…Gary Cohn resigns, markets pout. Mexico and Canada might get tariff carve-outs. Beige Book shows growth and (gulp) inflation. BOJ hold pat, sorta. Consumer borrowing slows. Trade deficit jumps. Crypto exchange must register.
Financial Review by Sinclair Noe for 03-07-2018
DOW – 82 = 24,801
SPX – 1 = 2726
NAS + 24 = 7396
RUT + 12 = 1574
10 Y + .01 = 2.88%
OIL – 1.25 = 61.35
GOLD – 9.30 = 1325.90
Late yesterday, Gary Cohn resigned as the White House Chief Economic Advisor. Stocks cratered this morning – and it was a global downturn. The Dow Industrials dropped more than 300 points earlier but pared losses. Seems like a bit of an over-reaction. Sometimes markets disconnect from fundamentals, or just throw a bit of a temper tantrum, but this goes to bigger problems. There seems to be a shrinking pool of mainstream economists in the administration. And there has been unusually high turnover of all sorts of jobs in the White House. And there is a threat of possible trade wars. Cohn, a former president of Goldman Sachs, was considered a moderating influence on the White House’s trade and financial policies, balancing out Trump’s more hawkish, protectionist advisors. He fought bitterly with Trump about the recently announced tariffs on steel and aluminum imports. Cohn’s departure from the White House makes a broad application of those tariffs more likely. Trump might sign the tariffs by tomorrow. With the departure of economic advisor Gary Cohn, Peter Navarro is now one of the strongest voices on trade in the Trump White House. He has long been a fierce advocate for steel and aluminum tariffs.
In May of 2017, Navarro was named the head of Trump’s new “Office of Trade Manufacturing policy,” which the White House said then sends “an important signal to the world that the United States will no longer tolerate trade cheating while our manufacturing and defense-industrial base suffers.” Last September, that office was moved into the National Economic Council. Navarro is known for his hardline protectionist stance against China, which includes tariffs on Chinese imports and switching to a value-added tax-system; arguments that do not have much support outside the White House.
Commodity traders are increasingly concerned that any trade war could suppress growth in the global economy, which has showed signs of picking up. That, in turn, would slow demand for commodities including metals used in industries ranging from construction to aerospace. The International Monetary Fund says U.S. tariffs could harm economic growth. There’s “new concern” over the Trump administration possibly targeting Chinese imports in retaliation for intellectual property theft. Chinese response so far has been rather muted, but the prospect of a nasty tiff between the world’s two largest economies won’t help commodities in the short term. All the major metals traded lower today.
Tariffs also threaten to derail negotiations over NAFTA. Jared Kushner tries to smooth things over in Mexico. Trump’s son-in-law and senior adviser will meet president Enrique Peña Nieto. A potential meeting between Trump and his counterpart reportedly collapsed after a phone call a few weeks ago, where Trump lost his temper over Mexico’s refusal to fund his border wall. Today, Press secretary Sarah Sanders seemed to hint at the possibility Mexico and Canada may get tariff exemptions, which would contradict Peter Navarro’s comments over the weekend that there would be no tariff exemptions.
Two weeks before an FOMC policy meeting, the Federal Reserve publishes its Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks. The latest edition shows “modest to moderate” economic expansion. The survey also contained evidence that a pickup in inflation was more broadly based. According to the Beige Book report: “Across the country, contacts observed persistent labor market tightness and brisk demand for qualified workers, as well as increased activity at staffing placement services… Most districts saw employers raise wages and expand benefit packages in response to tight labor market conditions.” Prices increased in all districts, the survey stated, “and most reports noted moderate inflation.” The Beige Book pretty much confirms that the Fed will raise interest rates at the March 20th FOMC meeting and remains on track for 3 rate hikes this year.
The Bank of Japan is set to keep its massive monetary stimulus unchanged for the foreseeable future. In his first round of testimony to lawmakers last week, BOJ Governor Kuroda said that in the fiscal year starting April 2019, the central bank would be thinking about exit from stimulus. That was the first time he’d made such a statement, and financial markets reacted sharply. This week, he clarified that stance, emphasizing that while the BOJ would probably be thinking about it at that point, that didn’t mean it would necessarily be moving to normalize policy next year. Kuroda emphasized that weakening of stimulus is unthinkable before reaching the 2 percent inflation target. However, it’s unclear whether that statement is actually as emphatic as it sounds. While repeating the promise to keep increasing the size of the monetary base until 2 percent inflation was achieved and stable, he indicated that a change to interest rate policy could come before that point. The European Central Bank Governing Council meets tomorrow.
Consumer borrowing slowed in January. The Federal Reserve reports total consumer credit increased $13.9 billion in January to a record seasonally adjusted $3.85 trillion, posting an annual growth rate of 4.3%. Revolving credit, like credit cards, slowed dramatically in January, rising only 0.8% after a 7.2% gain in December. It is the smallest gain since February 2015. Despite the slowdown, revolving credit remains above the $1 trillion level. Consumers probably are taking a break after the holidays. Nonrevolving credit, typically auto and student loans, rose 5.6% in January for the second straight month.
The U.S. trade deficit climbed 5% in January and hit a nearly 10-year high. The trade deficit rose to $56.6 billion in January from $53.9 billion in December. The deficit in January was 16% higher compared with the same month in 2017.
Automatic Data Processing, or ADP, reports private sector employers added 235,000 jobs in February. Economists use ADP’s data to get a feeling for the Labor Department’s employment report, which will be released Friday and covers government jobs in addition to the private sector. Friday’s Jobs Report is expected to show the economy added about 220,000 new jobs in February.
The US justice department sued California over its sanctuary policies. A lawsuit filed Tuesday night in federal court said that California’s status as a sanctuary state endangers federal agents. The state forbids police from asking questions about someone’s immigration status during routine interactions.
And porn star Stormy Daniels sued Trump. She alleged that the president had never signed the non-disclosure agreement requiring the adult star not to reveal details of her relationship with Trump, making the agreement void.
The Securities and Exchange Commission reiterated that many online trading platforms for digital assets should register with the agency as exchanges. The SEC issued a statement today saying, “If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.” Many platforms are referring to themselves as “exchanges,” and the SEC says this can give the “misimpression” to investors that they are regulated or meet the regulatory standards of a national securities exchange. Bitcoin dropped about 13% today, dropping below $10,000.
Shares of H&R Block rose 11.5 percent after the company reported a smaller-than-expected loss for the previous quarter. The company said in a release it had a “strong tax season.”
Design software maker Autodesk posted a smaller-than-expected quarterly loss, sending its stock up almost 15%.
Abercrombie & Fitch shares rose 12% in Wednesday after the retailer reported fourth-quarter earnings and sales that beat expectations.
General Motors CEO Mary Barra announced her company will expand production of its Chevrolet Bolt electric car, during a speech plotting GM’s path to a zero-emissions future. GM will increase production of the Chevrolet Bolt later this year at its Orion Assembly plant near Detroit. Barra said the scale of the production increase was yet to be determined, but the ramp-up would create new jobs at the plant.
Airlines cancelled over 2,200 flights today as another big storm dumped snow across the northeast and New England. Airports from Philadelphia to Boston were shut down. The second nor’easter in a week is already snarling traffic and taking out power to thousands — and the worst has yet to come. New York City is expected to get a foot of snow today.