Saturday 21 July 2018

Weekend Update 21/07/2018. Trade Wars Spreading. Fear Rising.


We have heard much these past few years about using the government to protect the consumer. A far more urgent problem is to protect the consumer from the government.

The immediate occasion for these remarks is the bill that is being considered by the House Ways and Means Committee to impose import quotas on textiles, shoes, and other products. Such a bill will, like present tariffs, raise prices to customers and waste our resources. Unlike present tariffs, it will not even yield any revenue to the government. The higher prices will all go to the producers—mostly simply to pay for higher costs. The consumer will be forced to spend several extra dollars to subsidize the producers by one dollar. A straight handout would be far cheaper. 

Milton Friedman.

As we get nearer to August and the next escalation in the Great Global Trump Trade War on China and everyone else, there is now rising fear and foreboding, that the GGTTW is not going to end well. A commodity slump has been the main casualty so far, suggesting that the GGTTW’s first effects are starting to be felt. It’s second effect so far, seems to be a renewal of the beggar-thy-neighbour currency war.

To counter this new trade war defence, on Friday President Trump as good as ordered the Federal Reserve to stop raising interest rates. Whether they’ll listen is another matter, and what Trump will do if they don’t, if anything, all still lies in the future, but with rounds two and three (threatened tariffs on EU auto exports,) getting closer by the day, fear of a sudden summer stock market slump is rapidly rising too.

Below, why trade wars aren’t easy to win, if there are any winners at all.

July 20, 2018 / 11:31 AM

Trump threatens tariffs on all $500 billion of Chinese imports

WASHINGTON (Reuters) - U.S. President Donald Trump on Friday said he was ready to impose tariffs on all $500 billion (£381.2 billion) of imported goods from China, threatening to escalate a clash over trade policy that has unnerved financial markets.

“We’re down a tremendous amount,” Trump said in an interview about trade imbalances with China on CNBC television broadcast on Friday. “I’m ready to go to 500.”

----The U.S. dollar fell against major currencies on Friday on Trumps threat to impose more import tariffs and his repetition of complaints about rising interest rates and the strength of the U.S. dollar.
The dollar index .DXY, a measure of its value against a basket of six major currencies, was on track to post its largest one-day loss in three weeks. Against the yen, the dollar was on pace for its worst daily fall in two months.

A top Federal Reserve official, meanwhile, warned the trade war could hurt the U.S. economy.
Around $505 billion of Chinese goods were imported to the U.S. in 2017, leading to a trade deficit of nearly $376 billion, U.S. government data shows. Chinese imports from the U.S. totaled $205 billion in the first five months of 2018, with the deficit reaching $152 billion.

Trump is taking a more aggressive, protectionist posture on trade than his recent predecessors, sparking retaliatory measures from other countries. Earlier this month, the United States imposed tariffs on $34 billion of Chinese imports. China promptly levied taxes on the same value of U.S. products.

When asked about the stock market possibly falling if the United States imposes duties on such a large amount of goods, Trump told CNBC: “If it does, it does. Look, I’m not doing this for politics.”

Still, new tariffs could help Trump’s Republican party going into November’s congressional elections. More than 70 percent of Republican and Republican-leaning U.S. adults believe increased tariffs between the United States and its trading partners will be good for the country, according to a Pew Research Center survey released late Thursday.

However, most economists warn that the imposition of import tariffs could disrupt global manufacturing supply chains, raise input costs and raise prices for consumers, leading to slower economic growth.
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July 21, 2018 / 2:34 AM

Amazon, Toyota, Alcoa and others working to counter Trump's tariff plans

SAN FRANCISCO/WASHINGTON (Reuters) - Big companies in the United States from Amazon.com Inc (AMZN.O) to Toyota Motor Corp (7203.T) and Alcoa Corp (AA.N) are working to counter the effect of the Trump administration’s trade policies and to head off new tariffs.

