Chinese Goods - Latest Tariff News

President Trump told his aides to go ahead with the tariff on $200 billion worth of goods.

Let’s be clear, these are tariffs on $200 billion worth of goods, not $200 billion in tariffs like the news media sometimes reports in an effort to either be succinct or make them sound bigger than they are.

They certainly are significant because they are 4 times larger than the amount of goods under tariffs now. A deadline to impose them has passed.  This is why I have said the President needs to issue them if he wants to keep his threats meaningful.

One empty threat may ruin his ability to negotiate. There is frantic scrambling to try to get something done behind the scenes.

The President met with his trade advisors who are Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross, and U.S. Trade Representative Robert Lighthizer.

Steve Mnuchin is trying to restart trade talks with China. There’s no doubt President Trump was updated on what is happening. He doesn’t want to go through with this tariff because it will start to affect the economy.

On Tuesday, President Trump tweeted "we are under no pressure to make a deal with China, they are under pressure to make a deal with us."

Chinese Goods - There is pressure on both sides to make a deal because both sides will be hurt in a trade war. 

I’m amazed to see the stock market so close to an all-time high as we are on the brink of the first decent sized tariff on America’s largest trade partner.

Trump has boxed himself in a corner where he must issue this tariff in the next few weeks because he has already threatened another tariff on top of this one.

He stated earlier in September that he could tax $267 billion worth of additional goods. At this rate he will quickly run out of goods to tax. The next step would be to raise the tax rates on the goods.

The current threat is a tax rate between 5% and 25% on thousands of products such as cameras, recording devices, tires, and vacuum cleaners. China will respond with in kind tariffs.

The Trump administration has claimed that once the deal with Mexico was completed the other deals would fall like dominos, but that hasn’t occurred yet.

Chinese Goods - Stocks Increase Slightly

After falling every day last week, the S&P 500 increased every day this week. It was only up 3 basis points on Friday. The biggest winner was Advanced Micro Devices which increased 7.3%.

An analyst from Argus raised his price target from $23 to $40. The stock is up 220% in the past 99 trading days. The Nasdaq fell 5 basis points and the Russell 2000 was up 0.43%. It makes sense the Russell outperformed because the dollar index was up 0.43%.

Tesla stock gained 12% this week probably because it was oversold. The next catalyst is if the company can become profitable. It’s a good sign that investors are switching from following production numbers to profits, but it only matters if the company delivers.

I think it’s a good idea to ignore every ‘scandal’ surrounding Elon Musk because all that matters are the fundamentals of the business. The financial and the energy sectors were up 0.66% and 0.56%. Oil was up 0.57%.

The worst sectors were telecom and utilities which were down 0.43% and 0.54%.

Chinese Goods - Treasuries Are Bullish On Growth

The 10-year yield increased 3 basis points to 3%. As you know, this is the much heralded 3% level which has been blamed for volatility in stocks even though it’s actually good news.

I have been saying the 10 year wouldn’t hit 3% or go much above it. However, it is back at 3% for the first time since August 1st. It hit 3% very briefly and then fell to 2.81%.

This reaction in the 10-year bond yield reminds me of when the 10 year hit 2.95% in February. Investors were getting obsessed with wage growth, so they sold the long bond.

The yield is once again increasing as investors are focusing on the hourly wage growth from August. This could be algorithmic trading. I see strong growth which could be slowing and I see inflation which is decelerating.

That’s not an ideal situation for the long bond to sell off. It’s interesting how the market is only focusing on wage growth and completely ignoring the disappointing CPI and PPI inflation reports.

The 2 year yield increased 2 basis points to 2.78% which is a cycle high. It’s logical that the yield is increasing because the Fed will raise rates 2 more times this year. The potential for rate hikes in 2019 is also increasing.

The Fed and the economy are in great shape because the difference between the 2 yields is 22 basis points.

Chinese Goods - Hurricane Florence

As of Friday, hurricane Florence was downgraded to a tropical storm, but much of the damage has been done as some areas of North Carolina are on their way to having 40 inches of rain along with 11 foot storm surges.

The chart below shows the Q3 2018 EPS estimates for the insurance industry compared to the Q3 2017 estimates. The estimates cratered after a busy 2017 hurricane season. September is the most popular month for hurricanes.

Let’s look at the stocks which are affected by the storm. Lowe’s stock increased 1.01% It’s now up 3.92% since last Friday.

Home Depot stock fell 0.15%. It’s only up 1.38% since last Friday. Travelers stock was up 0.92%. It’s down 1.93% since last Thursday. AIG increased 1.1% on Friday. It is down 1.21% since last Thursday.

As you can see, 3 out of the 4 names indicated the storm wasn’t as bad as expected on Friday. The effect on the economy is still significant as at one point 600,000 people were without power.

Luckily the major cities of Charlotte and Raleigh were spared of the worst damage.