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- Risk happens fast – Trump trade policy whacks futures this morning
- We remain in a trading sardine market – not an eating sardine market
- Hastily crafted policy that conflates politics is dangerous in a flat and networked world
- The return of an untethered Orange Swan is market unfriendly … brace yourselves
- The Supreme Tweeter will likely “Make Uncertainty and Volatility Great Again” (#MUVGA)
The First Half of 2018
The first half of 2018 has been a tale of two markets. Maybe three markets.
January brought a market fervor – in which global equities rose dramatically, likely in response to the expected stimulative contribution and impact of the Administration’s reduction in statutory tax rates.
As interest rates began to climb in January, bullish investor sentiment crested and the risk parity trade went array.
Stocks fell violently in February and the new regime of volatility commenced – in a market revealed as increasingly illiquid.
The S&P Index fell from nearly 2900 and successfully tested the 2550 level twice. Several meek rallies commenced but the S&P had 2-3 more successful tests at about 2600 and stocks recently closed in on 2800 (S&P Index).
1Q-2018 corporate revenues and profits didn’t disappoint but the complexion of the market had clearly changed – and valuations (the S&P Index’s price earnings ratio expanded by almost 3 points in 2017) began to contract. Wall Street, which outperformed Main Street in 2017 – reversed roles in the first six months of 2018.
While the stock market reeled with volatility since January 1, the FAANG stocks generally stood tall throughout the year as the market narrowed and investor interest focused on the 5-10 anointed stocks.
The first half of 2018 was also characterized by a series of questionable and controversial presidential policies (the most recent being trade/tariff decisions) at the same time the Federal Reserve was pivoting on monetary policy. By overtly playing to his base, having little sense of economic history, Trump has contributed to even greater volatility in a market without memory from day to day.
…click on the above link to read the rest of the article…
It’s all about the trade war between the US and China this morning, and more specifically, how will Xi retaliate to Trump.
For those who missed the overnight fireworks, late on Monday, President Trump asked the US Trade Representative to identify USD 200BN in Chinese goods for further tariffs of 10% which will be imposed if China refuses to change its practices and goes ahead with its retaliation threat, while he also stated that China raising tariffs is unacceptable and that the US will pursue tariffs on another USD 200bln of Chinese goods if China increases tariffs yet again.
Predictably, China – which last week reacted instantly to Trump’s first round of $50BN in tariffs – again responded immediately, wasting no time in accusing Trump of “blackmail.” China’s commerce ministry said on its website that if the US “irrationally” moves forward with the tariffs then China has no choice but to “forcefully fight back” with “qualitative” and “quantitative” measures.
“China’s response is to safeguard the interests of the country and its people,” China’s Mofcom said, adding that the US “practice of extreme pressure and blackmail departed from the consensus reached by both sides during multiple negotiations and has also greatly disappointed international society”.
But now that the chips are on the table, and Trump is locked into a tit-for-tat strategy with China from which neither he nor Xi can “defect” without losing face, the question is how exactly will China retaliate to punish the US while minimizing the damage to China’s economy as much as possible.
There are 6 possible things that China can do at this time, in order of escalating severity:
…click on the above link to read the rest of the article…
Following the well-established belief that “trade wars are easy to win”, India counters Trump tariffs, to hike duty on US bikes, almonds, apples.
India has proposed to raise import duty on 30 products, ranging from motorcycles and certain iron and steel goods to boric acid and lentils. The customs duty on some of the items may be raised up to 50 per cent, in a signal that New Delhi will hit back at America’s protectionist policies that range from a tighter visa regime to higher import duties.
The additional duty proposed to be hiked on these items ranges from 10 per cent to 50 per cent. Those at the lowest include almonds, walnuts and fresh apples – which will cost a little more for consumers as an additional duty of 10 percent is proposed to be imposed.
But the real impact will be on products such as motorcycles over 800 cc – a move targeted at Harley-Davidson – where an additional duty of 50 percent has been proposed. This is seen as a real counter to President Donald Trump who had demanded a reduction in tariff on the cult bike brand.
