Good Monday morning-I hope weekend was great for all as now enter the last week of August and what a month it has been. Markets sold off hard Friday not after China announced retaliatory tariffs (5-10% on about 5,000 or so goods/$75bln of goods and targeted soybeans, oil and autos beginning 9/1st and 12/15th-3 industries dear to Trump's heart)) and not after Powell did what he had to at Jackson Hole (Cautious with a dovish lean as he talked about 'significant risks' that face an otherwise strong economy- and admitting there isn't really a playbook, script to go off for this type of trade war "Financial markets have reacted strongly to this complex, turbulent picture (of trade and geopolitical tensions)...based on our assessment we will act as appropriate to sustain the expansion'- personally it seems to me a 25bp cut in September and a Fed that will closely monitor financial market conditions and data going forward, But the market sank after a certain person, whose behavior has been as erratic lately to say the least with constant Tweets blaming everyone for market volatility (Fed/Powell and China/Xi usually his favorite targets- 'whose' our biggest enemy Powell or Xi'-wow) - he has called himself the 'chosen' one to deal with China on trade and even cancelled a state visit to Denmark after his feelings were hurt about their reaction to US wanting to buy Greenland- yes, I am talking about President Trump and I do not want to get political, but do we have a real trade plan? Is China really 'paying for it' when it comes to tariffs or are we all? National Retail Federation 'there are no winners in a trade war... American business and consumers continue to be caught in the cross hairs". Business are finding uncertainty rising and planning more difficult by the tweet as they face (rising costs, delaying or cancelling store or plant openings, freezing or cutting staffing, raising prices or eating into their bottom line and as of Friday being ordered to pretty much get out of China if they can, look for alternatives even if they don't exist or aren't as efficient, quality isn't as good, costs are higher -Chamber of Commerce rejected this idea). China's announcement to raise tariffs seemed to catch Trump off guard and royally ... upset him which led to many things and ultimately looks like trade negotiations are going straight into a brick wall as he raised tariffs again even before the new ones begin (25% now 30% on $250bln of goods , new ones 15% not 10% on $300mm of goods) -Trump said we don't need China and would be better off without them, is that true?-China has warned US now not to 'misjudge' the situation or 'underestimate ' the determination of the Chinese people-they warned us to stop 'wrong' trade actions or face consequences-they talked about bullying trade protectionism and our actions 'seriously ranges' the normal international trade order. Political reasons for tariffs=Risk. Markets don't like uncertainty and spanked stocks on Friday to show their frustration with what seems to be a Brexit type never-ending saga over trade tensions. No rest for the weary also as G-7 began in France this weekend as protesters caused police to use tear gas -sounds like the ongoing chaos in HK that continued this weekend with more protests and barricades (Looks more and more like China is ready to intervene as violence keeps occurring)! In France we had Tusk of EU admitted it's increasingly hard to find common ground , used to be close allies ) with US saying Macron tailored agenda to make Trump look bad especially focusing on Climate and Macron surprising many by inviting Iran's Zarif to G-7 (However, Trump now tweeted he knew of the visit and approved it)-leaders will be discussing trade, global economy, Brexit (Johnson said U.K. doesn't have to pay EU30bln out of EU39b from Brexit divorce bill if no deal-Johnson also said to talk to trump about a trade deal and asked US to lower trade barriers to get a deal) , North Korea, Middle East, taxation, etc... EU's Tusk said it will 'respond in kind' if US tariffs France over their digital tax plan (3% on revenue of 30 or so large American tech firms)-Trump said he will tax French wine like never before - now I don't mind some of this back and forth as much as China but don't we need allies? (UPDATE- FRENCH FM LE MAIRE/MNUCHIN DRAFTED A DEAL TO PREVENT ANY ESCALTION OF TENSIONS DUE TO THE TAX AS REPORTS ARE FRANCE WILL DEFAULT TO OECD ON TAXES AND US WON'T TAX FRENCH WINES) !! Trump did say him and Abe/Japan have an agreement in principle on a trade deal-details to be worked out by UN meeting at the end of September (Japan but agricultural products and talk is US tariffs stay on autos but no increases)! RBA's Lowe spoke true words: As those political shocks slow growth, Lowe said in a panel discussion, "there is a strongly-held view that the central bank should just fix the problem ... The
reality is much more complicated," and not something monetary policy can likely repair.
*****I also saw This was from Influential Chinese media this weekend :China has 'lost' the US already: all-round high tariffs, Huawei ban, political hostility, Hong Kong, Taiwan... We're facing a completely different United States. We have nothing more to lose, while the US is just starting to lose China. I guess with reports that Trumps second thoughts on raising tariffs were just that he wanted them even higher and him and Mnuchin saying that he does have the power if he chooses to use a national security threat to force US companies out of China causing everyone high damage that this situation is worsening and China is admitting it and seems ready for it.
Today : Durable Goods, Chicago and Dallas Fed Index, BOE's Carney speaks, 3mo $45b/6mo $42bT-Bill ! German IFO business confidence fell again to 94.3 vs 95.1
This week: Digest G-7, Data, Auctions, Trade updates:! Tuesday: Case-Shiller,
Consumer confidence, Richmond Fed, 2yr $40b note ! Wednesday: Barkin and Daly, 5yr $41b note ! Thursday-Jobless claims, GDP, Pending Home sales, 4wk/2mo T-Bill, 7yr $32b note ! Beat Buy. Friday: Eurozone CPI,, Japan CPI/Retail sales, Personal income/spending/PCE, Chicago PMI, Michigan sentiment (Weekend China Mfg. PMI, Tariffs) !