Economy - Investor's Business Daily15:41 Текст источника в новой вкладке

 
 
1. Fed: Economic Growth Solid Despite Trump Trade War 'Disruptions,' 'Higher Prices'Ср., 18 июля[−]

U.S. economic expansion rolled along and labor markets tightened in June and early July, even as Trump trade war tariffs and threats heightened concern among manufacturers and boosted some producer prices, the Federal Reserve's Beige Book survey showed.

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The central bank's Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through July 9, said 10 of the districts reported "moderate or modest" growth.

"Manufacturers in all districts expressed concern about tariffs and in many districts reported higher prices and supply disruptions that they attributed to the new trade policies," according to the report, released Wednesday in Washington. "All districts reported that labor markets were tight and many said that the inability to find workers constrained growth."

Trump Trade War Concerns

The report reflected growing anxiety among American companies over the potential impact of trade disputes initiated by President Donald Trump. The levies helped lift lumber and metals prices, though there was only a "slight to moderate" passing along of those costs to consumers.

Pricing pressures are expected to intensify further in some districts, according to the Beige Book. In others, they will continue at a modest to moderate pace.

The U.S. has slapped tariffs on steel and aluminum shipments from trade partners, and targeted $34 billion in Chinese imports, with another $16 billion to follow soon. China, the European Union and others have retaliated with duties on American exports.

Fed Chairman Jerome Powell on Tuesday told lawmakers that protectionism can hurt economic growth and potentially undermine wages.

"In general, countries that have remained open to trade, that haven't erected barriers including tariffs, have grown faster. They've had higher incomes, higher productivity," he said in testimony before the Senate Banking Committee. "Countries that have gone in a more protectionist direction have done worse."

He repeated some of those concerns Wednesday in testimony to the House Financial Services Committee.

Deutsche Bank economist Torsten Slok wrote in a note to clients Wednesday that an economic slowdown caused by trade disputes is "the most important downside risk to rates, equities and the dollar over the coming months."

Tighter Labor Markets

The rising input costs are among the many increased expenses facing companies, according to the Fed's regional survey. Most districts said employers had difficulty finding qualified workers, with some districts saying firms were paying more to attract and retain workers. Wage gains were described as modest to moderate.

Some companies are responding to labor shortages by partnering with schools, making temporary workers permanent, adding hours and strengthening retention efforts, the survey showed. Six districts said trucking capacity was stretched because of driver shortages.

The report adds to the evidence the Fed is analyzing to maintain its current path of gradual interest-rate increases, pointing toward one or two additional hikes this year. The policy-making Federal Open Market Committee has already lifted borrowing costs twice in 2018 and next gathers July 31 and Aug. 1 in Washington.

U.S. unemployment dipped to 3.8% in May, matching its lowest level since 1969, before ticking up to 4% in June. Wages, however, have continued to rise only moderately, with year-on-year gains in hourly earnings hitting 2.7% in June.

The U.S. economy grew at a 2% annual rate in the first quarter and that pace is expected to double to 4% in the second quarter, according to analysts surveyed by Bloomberg.

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2. Yield Curve Warning: The Trump Fed Is Wrong For TrumponomicsВт., 17 июля[−]

Here's the message of the rapidly flattening Treasury yield curve: Financial markets are signaling that the Trump Fed is wrong for the Trump tax cuts and Trumponomics.

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The flatter Treasury yield curve reflects investors curbing their expectations about the strength and durability of the nascent Trump economic boom, with tighter Fed policy as a prime reason.

The last thing Trump wanted in a central bank chief was someone who would speed up Fed rate hikes to stem a tax-cut-fueled economic surge. But that's exactly what he got.

Chairman Jerome Powell's Fed penciled in a total of four rate hikes in 2018 at the June Fed meeting, one more than in March. Powell said the economy was in "great shape" at this post-meeting press conference.

The spread between the two-year Treasury yield and 10-year Treasury yield has narrowed to just 24 basis points. That's the smallest gap since before the recession hit in 2007. That's down from an already-tight 42 basis points before the June 12-13 Fed meeting. For now, the Fed is eyeing another three hikes in 2019.