The government threatened further action. “India reserves its right to further suspend substantially equivalent concessions and other obligations based on the trade impact resulting from the application of the measures of the US,” it added.
Let It All Hang Out
Party Just Starting
It’s so easy when it’s all easy. As Trump says “Trade Wars are Good and Easy to Win”
The party is just starting. Who’s next?
Related Articles
In a scathing editorial warning Trump to back off on his latest tariff threat, on Sunday China said that any trade deals between the US and China, and any progress and commitments made so far in bilateral negotiations would be withdrawn if President Donald Trump follows through with this threat.
“If the U.S. rolls out trade measures including tariffs, all the agreements reached in the negotiations won’t take effect,” the state-run Xinhua News Agency reported this morning, citing a statement from the Chinese team that met with a U.S. delegation led by Commerce Secretary Wilbur Ross, which arrived in China overnight.
Separately, China has continued to express growing frustration with the tactics deployed by the White House, and an editorial in the nationalist, state-run tabloid Global Times said that “the U.S. can’t have its cake and eat it too,” adding that the U.S. “needs to choose between tariffs and exporting more to China.”
China’s anger is the result of Trump’s revival of the simmering trade war between the two superpowers after Trump last week unveiled a plan to slap tariffs on $50 billion of Chinese imports, casting into doubt ongoing trade discussion about how to reduce China’s $375 billion goods-trade surplus with the U.S.
As Bloomberg clarifies, the Xinhua report came out on Sunday after Ross met with Chinese Vice Premier Liu He for talks that Ross called “friendly and frank, and covered some useful topics about specific export items.” At the same time as negotiators focus on technical steps to reduce the U.S. deficit, Trump’s aggressive reversals have rattled Beijing as it raises concerns about the possibility that any agreement made could be simply torn up by the president.
…click on the above link to read the rest of the article…
The U.S. will impose tariffs on steel and aluminum imports from Canada, Mexico and the European Union starting on Friday. Trump’s ill-advised Tariffs Provoked Anger and Retaliation from US Allies.
The tariffs make good on President Donald Trump’s threats and show the administration is maximizing pressure to win concessions from allies, while simultaneously negotiating through a high-stakes trade conflict with China, seen as an economic competitor.
Besides steel and aluminum, the U.S. administration is studying whether tariffs should be imposed on imported cars and auto parts under the same law that gives Mr. Trump wide authority to erect trade barriers under the banner of national security.
“This is dumb,” said Sen. Ben Sasse, a Nebraska Republican. “Europe, Canada, and Mexico are not China, and you don’t treat allies the same way you treat opponents.”
Sen. Orrin Hatch, chairman of the Senate Finance Committee, said in a statement: “Tariffs on steel and aluminum imports are a tax hike on Americans and will have damaging consequences for consumers, manufacturers and workers. I will continue to push the administration to change course.”
Via translation from WirtschaftsWoche, Trump wants to block Daimler from the US market.
US President Donald Trump has announced to French President Emmanuel Macron to exclude German premium car makers from the US market. On Macron’s visit to Washington in April, Trump said he would maintain his trade policy until no Mercedes models rolled on Fifth Avenue in New York. This reports the WirtschaftsWoche, citing several diplomats from Europe and the United States.
…click on the above link to read the rest of the article…
Recently, Senator Chuck Schumer introduced a bill that would decriminalize marijuana on the federal level. He stated that the legality of marijuana should be a matter left up to individual states. This ringing endorsement of federalism might carry a little more weight if Senator Schumer hadn’t spent a large part of his political career trying to micromanage Americans’ behavior at the national level. Hillary Clinton is widely considered to be a staunch supporter of the LGBT community; however, she was publicly opposed to marriage equality until 2013. These are just two of the innumerable examples of politicians changing their stances on policy issues in the face of evolving public opinion. This is not a new phenomenon or exclusive to a single political party. Not only is it common for politicians to modify their positions of political principles to match changing public opinion, you’d be hard-pressed to find one who doesn’t. We are dealing with political followership, not political leadership. So, what does that get us? Antony Davies and James Harrigan talk about this and more on this week’s episode of Words and Numbers.
