Financial Review

Trout Fishing In America

…If impeached…, US-China trade war gears up. Trout fishing in Wyoming. No more SALT. Email it in

Financial Review by Sinclair Noe for 08-23-2018


DOW – 76 = 25,656
SPX – 4 = 2856
NAS – 10 = 7878
RUT – 5 = 1717
10 Y un = 2.82%
OIL + .08 = 67.91
GOLD – 10.70 = 1185.60


Stocks closed lower, with almost all S&P 500 sectors falling. Trading volume was low, which is fairly typical for the dog days of August. In an interview with Fox News this morning, Trump said that if he is impeached, he thinks the market would crash and everyone would be poor. On political prediction site PredictIt, the odds of a Trump impeachment hit a three-month high, with the current odds of it happening by the end of 2019 sitting at 37% and the probability of it happening sometime within his first term at 45%.


On Tuesday, Trump’s former campaign manager Paul Manafort was found guilty on 8 charges of tax evasion and bank fraud; a mistrial was declared on 10 other counts as one lone juror held out for acquittal. Also on Tuesday, Trump’s personal lawyer Michael Cohen pleaded guilty to 8 counts, including illegal campaign contributions made “at the direction of a candidate for federal office.” These campaign violations involve payments made to adult film star Stormy Daniels and Playboy model Karen McDougal. Trump was not named in the charges against Cohen but he was tentatively identified as an unindicted co-conspirator. So, there was a big debate today over whether impeachment would crash Wall Street. Probably not, but maybe. Nobody knows. There is a chance that Trump’s legal problems could weaken his hand in trade negotiations. Let’s say you’re Chinese president Xi Jinping. Trump wants to sharply lower the American trade deficit with your country, and he’s imposing punitive tariffs on your imports to get it done. Are you in a hurry to cut a deal? Hardly.


The trade war between the United States and China kicked into higher gear today, with the US imposing new 25 percent tariffs on $16 billion worth of Chinese goods, and China retaliating by imposing 25 percent tariffs on $16 billion of US goods, even as mid-level officials from both sides resumed talks in Washington. 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.  Economists reckon that every $100 billion of imports hit by tariffs would reduce global trade by around 0.5 percent. 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, medical equipment, and agricultural products including apples and cherries.


Neither side is showing much willingness to budge in the near term. Translation: The Trump administration looks likely to significantly ramp up the pain by slapping tariffs on $200 billion of Chinese imports expected to take effect late next month.


Meanwhile, talks with Mexico over renegotiating NAFTA went nowhere. New rules on auto production are the major sticking point.


Shares of industrial giants Caterpillar and Boeing, which have been bellwethers of trade sentiment, were among the biggest drags on the Dow. Caterpillar shares fell 2.0 percent, and Boeing shares fell 0.7 percent. Shares of Hormel Foods fell after the meat producer attributed its underwhelming quarterly results to Chinese tariffs, which Hormel said have led to domestic oversupply and lower prices. Hormel shares ended the session down 3.1 percent.


Also, in the interview this morning, Trump reprised a litany of complaints about the Justice Department and the FBI, attacking both without providing evidence they had treated him and his supporters unfairly. Trump also renewed his criticism of Attorney General Jeff Sessions, blaming him for what he called corruption at Justice. Sessions, in a rare rebuttal to Trump, issued a statement defending the integrity of his department, writing: “the actions of the Department of Justice will not be improperly influenced by political considerations.”


Also today, David Pecker, the publisher of the National Enquirer tabloid, has reportedly been granted immunity in the investigation into Trump’s former attorney Michael Cohen and his payments to women during the 2016 campaign. That could potentially be bad news for Trump, as Pecker’s cooperation with prosecutors could offer more details on the efforts to quash these stories about Trump during the campaign, and the extent of the president’s knowledge about those payoffs to women.


Federal Reserve policymakers have gathered in Jackson Hole, Wyoming to deliberate trout fishing. Tomorrow morning, Fed Chair Jerome Powell will deliver a speech; with any luck he will debate fly fishing technique. On the other hand, Powell could talk about continuing trade tensions, notably between the U.S. and China, and their possible effect on the pace of interest-rate hikes, which he has tentatively touched on before. In September, the Fed is expected to raise interest rates for an eighth time since late 2015, with fed-funds futures indicating a 96% probability of a hike. But a potential fourth hike of the year in December is less certain.


