Wednesday 22 May 2019

Stocks In Deep Denial.


Baltic Dry Index. 1049 +08   Brent Crude 71.73

Never ending Brexit now October 31st, maybe. 
Nuclear Trump Tariffs Now In Effect.
USA v EU trade war postponed to November, maybe.

Adam Smith (1723-1790) grudgingly admits that retaliation in a trade war may have some good effect if it leads to the abandonment of the initial protective duty, but he is highly doubtful that the “insidious and crafty animal, vulgarly called a statesman or politician” can or really wants to end protection in this manner. All it does is benefit a few at the expense of the many:

"There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs. When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes of them."

America, China, and the slowing global economy are deep in the swamps of a fast escalating trade war, with both America and China determined to head further in.   

Practically daily, we get more statistics on the damage this trade war is doing to the slowing heavily integrated global economy, but for now our global stock market remain in deep denial, hoping desperately for something to turn up. Essentially, churning away near the highs, but burning through cash.

I suspect this denial will not go on for much longer. Brexit, an angry European Parliament vote commencing tomorrow and finishing on Sunday, are all too likely to push the EU into recession by summer’s end.  That and the intensifying trade war, are likely to generate a new global recession probably as early as the first half of next year. 

If unemployment starts to rise in Asia and Europe, as summer turns to autumn and autumn turns to winter, America’s trade war will likely get the blame. If America’s economy starts to stumble, and unemployment there also start to rise, America is in for a most unpredictable presidential election year.

With nearly 50 years following commodity and stock markets, I am all too aware how suddenly market sentiment changes, often for no apparent reason at the time. Without an end to the escalating trade war, rising uncertainty and rising economic pain is our future, and churning stock markets is not the place to be. A speculative put option bet on falling commodity prices ahead, would be an option here for high risk accounts.

Asia stocks fragile as trade anxiety overshadows Huawei reprieve

May 22, 2019 / 2:04 AM
TOKYO (Reuters) - Asian stocks were on shaky ground on Wednesday, as earlier relief over Washington’s temporary relaxation of curbs against China’s Huawei Technologies failed to offset deeper worries about trade frictions between the world’s two largest economies.

The Chinese markets, which have endured a volatile few months, started off on a cautious note. The Shanghai Composite Index was last down 0.1%. 

Australian stocks gave up 0.1% and South Korea’s KOSPI fell 0.2%. Japan’s Nikkei edged up 0.3%.
MSCI’s broadest index of Asia-Pacific shares outside Japan moved in and out of the red and last stood little changed.

“Some in the markets will continue to cling on to hopes of the United States and China reaching an agreement at the upcoming G20 meeting,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“But the ongoing trade conflict looks to be a protracted one, and its potentially negative impact on various economies is becoming a running concern.”

Leaders from G20 nations are scheduled to gather for a summit in Japan at the end of June.

---- Shares of technology companies helped lift Wall Street on Tuesday after Washington’s easing of curbs on Huawei. Chipmakers, many of which sell to Huawei, had been hit at the start of the week. [.N]

“Notwithstanding the latest tweet from President Trump that some restrictions on Huawei had been eased, global equity markets have continued to underestimate the relentless expansion of the U.S.-China trade dispute,” wrote Sean Darby, chief global equity strategist at Jefferies.

“The progression from tariffs, to direct actions against single Chinese companies and their inter-linked supply chains, has a wide-ranging impact on profitability for corporates in both economies that investors will find difficult to quantify.”
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South Korea think tank lowers 2019 growth forecast

By Kwanwoo Jun  Published: May 22, 2019 12:40 a.m. ET
SEOUL--South Korea's state-run think-tank has lowered its growth forecast for the country this year on an anticipated contraction in exports and domestic demand--the latest signal of Asia's fourth-largest economy losing steam.

The Korea Development Institute, in a biannual economic outlook report released Wednesday, said it now expects South Korean growth to expand 2.4% on year in 2019, weaker than its November projection of 2.6%, after growing 2.7% in 2018. It expects South Korea to grow 2.5% in 2020.
The sluggish Korean economy at risk of returning to a low-growth phase again after the global financial crisis a decade ago, KDI said.