The writing is on the wall and major financial institutions across the world are warning about the economic disaster to come. Unabated money printing, tariff trade wars, rising interest rates and retail slowdowns point to one result, and it’s going to be brutal. Big banks and governments know what’s coming and they are preparing for this eventuality by stockpiling huge amounts of “real money” ahead of the crisis.
According to Keith Neumeyer, the CEO of the world’s top primary silver producer First Majestic Silver and chairman of First Mining Gold, the cartels he’s previously reported to the CFTC have continued to manipulate the prices of precious metals while loading up their own vaults with gold and silver. The answer to why they’re doing it is simple, as Neumeyer highlights in a recent interview with SGT Report:
The verdict is still out on whether we’re going into a dis-inflationary or inflationary environment… gold can do well in both environments… the fact of the matter is governments are printing extraordinary amounts of fiat currencies and that is not going to change…
The stage is set for higher gold prices due to the amount of money being printed… I am of the belief a major reset is coming where the governments of the world will need to get rid of their debt by fixing everything to the price of gold… and that’s why governments like China and Russia and other governments around the world are accumulating gold… it’s because they know what’s going to happen over the next several years…
…click on the above link to read the rest of the article…
1 – Trade Wars Flashpoints, From China to Canada and Mexico
Wall Street has knee-jerk reactions to any trade war related headlines.
There are legitimate reasons to be concerned about trade wars. The world is increasingly more connected than ever. Many major American companies that are household names such as Starbucks (SBUX), Boeing (BA) and Apple (AAPL) rely on their exports (and imports) from China for a sizable portion of their overall sales and profits.
If China continues to retaliate against trade war policies from the U.S. with harsh measures of their own, it could hurt revenues of those firms.
But, here’s the latest revelation:
China wants to keep more of what it makes — in China — across a variety of sectors. Trade wars elevate the Chinese government’s desire to do that. The country has just recently launched a new $1.6 billion initiative called “Made in China 2025.”
The strategy entails an increase in research and development spending. That would cause Chinese companies to rely less on international technology and equipment. The more China buys internally, the less it will buy American products or need to export to the U.S.
What all of that could mean is that similar products in the U.S will become more expensive for consumers. That would hit directly at stock of those companies, making them more volatile.
While headlines from the White House continue to target China, our regional trading partners are undoubtedly some of the most important, and currently some of the most fragile.
To the north, Canada is playing up its optimism over NAFTA talks. Rhetoric is one thing, reality is another. It’s important to look at what institutions are doing, not what they’re saying.
Canada is currently enhancing its participation in several other trade agreements, including an updated Trans-Pacific Partnership that does not include the U.S. In the wake of Brexit, Canada has also made important trade links to both Europe and the U.K.
…click on the above link to read the rest of the article…
There’s been an abundance of coverage surrounding the recent steel and aluminum tariffs. Those measures could hurt more sectors than they help within the U.S. In particular, it could damage businesses that require metals because they’ll have to pay more for raw materials.
Trade wars also escalate geopolitical tensions and economic hardships the world over. They have in the past. When the U.S. imposed tariffs in the 1930’s to try to relieve the Great Depression at home, they achieved the opposite effect.
A global trade war flared, governments became isolated and initiated defensive build-ups. The move ultimately resulted in lower production, reduced global trade and a prolonged international depression that gave rise to WWII.
While the early Great Depression period in which President Hoover invoked harsh trade wars might be different than today, the threat of instability remains. What we saw then was a slowdown in the world economy that lead to regional aggressions and ultimately a world war.
The major differences now are that we have central banks financing markets — and by extension a military buildup.
Countries are better insulated today than they were in those days. By insulating themselves, they now have more choices about who their trading partners are, and what regional or multilateral agreements they enter.
That’s one reason China is championing regional trade agreements throughout Asia and the Pacific Rim, and inked bi-lateral deals with Japan and the EU last year. Those nations are growing less reliant on U.S. trade and, like good portfolio managers, are diversifying their trade partners.
