Ever play a game of poker?! Obviously, you’ll keep your hand close to your chest, but more importantly, ever so often, the player who wins isn’t necessarily the player with the best hand, but who can intimidate his opponents and make them fear that have all the more to lose if they stay in the game. If that’s Trump’s “Art of the Deal,” it’s not working just yet. And as we’ve noted time and time again, like in game theory, even though one approach might work best in a one round game, we’re talking here about a game that will repeat itself over and over again. Not a single country has backed down in the face of Trump’s demands, perhaps because collectively, they know, that they’ll be fodder for the next country that wants to take advantage of them. U.S. economists far and wide have said that Trump is in the right to a large extent, that China has copied U.S. technologies with abandon, and that there has not been a level playing field.
But at the same time, when push comes to shove, even though China’s stock market has fallen sharply this year, and its economy is starting to falter, it could very well be that Jinping has more lasting power than Trump. And over and beyond that, the Chinese public – everything equal – wants to see its leader save face and not kowtow to American demands. And add to that with mid-term elections imminent, a continued Republican majority a big question mark, Republicans are sparring with Trump about the timing of the confirmation of the new Supreme Court justice, the Senate, in its own right, having passed a bill instructing lawmakers to insert legislation reasserting the powers of the legislative branch. Trump, has time in and time out, used national security as reason par excellence for imposing levies and tariffs, blocking mergers and the like. In a push back, the authors of the bill wrote, Sen. Jeff Flake, R-Ariz., who, along with Sen. Bob Corker, R-Tenn., was one of the authors of the measure, stated, “We have to rein in an abuse of presidential authority and to restore Congress’s constitutional authority in this regard.”
So where do we stand now? In a very uncertain place! With Trump instructing his staff to find $200 billion more in tariffs, China – and resultantly, the whole world in America’s firing range is planning its next steps.
Lenox Wealth Advisors, CIO, David Carter, noted, “This is different from the other trade announcements, because the size is significantly larger, and because China is unable to directly reciprocate at $200 billion because they don’t import that much. It’s unclear what it might do next, but it is clearly another step closer to a full-blown trade war.” As for the dialectic or two opposing sides of market valuations, he added,”If the trade skirmish escalates into a full-blown trade war, that will be a bigger force in the markets than the strong fundamentals.”
Economic Calendar: Today’s Economic Calendar will be jam-packed with three reports at 8:30 AM, weekly jobless claims, the Consumer Price Index (CPI) and Core CPI. At 14:00, the federal budget will be released.
Market Summary: All of the major indexes fell on the back of trade fears. The blue-chip Dow fell 0.88%, the S&P 500 slipping 0.71%. The tech-leaning NASDAQ came out least scathed, with losses of 0.55%.
Another big geopolitical development – the fireworks flying at NATO. With a standing threat from the U.S. to abandon the post WWII security pact, Trump unleashed his vitriol at his allies, especially directing his wrath on Germany for a massive pipeline deal it signed with Russia. “Germany, as far as I’m concerned, is captive to Russia, because it’s getting so much of its energy from Russia. So we’re supposed to protect Germany, but they’re getting their energy from Russia. Explain that. And it can’t be explained—you know that.” Trump has demanded that other countries double their contributing, chipping in 4% of their GDP, as has the U.S. Only time will tell what the fate of NATO and NAFTA will be, but it can certainly be said that there’s a lot up in the air now, the whole world restlessly waiting to see China and Europe’s next move.
What’s different with the next round of tariffs?! They’ll be on consumer products, too. That means, when all is said and done, that if inflation is on the uptick and wages aren’t rising fast enough, the purchasing power of U.S. consumers will slip, meaning that Republican’s majority could falter, also calling into question the president’s chances at re-election. With Trump’s pro-business approach, re-writing the tax code to favor corporations and the wealthy, anything that erodes at Trump’s executive powers, could spell trouble for the market.
At the same time, Capital Economics chief U.S. economist, Paul Ashworth, noted that to begin with, Trump has consolidated power in a way that is hard to combat. “Even though the tariffs actually imposed up to now are relatively small in comparison to overall trade flows and GDP, it is hard to see how a full-blown trade war can be avoided at this stage. There is no-one left in the administration or in Congress to rein in President Donald Trump’s long-held protectionist beliefs and other countries are not shying away from the fight.”
Yesterday, it was industrial and energy stocks that took the hit, Boeing (BA), Caterpillar (CA) and 3M (MMM) all taking large hits. Energy companies also were in for a shock, Chevron (CVX), Marathon (MRO) and Exxon (XOM) being just a few of the sector’s companies taking a spill.
Another development to watch today is the bidding war for Sky PLC (SKY), 21st Century Fox (FOXA) upping its offer for the company also on the radar of Comcast (CMCSA).
Hot Stocks: BOX, OZRK , CA, AVGO, SKY, FOXA, CMCSA
Have a great trading day