Morgan Stanley predicted last week that the Treasury yield curve will invert next year, a reliable precursor to recession. Yet so far, Powell and most other Fed policymakers are taking Treasury-yield-curve flattening in stride.

Powell didn't mention the Treasury yield curve in prepared testimony on Tuesday. In June, he noted that "arguments are made that a flatter yield curve has less of a signal embedded in it" about the neutral level of interest rates. Powell added that yield curve flattening is the natural result of the Fed raising short-term rates.

Yet it also appears that tighter Fed policy is putting downward pressure on long-term Treasuries. The two-year Treasury yield is up 7 basis points since June 12, the day before the Fed's statement. The 10-year yield is down 10 basis points since then.

Federal Reserve Is World's Central Bank

The Fed is the closest thing to a global central bank. Tighter Fed policy, higher short-term rates and a stronger dollar all tighten financial conditions in emerging markets, where companies often borrow in dollars.

This dampens the global growth outlook and puts downward pressure on global bond yields, creating more demand for U.S. long-term debt.

Meanwhile, higher short-term borrowing costs via the Fed weigh on U.S. multinationals' profits via a stronger dollar, squeeze bank lending margins and raise the cost of adjustable-rate mortgages.

With a lag, Fed policy will work to rein in the Trump boom. Yet as tighter monetary policy begins to bite in 2019, this year's big burst of federal tax-cut and spending stimulus will quickly level off.

This also may help explain the suddenness with which the Treasury yield curve has flattened. Looking out past 2019, the questions for the economy multiply. More and more economists are predicting recession in 2020 and the U.S. will have to reckon with unimaginable budget deficits.

It's worth remembering that last August, before the legislative push for tax cuts gathered steam, financial markets were pricing in just a single quarter-point Fed rate hike over the ensuing 12 months.

That might have been an overreaction to tame incoming inflation data. But 11 months and three rate hikes later, the Trump Fed is now penciling in five more rate hikes over the next year and a half — despite Trump trade wars breaking out all over.

While Powell noted the economic support of federal tax and spending policy in Tuesday remarks, Trump Fed policy discussions have largely ignored the unprecedented nature of Trump's decision to gun the fiscal accelerator with the jobless rate around 4% and falling.

A Trump Fed Chief For Trumponomics

Trump may have been better served by a Fed chief who was a big believer in supply-side tax cuts to boost business investment, speed up productivity growth and keep inflation in check. At the least, he might have picked a Phillips curve skeptic, questioning the historic links between lower unemployment and higher wage growth. Or he could have found someone who believes the forces of technology and globalization make a big bump in inflation extremely unlikely. Finally, he might have found someone who doesn't think the Fed should try to target asset prices.

Instead, the Trump Fed is using its usual playbook to meet an unprecedented challenge. The Treasury yield curve flattening should be a wake-up call, but risks will rise until Powell and other Fed policymakers answer the bell.

In a weekend note, UniCredit Group Chief Economist Erik Nielsen wrote of the "likely folly in dismissing the signal from a curve, which is on its way towards inversion."

"Historically, growth starts to slow about a year before recession in the U.S., and the Fed stops hiking around the same time," Nielsen wrote. "This makes me wonder if we'll get any Fed hikes at all in 2019!"

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3. Fed's Powell: Gradual Rate Hikes Are Best Path 'For Now'Вт., 17 июля[−]

Federal Reserve Chairman Jerome Powell said the central bank will continue to gradually raise interest rates "for now'' to keep inflation near target amid a strong U.S. labor market.

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The Federal Open Market Committee, the Fed panel that sets interest rates, "believes that — for now — the best way forward is to keep gradually raising the federal funds rate," Powell said in prepared testimony before the Senate Banking Committee.

"We are aware that, on the one hand, raising interest rates too slowly may lead to high inflation or financial market excesses," Powell said in the text of his remarks Tuesday. "On the other hand, if we raise rates too rapidly, the economy could weaken and inflation could run persistently below our objective.''

Powell addresses Congress with the underpinnings of the U.S. expansion looking solid. Unemployment stands close to an 18-year low and inflation is around the Fed's 2% target, though some sentiment indicators are starting to flash warning signs over escalating trade disputes. He will appear before the House Financial Services Committee on Wednesday.