KDI proposed the economy should keep its fiscal and monetary policy mix expansionary to arrest the feared slowdown.

South Korea is facing headwinds from the U.S.-China trade dispute, with a slowdown in China taking a heavy toll on the export-reliant Korean economy, which sends a quarter of its total exports to the world's second-largest economy.

The latest KDI outlook--though in line with the revised Organization for Economic Cooperation Development forecast Tuesday--is more pessimistic than the government's growth forecast of 2.6% to 2.7% and the central bank's 2.5% growth estimate for this year.
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Japan's exports fall for fifth straight month

By Mayumi Negishi  Published: May 21, 2019 9:40 p.m. ET
TOKYO--Japanese exports declined for the fifth straight month in April as the buildup in trade tensions between its two biggest trading partners--the United States and China--weighed on the country's key engine of growth.

Exports in April fell 2.4% from the same month a year ago, data released by the Ministry of Finance data showed Wednesday. The dip was more than the median 1.8% decline forecast by economists polled by FactSet.

The weak exports, mainly on account of lower shipments of chip-making tools and semiconductor parts to China, along with a surge in crude oil imports, translated to a 90% fall in Japan's trade surplus to 60 billion yen ($543 million).

The trade data showed exports to China, Japan's biggest trading partner, fell more than 6% year-over-year on lower shipments of chip-making tools, amid increased pressure by the U.S. on its allies to restrict use of China-made chips. Exports to Europe also fell by almost 3% on lower appetite for Japanese goods.

While exports to China and Europe fell, exports to the U.S. rose almost 10% on strong demand for Japanese cars, expanding Japan's trade surplus with the U.S. by almost 18%. The data comes ahead of U.S. President Donald Trump's visit to Japan this week, where he is expected to push for a trade deal.

Last week, Mr. Trump put off a decision for six months on whether to impose new tariffs on automobile and auto-part imports from Japan and other countries.
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Xi Jinping calls for ‘new Long March’ in dramatic sign that China is preparing for protracted trade war

·         Xi Jinping told cheering crowds in Jiangxi: ‘We are now embarking on a new Long March, and we must start all over again’
·         His comments come amid an increasingly sour mood in official Chinese media, which have become more forceful in anti-US rhetoric since trade war talks collapsed
Published: 8:24pm, 21 May, 2019

Chinese President Xi Jinping has called for the nation to embark on a new Long March and “start all over again”, in the most dramatic sign to date that Beijing has given up hope of reaching a trade deal with the United States in the near term.

Xi is in Jiangxi province for his first domestic tour since the escalation of the trade war two weeks ago. Jiangxi is where China’s defeated Red Army started its fabled Long March in 1934, and Xi’s choice of destination is being viewed as an effort to invoke a spirit of endurance and to rally public spirit amid rising tensions with Washington.

The economy is already slowing and the trade war could trim as much as 1 per cent from its gross domestic product, Wang Yang, one of the seven members of the elite Politburo Standing Committee of the Communist Party of China, said last week.

Vice-Premier Liu He, China’s top trade negotiator, accompanied Xi for the tour and is clearly visible at the president’s side in video footage of the tour.

---- The Long March was a military retreat between 1934 to 1936 undertaken by the Red Army, the forerunner of the People’s Liberation Army, to evade Kuomintang troops during the Chinese civil war. The thousands of marchers covered some of the country’s harshest terrain and the feat is often evoked as a symbol of Chinese unity by the ruling Communist Party.

Xi’s message was delivered at a time when the country’s official media outlets have adopted increasingly nationalistic tones in relation to the trade war and broader Sino-US relations. However, media reports have stopped short of directly criticising US President Donald Trump.
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Air China asks Boeing for compensation over 737 MAX grounding: state TV

May 22, 2019 / 5:17 AM
BEIJING (Reuters) - Air China has formally asked Boeing Co for compensation over the grounding of its 737 MAX aircraft and delayed deliveries of its orders, the state TV China Central Television reported on Wednesday. 

On Tuesday, China Eastern Airlines said it has requested compensation from Boeing for the grounding of its 14 737 MAX aircraft.