The U.S. tariffs will likely accelerate this trend.
The tariffs, and super-regional build-ups, will also do something else. Trade wars will morph into an acceleration in global military spending. That’s because the tensions from trade wars have military ramifications.
…click on the above link to read the rest of the article…
China has responded to President Trump’s calls for an additional $100 billion in tariffs, saying that it would counter U.S. protectionism “to the end, and at any cost.”
“The Chinese side will follow suit to the end and at any cost, and will firmly attack, using new comprehensive countermeasures, to firmly defend the interest of the nation and its people,” the Commerce Ministry said in a statement on its website on Friday.
“We don’t want a trade war, but we are not afraid of one.”
President Trump’s decision to push for a more trade tariffs may well be the tipping point for the US dollar as global reserve currency since it leaves Beijing with limited tit-for-tat retaliation… forcing the cornered nation to ‘get creative’.
As Bloomberg reports, China acted swiftly this week to announce reciprocal tariffs on $50 billion worth of American imports, unveiling a match for the Trump administration’s move against Chinese imports less than 12 hours before.
Now that U.S. President Donald Trump has ordered a review of measures on $100 billion of additional Chinese goods, China will have to get creative to keep up the like-for-like rhetoric.
There aren’t enough American goods imports to target…
Of course, China could still take other measures – like curbing package tours or student transfers to the U.S., or steps against American companies’ operations in China; or the final threat of ‘going nuclear’ by withdrawing from US Treasury auctions, devaluing its currency (think Aug 2015 turmoil), or a more petrodollar-focused retaliation.
As Petromatrix managing director Olivier Jakob wrote in a recent reports, if the trade war between U.S. and China continues “there is a risk for oil prices that China uses the bazooka option it has on U.S. crude oil exports,”which would be to curb shipments from America.
…click on the above link to read the rest of the article…
The S&P 500 closed down more than 2.4% Monday and the broad market index posted its worst April start since 1929. This slide in the markets caused the worst start since the Great Depression, sparking fears we are on the same path.
The Dow Jones industrial average fell 1.9 percent (or 458 points) as China’s retaliatory tariffs against United States agricultural goods stoked fears of a global trade war. Dow stocks with large international markets now exposed to global tariffs such as Boeing and 3M, led the decliners.
Many market analysts have predicted we will live through another Great Depression,and Peter Schiff says this next one will be far worse than one our ancestors lived through. “The bad news is, we are going to live through another Great Depression and it’s going to be very different. This will be in many ways, much much worse, than what people had to endure during the Great Depression,” Schiff says. “This is going to be a dollar crisis.”
“The Fed thinks they create economic growth…by [saying] ‘let’s jack up the stock market and then the economy’s going to grow and people are going to go out and spend more money.,’” says Schiff. “It’s actually doing damage. If you create a bunch of phony wealth, and people end up spending money that they otherwise would have saved, you are undermining economic growth.”
And Schiff, who accurately predicted the 2008 recession, has now predicted the dollar crisis. The dollar is now in a downward spiral thanks to China’s petro-Yuan.
Bespoke Investments Co-Founder Justin Walters, who also noted the historic nature of the close, said in an email that equity fears aren’t likely to abate until earnings arrive. “Based on recent market action, the bears clearly have control right now,” Walters wrote. “The path of least resistance is lower until something comes along to reverse that trend.”
…click on the above link to read the rest of the article…
So much for yesterday’s Amazon bounce.
Just before 4AM EDT, a Bloomberg headline hit which has not only unleashed a furious global selling wave, sending the S&P lower by nearly 2% and the Dow 600 lower, but may have changed the course of history: that’s when China announced it was striking back in the ever faster and more furious trade war between the US and China:
While we detailed the response earlier, for those who missed it, China announced it would launch reciprocal tariffs on 106 US products worth $50bln in bilateral trade, setting a new tariff rate of 25% on soybean, autos and chemicals. While the Chinese response was expected, the inclusion of soybeans was not, and will likely infuriate Navarro/Trump and lead to another round of US tariffs. China Ministry of Commerce also said it would adjust tariffs on ethylene glycol and diethylene glycol sold by firms including Dow Chemical (DOW), Ineos and BASF (BAS GY) among others.
