of debt. As we approach the 10 year anniversary of Lehman Brothers, the one takeaway that many have forgotten in the decade that has passed is that you don’t know where the true ticking time bomb is when there is an over-indebted problem. . . . When systemic risk is released, it cannot be contained by any higher authority and potentially be unleashed. The greatest peril of debt is we don’t know where the danger truly lies until something triggers it.”

…click on the above link to read the rest of the article…

Monetary Consequence of Tariffs

August 24, 2018

MONETARY CONSEQUENCE OF TARIFFS

Last week in Monetary Paradigm Reset, we talked about the challenge of explaining a new paradigm. We said:

“The hard part of accepting this paradigm shift, was that people had to rethink their entire view of cosmology, theology, and philosophy. In the best case, people take time to grapple with these challenges to their idea of man’s place in the universe. Some never accept the new idea.”

We were talking about the fact that money is the unit of account, and the assertion that irredeemable paper currencies are money.

Monetary Relativity

This week, Turkey provides an opportunity to discuss this in a way most people can relate to. Their currency, the lira, has been falling for years, but the rate of its plunge accelerated dramatically this week. It closed last week at 19.6 cents, but on Friday it was 15.5. This may not seem like a lot, but those 3.1 pennies are about 21 percent. In a week!

However, if the lira is money, then this is just our American bias speaking, isn’t it? To a Turk, the dollar closed last week at ₺5.08 and this Friday at ₺6.43, or a gain of 27%. Those who hold dollars in Turkey just got rich, right?

Which graph is objective?

Most people can see the principle clearly when it comes to the toilet-paper currency of a failing dictatorship. They wouldn’t say that the dollar is up 27%. The theory of currency relativity is not applied to this case.

It’s only with the dollar (and other major currencies) that things somehow become less clear. Did gold go down this week, or did the dollar go up? Everyone knows that the Federal Reserve strives to devalue the dollar at two percent per year. And they know that gold has been prized as money for thousands of years. Yet, when it comes to gold and the irredeemable dollar—they say that it’s gold which moves.

…click on the above link to read the rest of the article…

This small branch of Trans Mountain could derail Canada’s pipeline purchase

August 24, 2018

This small branch of Trans Mountain could derail Canada’s pipeline purchase

The vast majority of oilsands crude moving to the West Coast passes through the little regarded Puget Sound Pipeline, which is now heavily entangled in troubled Canada-U.S. relations

Politicians and industry have long boasted of the ability for an expanded Trans Mountain pipeline to get oil to lucrative Asian markets from Burnaby’s Westridge terminal.

But experts in Washington State are increasingly concerned that the twinning of the Edmonton-to-Burnaby pipeline may in fact lead to an expansion of the Puget Sound Pipeline, a 111-kilometre “spur line” from Trans Mountain that branches southward at Abbotsford to carry oil to four large refineries in the Puget Sound region.

If Kinder Morgan shareholders vote to approve the deal, Canada will purchase the Puget Sound Pipeline as part of the $4.5 billion deal for the existing Trans Mountain line — meaning the decision to expand the spur line would eventually fall to Ottawa.

Trump may use Puget Sound Pipeline to punish Canada for trade conflict

According to a recent analysis from the Cleveland-based Institute for Energy Economics and Financial Analysis, the presence of the Puget Sound Pipeline in the $4.5 billion sale to Canada may end up being the very thing that scuttles the deal.

That’s because the U.S. government is required to approve the purchase as it crosses the border, including review by both the Committee on Foreign Investment in the United States and State Department.

President Donald Trump would ultimately decide the verdict of the deal — which he may oppose given his erratic approach to addressing ever-growing trade tensions between the two countries.

…click on the above link to read the rest of the article…

Trade War Escalates As US, China Slap Each Other With Fresh $16 BN In Tariffs

August 23, 2018

Trade War Escalates As US, China Slap Each Other With Fresh $16 BN In Tariffs

Just after midnight on Thursday EDT, the United States and China escalated their acrimonious trade war implementing punitive 25% tariffs on $16 billion worth of each other’s goods, even as mid-level officials from both sides resumed talks in Washington.

China’s Commerce Ministry said Washington was “remaining obstinate” by implementing the latest tariffs, which kicked-in on both sides as scheduled at 12:01 p.m. in Beijing (0401 GMT). “China resolutely opposes this, and will continue to take necessary countermeasures,” it said in a brief statement on its website, adding that Beijing will file a complaint over the latest tariffs with the World Trade Organisation (WTO).

The U.S. will collect an additional 25 percent in duties on Chinese imports ranging from motorcycles to steam turbines and railway cars; the Chinese retaliation will see a similarly sized tax on items including coal, medical instruments, waste products, cars and buses, Bloombergreports.

Washington’s latest tariffs apply to 279 product categories including semiconductors, plastics, chemicals and railway equipment that the Office of the U.S. Trade Representative has said benefit from Beijing’s “Made in China 2025” industrial plan to make China competitive in high-tech industries.

China’s list of 333 U.S. product categories hit with duties includes coal, copper scrap, fuel, steel products, buses and medical equipment.