U.S. could blacklist Chinese surveillance tech firm Hikvision: NYT

May 22, 2019 / 2:22 AM
(Reuters) - The U.S. administration is considering limits to Chinese video surveillance firm Hikvision’s ability to buy U.S. technology, the New York Times reported on Tuesday, in a move that deepens worries about trade frictions between the world’s two top economies.

The move would effectively place Hikvision on a U.S. blacklist and U.S. companies may have to obtain government approval to supply components to Hikvision, the paper said.

The U.S. Commerce Department blocked Huawei Technologies from buying U.S. goods last week, effectively banning U.S. companies from doing business with the Chinese firm, a major escalation in the trade war, saying Huawei was involved in activities contrary to national security.

The White House did not immediately respond to a request for comment on the report.

Hikvision shares opened 10% lower but an executive in the company’soffice told Reuters the company had not been informed of the possible U.S. blacklisting.

“The chips Hikvision uses are very commercial and most of the suppliers are actually in China although there are some in the United States,” said the executive, who declined to be named due to the sensitivity of the matter.

“Even if the U.S. stops selling them to us we can remedy this through other suppliers” she said.
Hikvision and Dahua Technology which produce audio-visual equipment that can be used for surveillance were specifically cited in a letter to Trump’s top advisers last month, signed by more than 40 lawmakers.

The lawmakers said China’s actions in its western region of Xinjiang “may constitute crimes against humanity” and urged tighter U.S. export controls to ensure that U.S. companies are not assisting the Chinese government’s crackdown there.
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Oil Falls as Deepening Trade War Stokes Fear Over Global Growth

By Tsuyoshi Inajima
Updated on 22 May 2019, 04:38 BST
·        
U.S.-China tensions have put world on low-growth track: OECD
·         WTI futures drop as much as 1% after closing lower on Tuesday

Oil headed for its biggest drop in more than a week as signs the worsening U.S.-China trade war will take a toll on global economic growth overshadowed the prospect of OPEC and its allies extending production curbs.


Futures in New York fell as much as 1% after Federal Reserve Bank of Boston President Eric Rosengren said the trade standoff is adding a downside risk to his economic forecasts and the Organization for Economic Cooperation and Development downgraded its projection for global growth.
More
https://www.bloomberg.com/news/articles/2019-05-21/oil-loses-steam-as-trade-war-stokes-concern-on-demand-outlook?srnd=premium-europe

Finally, more of the coming future. Does anyone have a plan for all the unemployed?

Crewless ship prepares for transatlantic crossing

Tuesday, May 21, 2019 - 01:28
Final preparations are underway for a 39 ft. long metal ship to attempt a world first transatlantic crossing with no crew on board.

"The rules-based multilateral trading system is the bedrock of economic globalization and free trade, and provides important safeguards for win-win outcomes. The authority and efficacy of the system should be respected and protected. Some WTO rules do need to be improved. The right approach is for all to sit down as equals to find solutions.
"The fundamental principles of free trade should be upheld, the interests and concerns of all parties be accommodated, and the broadest possible consensus on reform be built up. Taking a unilateralist approach will not solve any problems."

Chinese Premier Li Keqiang, World Economic Forum, 2018.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Today, Tesla again. Just what, if anything, is Tesla worth? Not much, says Morgan Stanley.

Morgan Stanley piles pressure on Tesla with $10 worst case call

May 21, 2019 / 10:52 AM
(Reuters) - Shares of Tesla Inc were on track for a fifth straight session of losses on Tuesday, as Morgan Stanley analysts outlined a worst case scenario that could see the electric carmaker’s stock price fall as low as $10.

Another brokerage, Baird, was the latest to cut its price target for the Elon Musk-run company to $340 from $400, saying concerns over demand, credibility and noise around the company have kept incremental buyers out of the market.

Tesla’s stock, which has almost halved in value since last August, was down another 3% at $199. In the last 10 days, it has gained only once, when the company boosted prices of its Model 3 sedan last week.

It was among Wall Street’s more heavily shorted stocks with about a fifth of its float on the line. Prices of the company’s debt also continued to sink.