And in an ominous warning that more is coming, China said that while its door to the US remains open for negotiations, if the US wants to keep fighting, China will hold onto the last, according to the Chinese Vice Commerce Minister.
The result was a freefall in both S&P futures, which were down nearly 50 points from Tuesday’s close…
… but also in the Dow Jones, which plunged as much as 600 points…
… and, of course, Emerging Markets, with the MSCI EM stock index heading for its lowest close in two months with EM currencies a sea of red across the board.
And speaking of sea of red, this is what global cash markets and futures look like right now.
…click on the above link to read the rest of the article…
Beijing wasted no time in striking back at Washington’s latest round of tariffs on Chinese imports by announcing a new list of US products that would be subject to punitive action, as the world’s two largest economies edge ever closer towards an all-out trade war.
China’s State Council said on Wednesday it planned to impose additional tariffs of 25% on 106 US products imported into the country, including soybeans, airplanes, cars, and chemicals, CCTV reported. The Ministry of Commerce said the import value of the goods on the list in 2017 was $50 billion. The effective date will depend on when the U.S. action takes effect.
Beijing’s retaliation came just hours after the United States Trade Representative Office released details of hundreds of Chinese imports worth about $50 billion that it planned to hit with 25% tariffs, with the emphasis on industrial and hi-tech goods.
“China’s response was tougher than what the market was expecting – investors didn’t foresee the country levying additional tariffs on sensitive and important products such as soybeans and airplanes,” said Gao Qi, Singapore-based strategist at Scotiabank. “Investors believe a trade war will hurt both countries and their economies eventually.”
As reported last night, the US list covers 1,300 items, including high-definition colour video monitors, electromagnets used in MRI machines, aerospace products, and machinery used to make processed textiles, printed products and food. Beijing responded immediately to the US announcement saying it would “take corresponding measures of equal scale and strength against US products in accordance with Chinese law”.
USTR developed the tariff targets using a computer algorithm designed to choose products that would inflict maximum pain on Chinese exporters, but limit the damage to U.S. consumers. A USTR official said the list got an initial scrub by removing products identified as likely to cause disruptions to the U.S. economy and those that needed to be excluded for legal reasons.
…click on the above link to read the rest of the article…
Trump’s aggressive trade war overtures and China’s initial retaliatory moves have spooked Wall Street over the past week and again on Monday, which helped drive down the Dow Jones by 459 points, with the Nasdaq Composite quickly approaching correction territory. And as the mass exodus continues out of Wall Street’s highest-flying stocks, trade war concerns are sparking political, regulatory and market challenges that could soon derail the global growth narrative for months or even years to come.
According to Reuters, China is preparing aggressive counter-measures of the “same proportion, scale and intensity” if the Trump administration imposes further tariffs on Chinese goods, China’s Ambassador to the United States Cui Tiankai warned. And, as we discussed here previously, the worst-case scenario of a looming trade war could soon be realized, forcing the U.S. into a recession.
Tiankai made the provocative comments in an interview with China’s CGTN news channel on Tuesday, ahead of President Trump’s announcement of additional duties on “$50 billion to $60 billion in Chinese imports” following an examination under Section 301 of the 1974 U.S. Trade Act.
“If they do we will certainly take countermeasures of the same proportion and of the same scale, same intensity,” Cui Tiankai.
While China had previously signaled that it is prepared to escalate the trade war with Washington, Cui Tiankai was straight to the point in the interview: the latest tit-for-tat trade war measures between the West and the East are just the beginning.
On Monday China officially launched new tariffs on 128 U.S. imports in direct response to the Trump administration’s recent decision to increase taxes on imported steel and aluminum. The Chinese Ministry of Finance announced tariffs on $3 billion in imports of U.S. food and other goods.
…click on the above link to read the rest of the article…