Gradual Fed Rate Hike Pace

Officials in June signaled they plan to continue to raise rates at a gradual pace, penciling in two more quarter-point hikes for 2018. Powell's emphasis that gradual increases are the right path "for now'' may suggest the committee's debate about pausing those hikes once the rate gets closer to a level they consider neutral — neither adding stimulus nor hurting growth — is likely to intensify.

Powell listed four reasons why the job market will remain strong with inflation near the Fed's 2% target "over the next several years.''

Financial conditions remain favorable to growth, he said, and a stronger financial system is prepared to meet the credit needs of the economy.

"Federal tax and spending policies likely will continue to support the expansion,'' Powell said, and "the outlook for economic growth abroad remains solid despite greater uncertainties in several parts of the world.''

Trade Tensions

Powell also warned that it is "difficult to predict'' how trade tensions as well as "the size and timing of the economic effects of the recent changes in fiscal policy'' will shape the economic outlook. The risks of a weaker or stronger economy are "roughly balanced,'' he said.

The U.S. economy grew at a 2% annual rate in the first quarter and that pace is expected to double to 4% in the second quarter, according to analysts surveyed by Bloomberg.

Amid a hot labor market, employers added 1.3 million new jobs in the first six months of the year and gains are starting to expand more broadly. Unemployment for black people in May touched the lowest level on record.

Powell restated his intentions, announced at his June news conference, to explain the central bank's actions with "clear and open communication.''

"We owe you, and the public in general, clear explanations of what we are doing and why we are doing it,'' he told the Senate committee.

Powell, a former private-equity banker, was appointed Fed chairman by President Donald Trump and took office in February. He was initially put on the Board of Governors by Barack Obama in 2012.

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4. Trump Tariffs: China Trade War May Be About To ThawЧт., 12 июля[−]

The China trade war may be about to get better, not worse. Despite Wednesday's sell-off as the Trump administration identified $200 billion worth of potential targets for future Trump tariffs, the key moment is about to arrive that could see the ice break in the brewing technological cold war between the U.S. and China.

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Chinese communications equipment firm ZTE saw shares soar on Thursday as the U.S. agreed to let the company resume doing business with American suppliers, pending the receipt of a $400 million escrow payment.

Meanwhile, Bloomberg News reported that both the U.S. and China are prepared to resume stalled trade negotiations.

The confluence of events is likely no coincidence. President Trump's commitment to lift sanctions that amounted to a death sentence for ZTE seemed to break a logjam in U.S.-China trade negotiations back in May. Soon after, Trump touted a prospective trade deal with Beijing, tweeting that "China has agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products" and Treasury Secretary Mnuchin said the China trade war had been put "on hold" amid progress in negotiations.

Those negotiations stalled as Congress complicated Trump's pledge via tweet to get ZTE "back into business, fast." The Senate preserved the ban on doing business with ZTE in the national defense authorization bill, but those harsh terms may not be included in the final version expected to pass in late July.

The stock market reaction on Wednesday came as the threat of escalating Trump tariffs became more tangible, though the likelihood of tariffs hadn't changed. In June, President Trump directed the Office of the Trade Representative to come up with a list of $200 billion worth of Chinese imports that could face 10% tariffs, and trade officials produced that list late Tuesday.

Still, the market downdraft on Wednesday was fairly modest. Wall Street still seems to be betting that this round of Trump tariffs will never take flight and that China won't escalate its retaliation against U.S. multinationals. We'll probably know whether Wall Street is right within the next several weeks, as the White House prepares to impose the new tariffs by Aug. 30.

As long as Congress hews to Trump's wishes and drops the Senate provision mandating a ban on U.S. firms doing business with the Chinese communications equipment firm, U.S.-China trade negotiations could quickly resume and begin to demonstrate progress.

Beijing refuses to negotiate under duress, so there is still a risk the China trade war will escalate with more rounds of Trump tariffs. But a U.S. reprieve for ZTE and its 75,000 global employees may allow Xi to resume negotiations without losing face, despite the Trump tariffs already in place.

