HI Financial Services Commentary 06-26-2018
What I want to talk about today?
What were you concerns, trades, worries from the headline whipped market yesterday
In Headline risk markets most fundamentals are intact – There is NO fundamental change
Our Bull Market positives are – lower taxes, deregulation, possible 4.0GDP yearly numbers, Low unemployment
Risks to Bull Market – Trade War with China/everyone = Reciprocal tariffs/ free trade/ trade balance
What’s the problem with a trade war?= Higher prices, 40% S&P sales are overseas
In Hide sight, could I have done a better job protecting positions? MAYBE
Yes, I could have added more short calls, but it caps the bounce back up
Could I have added money today to new stock ownership or yesterday bought into weakness?
What happening this week and why?
China new tariffs might be set on Friday
Where will our markets end this week?
DJIA – Bearish
SPX – Bearish
COMP – Bearish
Where Will the SPX end July 2018?
What is on tap for the rest of the week?=
Wed: GIS, FUL, PIR, RAD
Thur: UBA, KBH, NKE
Tues: Consumer Confidence, S&P Case Shiller
Wed: MBA, Durable Goods, Durable Ex-trans, Pending Home Sales
Thur: Initial, Continuing, GDP, GDP Deflator
Fri: PCE Prices, Core PCE Prices, Chicago PMI, Personal Income, Personal Spending, Michigan Sentiment
Friday- CN: CFLP Manu PMI
Sunday – CN: PMI Manu Index
www.myhurleyinvestment.com = Blogsite
How am I looking to trade?
AA – 07/18 AMC
AAPL – 07/31
AOBC – 09/06
BAC – 07/16 BMO
BIDU – 07/26
DIS – 08/07
F – 07/25
FB – 07/25
FCX – 07/24
MO – 07/26
UAA – 07/31
V – 07/25
ZION – 07/24
Trump issues challenge to trading partners: Bring down barriers or face ‘reciprocity’
- Trump demanded that all U.S. trading partners lower barriers, or be faced with reciprocal trade penalties.
- “Trade must be fair and no longer a one way street!” the president exclaimed.
Published 4:27 PM ET Sun, 24 June 2018 Updated 11:38 AM ET Mon, 25 June 2018
President Donald Trump issued a stark warning to the United States’ trading partners on Sunday, calling on global economies to end all protectionist barriers or face a new round of retaliatory measures.
As fears mount over a trade war between the world’s largest economy and major trading partners like China and the European Union, Trump renewed his call for “fair trade” that reduced barriers to entry. On Twitter, the president insisted that “all countries’ with protectionist measures must remove those barriers, or be met with “reciprocity” by the U.S.
The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!
Trump’s doubling-down on his protectionist rhetoric comes in the midst of an ongoing fight that has seen retaliatory tariffs slapped on a wide range of goods between the U.S. and its erstwhile economic allies.
Last week, markets were roiled by rising tensions between the U.S. and China, which weighed heavily on stocks and sparked fears of an economic downturn. The Trump administration slapped 10 percent tariffs on $200 billion worth of Chinese goods, a move that prompted Beijing to ease credit conditions to cushion the blow. Separately, The Wall Street Journal reported on Sunday that the administration is preparing to bar many Chinese companies from investing in U.S. technology firms, and blocking American tech exports to the world’s second-largest economy.
In the wake of an acrimonious split with NAFTA trading partner Canada earlier this month, the president denounced fair trade as “fool trade” without full reciprocity. Trump’s increasingly trenchant rhetoric has called into question the relationship between the U.S. and many of its closest historical allies.
“A trade war wouldn’t be enough to push the economy into recession but…it would worsen the downturn we expect next year,” Capital Economics said last week, in a research note to clients. The firm also cited the risk of higher prices being passed along to consumers, as a result of the tariffs making their way through the real economy.
Trump plans to bar China from investing in US tech firms and block more tech exports
- President Donald Trump plans to bar many Chinese companies from investing in U.S. technology companies and block additional technology exports to China, the WSJ reports.
Published 8:57 PM ET Sun, 24 June 2018 Updated 8:19 AM ET Mon, 25 June 2018
President Donald Trump plans to bar many Chinese companies from investing in U.S. tech and to block additional technology exports to China, The Wall Street Journal reported on Sunday evening, citing people familiar with the matter.
The two measures are set to be announced by the end of the week, and are intended to counter Beijing’s Made in China 2025 — a Chinese initiative to be a global leader in technology.
The Treasury Department is drawing up rules to block companies with at least 25 percent Chinese ownership from buying companies involved in “industrially significant technology,” the WSJ said.
Reuters confirmed the curbs on Chinese investment into such technology. The ownership threshold may change before the announcement on Friday, Reuters reported, citing a government official briefed on the matter.
The National Security Council and the Commerce Department are also putting together plans for tighter export controls that will not allow “industrially significant technology” to be exported to China, the paper added.
U.S. stock futures fell more than 0.5 percent in Asian trade on Monday after the WSJ report.