Companies are attempting to avoid any confrontation with U.S. President Donald Trump but want to exert as much influence as they can to dissuade him from tearing up trade agreements or introducing tariffs on a wide swath of imports.

Amazon, the world’s largest online retailer and cloud-computing company, which could be hurt by tariffs on items sold through its website and components for its data centers, is discussing industry-wide advertising campaigns and more extensive government lobbying, a person familiar with the matter told Reuters on condition of anonymity.

Amazon declined to comment.

Toyota Motor North America, a subsidiary of Japan’s Toyota, which could suffer if Trump follows through on a plan to impose tariffs on imported vehicles and parts, flew workers to Washington for a rally this week in front of the U.S. Capitol while the unit’s chief has met key members of Congress in recent weeks to discuss the potential impact of tariffs.

Executives from General Motors Co (GM.N), which could be hurt if Trump pulls the United States out of the North American Free Trade Agreement or if he imposes auto tariffs, have also held meetings with the administration and Congress over the last year to raise its concerns about trade issues. Tariffs would lead to “a reduced presence at home and abroad,” the company said in June.
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July 20, 2018 / 11:15 PM

U.S. oil industry lobbies against tighter sanctions on Russia

WASHINGTON (Reuters) - The U.S. oil and gas industry is lobbying against tighter sanctions on Russia that could impact U.S. investments there, congressional sources said on Friday.

The U.S. Senate has revived a bill, called DETER, that would allow for swift sanctions if Moscow was found meddling in future U.S. elections. Both Democrats and Republicans are looking to redress what they consider President Donald Trump’s weak stance on accusations of Russian interference in the 2016 election when he met Russian President Vladimir Putin on Monday.

Top U.S. energy company Exxon Mobil is among the firms that have previously opposed U.S. sanctions on Russia. Opponents claim sanctions unfairly penalize U.S. companies while allowing foreign energy rivals such as Royal Dutch Shell and BP to operate in the world’s biggest oil producer.

Democratic Senator Chris Van Hollen told Reuters on Friday there was growing bipartisan support for his DETER bill.

When asked whether energy industry lobbyists were either opposing the bill or seeking revisions, Van Hollen said that “a range of issues need to be discussed including ... ones related to U.S. and European energy projects.”

Van Hollen said that while he was willing to address “reasonable concerns” from industry representatives and other lawmakers, the legislation needed to be robust enough to discourage Moscow from meddling in future U.S. elections.

“Don’t trip the wire because if you do, sanctions are automatic and harsh” should be the message, Van Hollen said.
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Currency War Erupts, Threatening to Ripple Across Global Markets

By Katherine Greifeld
Updated on 21 July 2018, 05:01 GMT+1
The currency war has arrived.

So say some of the best and brightest in the $5.1 trillion-per-day foreign-exchange market. U.S. President Donald Trump on Friday accused China and the European Union of “manipulating their currencies and interest rates lower.” The comments came after the yuan plunged to its lowest level in a year, with little sign of China’s central bank intervening to stem the slide. They also follow a decline in the euro this year and add to the calculus that European Central Bank policy makers might need to consider when they meet next week.

As the world’s largest economies open up a new front in their increasingly acrimonious game of brinkmanship, the consequences could be dire -- and ripple far beyond the U.S. and Chinese currencies. Everything from equities to oil to emerging-market assets are in danger of becoming collateral damage as the current global financial order is assailed from Beijing to Washington.

“The real risk is that we have broad-based unravelling of global trade and currency cooperation, and that is not going to be pretty,” said Jens Nordvig, Wall Street’s top-ranked currency strategist for five years running before founding Exante Data LLC in 2016. Trump’s recent rhetoric “is certainly shifting this from a trade war to a currency war.”

China’s shock devaluation of the yuan in 2015 provides a good template for what the contagion might look like, according to Robin Brooks, the chief economist at the Institute of International Finance and the former head currency strategist at Goldman Sachs Group Inc. Risk assets and oil prices would likely tumble as worries about growth arise, hitting currencies of commodity-exporting countries particularly hard -- namely, the Russian ruble, Colombian peso and Malaysian ringgit -- before taking down the rest of Asia.