Yet if ZTE gets a new lease on life and there isn't a nearly immediate thaw in the China trade war and threats of more Trump tariffs continue to fly, look out.

This may be the last off-ramp before a full-scale trade war that threatens to seriously damage business prospects for U.S. multinationals in China and severely disrupt technology supply chains.

The U.S. imported $506 billion in Chinese goods last year, meaning about half of Chinese imports would be affected by Trump's latest tariff threat.

As Trump threatens a full-scale China trade war, Beijing vows to meet the U.S, blow for blow.

While Chinese targets are somewhat limited by its $130 billion in American imports, Beijing has other ways to retaliate, and that's one of Wall Street's big fears.

Beyond tariffs, U.S. multinationals could face other significant hurdles in China. Beijing could make life difficult for Dow Jones stocks like Boeing ( BA), Caterpillar ( CAT) and Apple ( AAPL) via regulations.

China's government also could hit Boeing sales, and likely Caterpillar, through its state-owned enterprises that can sway the market. Meanwhile, Beijing has been holding up the Qualcomm ( QCOM) takeover of NXP Semiconductors ( NXPI).

The way things are going, there's little reason to expect China to blink in the face of Trump threats. BMW said this week that it will shift some SUV production from South Carolina to China in the face of Trump tariffs. Meanwhile, China's currency is losing ground vs. the dollar, counteracting the impact of Trump's threatened 10% tariffs on a wide range of consumer goods.

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5. Brexit Resignations Create New Uncertainty For U.K. BusinessПн., 09 июля[−]

Just as Prime Minister Theresa May softened her plan for leaving the European Union -- a move that companies welcomed -- the resignation of the U.K.'s top Brexit officials and foreign secretary creates new uncertainty for business.

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Carolyn Fairbairn, the director-general of the Confederation of British Industry, called the weekend resignations of Brexit Secretary David Davis and his deputy, Steve Baker, a "blow" on Monday morning. On Monday afternoon, Foreign Secretary Boris Johnson also resigned.

The departures come just days after May said she had secured cabinet backing for a plan to keep close ties to the European Union. The resignations increase the chances she'll face a leadership challenge over her Brexit policy.

"One of the things that business welcomed on Friday was finally cabinet unity," Fairbairn said on BBC Radio. "It's all going to be about what happens next, because actually there were real rays of light in the conclusion from Friday."

May on Monday named Dominic Raab, a housing minister and Brexit backer, to replace Davis as Brexit secretary. Johnson's replacement is yet to be announced.

New Turmoil

While business has favored greater alignment with the EU, the departures could destabilize May's government, creating new turmoil for companies trying to figure out how to deal with Brexit. Before May announced the cabinet agreement, companies ranging from Airbus ( EADSY) to Jaguar Land Rover to BMW warned of the consequences of leaving the EU with no deal or one that's unfriendly to global businesses.

Dutch health-technology company Philips ( PHG) also said over the weekend that it may move manufacturing out of the U.K., where it employs 1,500 people, in the event of a hard Brexit.

Though the resignations could give May the chance to install a Brexit team that's more attuned to business concerns, the prospect of challenges to her leadership adds a degree of uncertainty that makes it hard for companies to plan investments.

But for a lot of businesses, the departures will be seen purely as personnel changes, according to William Bain, a British Retail Consortium policy adviser and former lawmaker. What companies are focused on now is the white paper that will be published Thursday.

"We know the twists and turns there can be in politics but what's fundamental is, are we making progress toward our withdrawal agreement?" Bain said. "Are we, in terms of the final relationship, getting to something that's going to avoid border controls?"

Investment Drops

In a sign of the fallout, investment from abroad in Britain's financial-services firms fell 26% last year, EY said in a report released Monday. During the same period, Germany experienced a 64% increase, while the figure for France more than doubled.

The pound was trading down 0.1% at $1.3274 shortly after Johnson's resignation was announced.

Even for those businesses that welcomed the direction the government set out Friday, uncertainty remains over whether the EU will go along with it.

"For a big part of the economy, the proposals on the table will not be sufficient," said Pascal Kerneis, managing director of the European Services Forum, which lobbies for services companies including BT Group Plc. "In any case, it remains to be seen whether the EU will accept it."