Dallas Fed President Rob Kaplan said the Fed ought to raise rates by three or four quarter-point moves over the next nine to 12 months. That would get rates up near 2.75%, his definition of neutral, or the level of rates that neither stimulates nor restricts growth. At the moment, the Fed has set its benchmark fed funds rate between 1.75% and 2%. Minutes of the Fed’s last meeting, released Wednesday, showed that central bankers were sharply divided over whether to pay attention to the yield curve. The gap between 2- and 10-year Treasury yields shrank to as little as 21 basis points today, reaching the narrowest since August 2007 — a year that also marked the last time an inversion of the curve happened.


IHS Markit’s flash manufacturing index slipped to a nine-month low of 54.5 from 55.3. The services barometer dropped to a four-month low of 55.2 from 56. Despite the slowdown, any number over 50 signifies expansion, and results above 55 are considered exceptional.


The Commerce Department reports new-home sales ran at a seasonally adjusted annual 627,000 rate. July’s pace was the lowest since last October. It stood 1.7% lower than June sales, but for the year to date, sales are 7.2% higher than the same period last year. The median price of new homes sold in July was $328,700. That’s only 1.8% higher than the median price in July 2017. Builders are increasing their pace of construction – but slowly. Tariffs are going to increase input costs, making the road ahead more difficult for the housing market, which desperately needs fresh supply. The slowdown in housing is becoming acute enough that even the Federal Reserve is watching. Minutes from the central bank’s last meeting show policymakers discussing housing starts and permits, as well as sales of new and existing homes.


Rates for home loans declined for the third straight week, in line with the broader bond market, but not in time to help much of the housing market. The 30-year fixed-rate mortgage averaged 4.51% in the Aug. 23 week, down two basis points, according to Freddie Mac’s weekly survey.


The Treasury Department moved to block attempts by New York, New Jersey and Connecticut to allow taxpayers to circumvent the new $10,000 cap on state and local tax deductions. Treasury’s proposal requires taxpayers to subtract the value of any state and local tax credits from their federal charitable deductions. New York, New Jersey and Connecticut have all passed laws allowing credit-for-donation programs to circumvent the cap.


Google said it has identified and terminated 39 YouTube channels linked to state-run Islamic Republic of Iran Broadcasting. On Tuesday, Facebook, Twitter and Alphabet collectively removed hundreds of accounts tied to an alleged Iranian propaganda operation. Google, which had engaged cyber-security firm FireEye to provide the company with intelligence, said it has detected and blocked attempts by “state-sponsored actors” in recent months. FireEye said here it has suspected “influence operation” that appears to originate from Iran, aimed at audiences in the United States, the U.K., Latin America, and the Middle East. Shares of FireEye rose as much as 10 percent to $16.38 after Google identified the company as a consultant.


HP Inc. shares fell 1.2% in the extended session after the company missed revenue expectations but beat on the bottom line. HP raised its full-year earnings guidance.


Alibaba Group, China’s biggest e-commerce firm, topped first-quarter revenue estimates, but said investments in its food delivery business would continue to weigh on profits. Alibaba execs said today that they don’t want a trade war. But the company said that China wouldn’t just survive a fight with the United States, it would thrive.


American banks just had their most profitable quarter ever. Again. The FDIC says tax cuts helped drive bank profits to a record $60.2 billion in the second quarter. That easily topped the $56 billion in profit that banks hauled in during the first quarter. Bank profits jumped 25% in the second quarter from a year earlier. It’s no surprise that banks are raking in money as the economy hums along. But the decision by many banks to funnel tax savings into higher dividends and stock buybacks has been controversial.


Kroger, one of the largest supermarket companies in the US has announced it is phasing out single-use plastic bags in an effort to reduce plastic waste. According to the Environmental Protection Agency, more than 380 billion plastic bags are used in the U.S. every year. The phase out starts next year and should be complete by 2025.


According to a study conducted by Adobe of 1,000 American white-collar workers, people report spending more than three hours checking work email each day. If you would like more details on this report, please send me an email.

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