Morgan Stanley analyst Adam Jonas, previously a major Tesla bull, said rising debt and geopolitical exposure, including the risk that Chinese demand for the company’s cars could suffer, had led him to cut his worse-case scenario to $10 from $97.

“Tesla has grown too big relative to near-term demand, putting great strain on the fundamentals,” wrote Jonas, rated a five-star analyst by Refinitiv for the accuracy of his forecasting on the company.

“The departure of key executives, price discounting, and extraordinary cost-cutting efforts add to the narrative of a company facing real potential stress.”

The market action follows hot on the heels of a $2.7 billion fundraising round by the company two weeks ago that was oversubscribed, but has done little to settle the nerves of holders of Tesla’s existing debt.

Its $1.8 billion high-yield bond due in 2025 with a 5.3% coupon weakened for a third straight day in European trading, with its price edging below 82 cents on the dollar and the yield up to 9.16% after touching a record high 9.25% overnight.

The spread of its yield over Treasury securities, a gauge of the added compensation demanded by investors for holding Tesla rather than safer government debt, widened to nearly 693 basis points.

By comparison, the average spread on corporate bonds rated “B” - roughly the same as “B-“ rated Tesla - is 442 basis points, according to ICE BofAML bond index data.

It was also becoming increasingly expensive to insure Tesla bonds against the risk of default. Its credit default swap prices rose to a seven-month high on Monday and now reflect a 43% probability of default within five years, according to data from IHS Markit. That is up from around 36% earlier this month.
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Technology Update.
With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards?

China rare earth firms' stocks soar on trade war speculation

May 21, 2019 / 12:10 PM
SHANGHAI (Reuters) - Shares in rare earth-related companies in China soared on Tuesday, a day after Chinese President Xi Jinping visited a rare earth firm in southern China, sparking speculation the sector could be the next front in the Sino-U.S. trade war.

Xi on Monday visit JL MAG Rare-Earth Co Ltd in Jiangxi province, state media reported.

China accounted for 80% of the rare earths, a group of 17 chemical elements used in high technology consumer electronics and military equipment, imported by the U.S. from 2014 to 2017.

So far, China’s rare earths exports have been spared from recent tariffs by the United States, which has decided not to impose import duties on those and some other critical minerals from China as part of the trade war.

Beijing, however, has raised tariffs on imports of U.S. rare earth metal ores from 10 percent to 25 percent from June 1, making it less economical to process the material in China.

Analysts said that Xi’s visit might indicate China is considering using rare earths as a weapon in the trade war, which provided support for the shares of the Chinese firms.

“No question it’s saber rattling,” said Ryan Castilloux, managing director of Adamas Intelligence, a consultancy that tracks the rare earths market. “I think China would be reluctant to cut off supplies to anyone just yet, but the optics are designed to send a clear message – we know your vulnerabilities.”
Shares in JL MAG Rare-Earth Co Ltd surged the maximum limit of 10% on Monday following Xi’s visit, and rose another 10% on Tuesday. 

Shares in Innuovo Technology Co Ltd, a rare-earth permanent magnetic materials and products maker, also soared 10% to their highest since October 2017. The firm’s shares have gained 54.7% so far in May. 

Yantai Zhenghai Magnetic Material, Chengdu Galaxy Magnets Co Ltd and Jiangmen Kanhoo Industry Co Ltd rose by as much as 9%.

In Hong Kong, China Rare Earth Holdings Ltd soared more than 80%. 

Asked if China would consider limiting rare earth exports to retaliate against the United States, China’s foreign ministry spokesman Lu Kang said on Monday that Xi’s visit was normal and there was no need for over-interpretation.
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“Peace, commerce, and honest friendship with all nations...entangling alliances with none”
Thomas Jefferson

The monthly Coppock Indicators finished April 

DJIA: 26,593 +51 Down. NASDAQ: 8,095 +89 Down. SP500: 2,946 +55 Up
. 
The S&P has reversed to up largely as a result of the Fed falling into line with President Trump’s demands, but with President Trump wanting to be judged by the performance of the stock market and the Fed’s Plunge Protection Team now officially part of President Trump’s re-election team, probably the safest action here is still fully paid up synthetic double options on most of the major indexes. This could all go very wrong very fast.

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