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Tariffs, Trade Wars And A New Record
August 6 (
King World News
) – Here is a portion of what Peter Boockvar wrote today as the world awaits the next round of monetary madness:  
Here is a link to Google Trends using the word ‘tariffs’ and likely reflects the belief that some deal will come from all of the noise as ‘tariffs’ searches topped out in March, https://trends.google.com/trends/explore?q=tariffs&geo=US.

After attending the annual Camp Kotok fishing trip over the weekend, my sense from conversations is we get a Mexico trade deal first. Hopefully Canada will soon follow. Something comes of the talks with Europe but the possibility of auto tariffs still remain (with many exceptions). And then it will be on to China and maybe something before the mid term elections…

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Boockvar continues:  With China we have to separate again the two main issues. Firstly, the Administration’s obsession with the trade deficit even though much of that is because the US doesn’t save enough. Secondly, technology transfer and the protection of IP. The former is an easy deal it seems but the latter is much more difficult and could take well into next year if at all.

Let’s hope much is rapped up by the midterms because as seen in the weakness in Friday’s ISM services index (Business Activity down 7.4 pts, new orders lower by 6.2 pts, and backlogs softer by 5 pts), it is not just the US manufacturing side that is vulnerable since many service companies do business with manufacturers.

Here was an editorial in the Chinese Global Times last night. They responded to last week’s comments from Larry Kudlow on the Chinese tariff response and state of their economy. The piece said:

“A trade war will bring temporary pain to China, and will add more pressure to Beijing during the first round of disputes. However, China will show its resilience in trade and social cohesion as long as the trade war enters a stalemate. Instead of warning China, Kudlow should warn the Trump administration not to underestimate China’s determination to fight to the end. Chinese people really want to avoid a trade war. Considering the unreasonable US demands, a trade war is an act that aims to crush China’s economic sovereignty, trying to force China to be a US economic vassal just like Japan accepted the Plaza Accord…China has time to fight to the end. Time will prove that the US eventually makes a fool of itself.”

The Shanghai comp was weak again, falling 1.3% bringing its year to date fall to 18%. It’s at the lowest since February 2016 and here is a chart overlaying the SPX vs the Shanghai comp to visualize the difference in performance over the past two years.

S&P vs China’s (Shanghai) Stock Market

After the PBOC move Friday to make it more expensive to short the yuan, the yuan today is weaker anyway after Friday’s bounce.

Germany reported a much weaker than expected June factory order number. Orders fell 4% m/o/m and .8% y/o/y vs the estimate of down .5% m/o/m and up 3.4% y/o/y. That monthly drop is the worst in about a year and a half. The weakness was across the board regionally – domestic, within the eurozone and outside. The German Ministry said “Regarding the latest development, uncertainty caused by trade policy probably played a role.” The DAX was down earlier in response but has rebounded back to green.

Hopes that the Trump-Juncker meeting a few weeks ago will lead to an easing of tensions with Europe led to a jump in the Sentix Eurozone investor confidence index. It rose 2.6 pts to 14.6, off the June low of 9.3 but still well off the January high of 33. Sentix said “A complete all clear cannot yet be given, because with negative expectations, the economy is still in a cooling off phase. But investors seem to see the dangers of an escalation in the trade dispute initiated by US President Trump much less acute.”

The British pound is breaking below $1.30 on Brexit deal worries. The pro Brexit Trade Secretary Liam Fox said over the weekend that the odds of no trade deal by the time the UK leaves the EU in March is 60-40. Responding to this today was a UK Spokesman who said “We continue to believe that the most likely outcome is reaching a good deal because it is not only in the interests of the UK, it’s in the interests of the EU.”

Lastly, I’ve argued this year that only due to mix has the US wage and salary growth data been more subdued than we want to see. Reflecting this, here is a chart from Friday’s payroll number showing the unemployment rate of those without a high school degree, the lowest since records started to be kept in 1992:

Jobless Rate For Those With Less Than High School Education Drops To Lowest Level Ever Since Inception Of Records In 1992!

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