----Whether the People’s Bank of China attempts to anchor the dollar-yuan exchange rate near 6.80 to avoid further escalation is key, according to Nordvig. He says ECB President Mario Draghi may elect to step into the fray at the central bank’s July 26 policy meeting, given American attempts to talk the dollar down in January were extremely unpopular in Frankfurt.

The Bloomberg Dollar Spot Index fell as much as 0.8 percent Friday, the most since March. The euro ended the day up 0.7 percent at $1.1724, while the yen was almost 1 percent stronger.

Treasury Secretary Steven Mnuchin said Friday that the U.S. is closely monitoring whether China has manipulated its FX rate, according to Reuters.

----“The exchange rate is one of many instruments China could use” to counter U.S. tariffs, Joseph Stiglitz, the Nobel Prize-winning Columbia University economist and former adviser to President Bill Clinton, said in a July 17 interview. “They would make a big effort to say what they are doing is not motivated by that,” he added. “We won’t be able to clearly tell. We don’t usually know the extent of intervention.”
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Trade uncertainty prompts spike in investor caution

By Ryan Vlastelica  Published: July 20, 2018 9:29 a.m. ET

Neutral sentiment is at unusually high levels, a survey shows

The glimmer of hope that investors had been feeling seems to have been snuffed out to a modest degree.

A closely watched survey of investor sentiment showed a pronounced rebound in caution over the past week, a move that was related to a sharp drop in the percentage of respondents who consider themselves bullish on the market.

The AAII Investor Sentiment Survey showed that 34.7% of investors describe themselves as optimistic on U.S. stocks, defined as their expecting prices to be higher in six months. This represents a decline of 8.4 percentage points from the previous week; that decline was enough to return the reading under its long-term average of 38.5%.

The drop in bullishness didn’t correspond with a rise in bearishness, however. This reading also saw a week-over-week decline; 24.9% of those polled said they were pessimistic about the market over the coming six months, a drop of 4.2 percentage points from the previous week. This put the reading further below its historical average of 30.5%.
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In other better news, trade deals for GB after Brexit are out there, if the Great Global Trump Trade War hasn’t wrecked the global economy by then.

July 20, 2018 / 2:18 PM / Updated 16 hours ago

Australia, Britain ready to agree free trade deal - minister

LONDON (Reuters) - Australia and Britain are ready to agree a free trade deal as soon as circumstances allow, Australian minister for foreign affairs Julie Bishop said on Friday.
Foreign secretary Jeremy Hunt, hosting his first bilateral meeting since being appointed to the role earlier in July, said he had discussed a future trade deal with his visiting Australian counterpart.

“Both governments stand ready to agree a free trade agreement as soon as circumstances allow,” Bishop told reporters at a British-Australia meeting in Edinburgh.

Britain wants to secure free trade deals with new partners following its departure from the European Union in March 2019.

Suppose Japan were incredibly successful in her alleged attempt to restrict imports into Japan, managing to dispense with them entirely. Suppose that Japan were incredibly successful in her alleged attempts to push exports to the U.S., managing to sell us large quantities of assorted goods. What would Japan do with the dollars she received for her exports? Take crisp greenbacks back to Tokyo to stash in the vaults of the Bank of Japan? Let deposits at U.S. banks pile up? Jolly for us. Can you think of a better deal than our getting fine textiles, shiny cars, and sophisticated TV sets for a bale of green printed paper? Or for some entries on the books of banks? If the Japanese would only be wiling to keep on doing that, we can provide all the green paper they will take.

Milton Friedman.

The monthly Coppock Indicators finished June.

DJIA: 24,271 +221 Down. NASDAQ: 7,610 +267 Down. SP500: 2,718 +169 Down.
All three slow indicators moved down in March and April and May and continued down in June. For some a new bear signal, for others a take profits and get back to cash signal. 

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