The world’s two largest economies have now slapped tit-for-tat tariffs on a combined $100 billion of products since early July, with more in the pipeline, adding to risks to global economic growth and underscoring the Fed’s concerns that trade war could adversely impact US and global growth and slowdown the Fed’s tightening cycle.

…click on the above link to read the rest of the article…

Why The Saudis Are Still Dominating Oil Markets

August 23, 2018

Why The Saudis Are Still Dominating Oil Markets

Saudi Arabia is still clearly in control of the oil market.

The narrative that decisively took hold over the oil market in August was one of cracks in emerging market demand, concerns over the health of the global economy and fears over the fallout from the U.S.-China trade war. Turkey’s currency crisis set off a slide in emerging market currencies, which will likely undercut demand this year. The IMF warned earlier this summer that the downside risks to the economy were growing, a rather prescient prediction. On the supply side of the equation, outages from Iran loom large.

But when it comes to physical barrels on the market, Saudi Arabia is still in the driver’s seat. “While fears of trade wars will continue to influence sentiment and shape price outcomes, it is the recent shifts in OPEC, and particularly its dominant player Saudi Arabia’s, output policy which has had the biggest impact on physical balances, prices and the term structure to date,” The Oxford Institute for Energy Studies (OIES) wrote in a new report.

For the first few months of this year, Saudi Arabia maintained that the oil market was moving towards “rebalancing” with inventories in steady decline, but that there was more work to do. Saudi officials repeatedly stuck with the line that the OPEC+ agreement would not be altered before the end of the year and that they would continue to focus on bringing down inventories.

But the Trump administration’s withdrawal from the Iran nuclear deal and the return of sanctions raised fears of a huge disruption in Iranian supply. Suddenly, the market looked very tight. Coming just a few weeks before the June OPEC+ meeting, the U.S.’ policy change was decisive.

…click on the above link to read the rest of the article…

Energy Is A Breaking Point In NAFTA Deal

August 23, 2018

Energy Is A Breaking Point In NAFTA Deal

Oil and gas is proving to be a sticking point in the NAFTA renegotiations, with the incoming Mexican president hoping to exclude the chapter on energy from the trade deal.

To be sure there have been a series of issues that have divided the three countries. Many of them have been resolved but even at this late date some outstanding issues remain. The U.S. and Mexico are close to hammering out their differences on cars, which would allow Canada to rejoin the talks. The three countries have not agreed on dispute resolution mechanisms, and the U.S. wants the deal to sunset every five years, which would require them to periodically renew the trade pact, a provision that Canada and Mexico oppose because it would create uncertainty.

But oil and gas are also shaping up to be a point of tension, which is an unexpected development. Incoming President Andres Manuel Lopez Obrador (often referred to as AMLO), who takes office in December, opposes the energy chapter in NAFTA, even as the current administration supports it, according to the Wall Street Journal. Energy was not included in the original NAFTA deal ratified in the 1990s because Mexico’s energy sector was under state control. That changed in 2013-2014 when President Enrique Pena Nieto succeeded in ending seven decades of government monopoly. Related: The Next Major Challenge For Norway’s Oil Industry

AMLO was opposed to those energy reforms when they passed, and while he has since softened his stance on the partial-privatization of oil, gas and electricity, his team is holding up the NAFTA negotiations over energy. “The energy sector was on the table, but it wasn’t a matter of concern. It was rather a technical issue on how to reflect Mexico’s overhaul in the treaty,” Carlos Véjar, a trade attorney at law firm Holland & Knight in Mexico City, told the Wall Street Journal.

…click on the above link to read the rest of the article…

The Weaponization of the Dollar

August 22, 2018

The Weaponization of the Dollar

The Uncivil Civil War discussed the sanguine approach many investors take towards equity risk despite clear signs of domestic political turbulence. The article put the upcoming elections and the growing political divisions amongst the populace into context with market risks.

While we read plenty of politically related articles and many more investment related articles, we have found precious few that bridge the gap and gauge the effect politics has on markets. The intersection of markets and politics is important and should be followed closely, especially with a mid-term election months away. As so eloquently described by the late Charles Krauthammer, “You can have the most advanced and efflorescent cultures. Get your politics wrong, however, and everything stands to be swept away. This is not ancient history. This is Germany 1933.”

In this article, we readdress politics and markets from an international perspective. In particular, we focus on suspicions we have regarding Donald Trump’s negotiation tactics and goals for the U.S. relationship with Turkey.

Emerging Markets and the Dollar

China, Turkey, and Iran are all classified as emerging markets. While the classification is broad and includes a diverse group of countries, these countries have many things in common. One is that their currencies, for the most part, are not liquid or highly valued. Thus, they heavily rely on the world’s reserve currency, the U.S. dollar, to conduct international trade.

As an example, when Pakistan buys oil from Qatar, they transact in U.S. dollars, not rupees or riyals. To facilitate trade efficiently, these countries must hold excess dollars in reserve. In almost all cases, emerging market nations rely on U.S. dollar-denominated debt for their transactional needs.

…click on the above link to read the rest of the article…

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