The White House and the Treasury Department did not immediately respond to a request for comment sent outside of regular office hours.
Trade tensions between the world’s two economies have been escalating in the last few weeks.
Tariffs on an initial list of goods worth some $34 billion are expected to kick in on July 6. China has announced retaliatory measures on U.S. imports.
On June 15, the Trump administration announced that it would impose a 25 percent tariff on up to $50 billion of Chinese products. And then, on June 18, Trump said he had requested that the United States Trade Representative identify $200 billion worth of Chinese goods for potential additional tariffs at a rate of 10 percent.
China’s Commerce Ministry responded by saying it would take counter measures if the U.S. publishes an additional tariffs list.
Market whiplash over Trump trade policy: ‘They’re making this up as they go along’
- White House officials have sent conflicting signals over trade policy, resulting in wild market swings.
- The Dow fell more than 300 points Monday as administration officials sought to clarify President Donald Trump’s latest trade-related threat.
- Markets continue to look for direction, though one pro said he’s optimistic that “we’re actually going to build stronger trade relationships over time.”
Published 6 Hours Ago Updated 4 Hours Ago
They may have to start passing out neck braces on trading floors if the White House’s contradictions on trade policies continue much longer.
Investors are getting whiplash from watching the back-and-forth happening among Trump administration officials who can’t seem to agree on a trade policy. Monday’s action featured a series of mixed messages about President Donald Trump’s latest trade-related threat, resulting in volatile market action and confusion and frustration in the financial markets.
“I don’t think the people in the White House have an ideal path for the way this is going to go. They’re trying lots of different things,” said Rob Lutts, chief investment officer and president of Cabot Money Management. “I actually believe they’re making this up as they go along.”
Monday’s end result was a 328-point drop for the Dow industrials, which had lost nearly 500 points earlier in the session but recovered somewhat on remarks from Peter Navarro, one of Trump’s chief economic advisors, who tried to tamp down market fear during a CNBC appearance.
The Navarro interview came during a tumultuous day that started with news reports sayng that the administration would block companies with 25 percent or more Chinese ownership from buying certain U.S. tech-related companies. Treasury Secretary Steven Mnuchin followed up with a tweet indicating that the measure would apply to all countries, before Navarro made his comments.
But that wasn’t the end of it: White House press secretary Sarah Huckabee Sanders then said during her daily briefing that the administration was preparing a list to be released soon targeting “all countries that are trying to steal our technology.”
Confused? Join the club.
When Tuesday came along, investors watched Trump jump into yet another feud, this time with Harley-Davidson after the iconic motorcycle manufacturer said in a regulatory filing that it was moving some production overseas to mitigate the costs of European Union retaliatory tariffs against U.S. products.
Still, major indexes actually notched small gains heading into midday Tuesday despite the vertigo-inducing news developments.
Lutts said he has faith the trade negotiations and war of nerves will yield positive results.
“The market may get used to the process. This is not going to be solved by summer or fall,” Lutts said. “After a while the market will accept that we’re not going to injure the economy, we’re actually going to build stronger trade relationships over time.”
Between here and there, however, investors may at least need some antacids.
A good part of the message issue is that the trade policy is being crafted by warring White House factions. Navarro and Mnuchin are “two mortal enemies who are confusing the markets,” said Greg Valliere, chief global strategist at Horizon Investments and an expert on the business side of politics.
The Monday back-and-forth was “cringe-inducing,” Valliere added in his morning note Tuesday. “More tariffs are coming, and Trump officials aren’t on the same page.”
That adds another layer of uncertainty to a market that has looked for direction for most of 2018 and has had to cope with several strong bouts of volatility. Major averages remain largely positive, but multiple investor surveys have indicated that a potential trade war tops the list of market fears. The S&P 500, Dow and Nasdaq all are down more than 1 percent over the past week as the trade rhetoric has heated up again.
The issue comes amid soaring corporate earnings, expectations for above-trend economic growth and a general air of optimism from the tax cuts that Congress passed in December. Conversely, a market that already has priced in much of that good news finds itself vulnerable to headline risk and events that could derail all that momentum.
“There’s not a lot of good that comes from a trade war,” said Michael Yoshikami, founder and CEO of Destination Wealth Management. “As with any policy, if there’s uncertainty, I think the market tends to assume the worst, and that’s what’s happening now.”
Yoshikami figures the Federal Reserve is watching the situation closely and could respond policy-wise if tension continues to ratchet up.
Central bank officials have been indicating a strong possibility of two more interest rate increases before the end of the year — on top of the two quarter-point moves already implemented — but the fed funds futures market has been unconvinced, pricing in less than a 50 percent chance of a fourth move in December. Should the trade issues hammer the markets or put a dent in economic growth, the Fed could turn dovish.
“They’re not going to stand by and let economic growth be impacted by trade policy and not have it impact monetary policy,” Yoshikami said. “The Federal Reserve knows what happens with trade wars. They have a chilling effect on economic growth. It’s really that simple.”