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6. Economy Adds 213,000 Jobs As Jobless Rate Rises To 4%: Goldilocks ReturnsПт., 06 июля[−]

The U.S. economy added 213,000 jobs in June as the jobless rate ticked up to 4.0%, the lowest in nearly a half century, the Labor Department reported on Friday. Wage growth, the key number for stock market investors worried about more Fed rate hikes, came in softer than expected at a 2.7% annual rate.

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Wall Street economists expected 190,000 new jobs, 3.8% unemployment and 2.8% wage growth.

Including an upward revision to April and May payroll gains of 37,000, the economy has added 211,000 jobs a month over the past quarter.

Dow futures, S&P 500 futures and Nasdaq 100 futures, under pressure as President Trump opened fire in his China trade war, turned mixed on the jobs data. The 10-year Treasury yield ticked lower to 2.81% as the unemployment rate rose. The jobless rate climbed as the household survey showed lackluster hiring and a big jump in the labor force.

The deepening of Trump's trade confrontations is beginning to weigh on business confidence and investment plans, minutes from the Fed's June 12-13 meeting out Thursday indicated. Markets sees a 48% chance that the Fed will hike its key interest rate in December for the fourth time this year (after hiking in September). That's down from about 53% before the jobs report, but still roughly 50-50.

Low-End Wage Gains Rising

Faster wage gains appear to be coming on the lower end of the wage scale as companies bid to attract and retain quality workers. Last month, Costco ( COST) said it would raise starting pay by $1 an hour to a range of $14 to $14.50 starting June 11.

Other hourly wage rates will rise by 25-50 cents. Target ( TGT) raised its base wage $1 to $12 an hour earlier this spring, while CVS Health ( CVS) hiked its minimum wage to $11. Walmart ( WMT), after boosting its starting wage from $9 to $11 earlier this year and expanding paid maternity leave, announced this week that it will subsidize an online college education for associates.

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7. Trump Tariffs Go Live; Still One Chance To Avert Brutal China Trade WarПт., 06 июля[−]

The China trade war is officially underway, and President Donald Trump already is looking ahead to escalating the conflict. Just after midnight on Friday, Trump tariffs of 25% on $34 billion worth of Chinese high-tech-related imports took effect. Beijing vowed to fire back immediately, aiming at U.S. autos and agriculture. But stock futures took the actual start of hostilities in stride.

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American-built vehicles from the likes of Ford ( F), Tesla ( TSLA) and even Daimler ( DDAIF), which builds Mercedes-Benz SUVs in Alabama, will face an additional 25% tax. China also is targeting soybeans and other agricultural imports.

The Trump administration has already drawn up the next phases of the war and it could get ugly. But President Trump and President Xi Jinping may still have one last chance to call a cease-fire, either later this month or in August.

Speaking to reporters aboard Air Force One on Thursday after the stock market had closed, Trump confirmed Friday's China tariffs, and tallied up what's on the trade war launching pad: "34, and then you have another 16 in two weeks and then as you know we have 200 billion in abeyance and then after the 200 billion we have 300 billion in abeyance. Ok? So we have 50 plus 200 plus almost 300."

Stock market futures' reaction was muted. Dow futures, which initially traded modestly higher, fell 0.2% vs. fair value. S&P 500 futures lost 0.1%. Nasdaq 100 futures fell a fraction. In Thursday's stock market trading, the Nasdaq composite rose 1.1%, the S&P 500 index 0.9% and the Dow Jones 0.75%. But the stock market rally has come under pressure as Trump trade war fears have intensified.

The U.S. only imported $506 billion in Chinese goods last year, but you get the point: Trump is clearly threatening a full-scale China trade war. Beijing, meanwhile, vows to meet the U.S, blow for blow. While Chinese targets are somewhat limited by its $130 billion in American imports, Beijing has other ways to retaliate, and that's one of Wall Street's big fears.

The Art Of China Trade War

Beyond tariffs, U.S. multinationals could face other significant hurdles in China. Beijing could make life difficult for Dow Jones stocks Boeing ( BA), Caterpillar ( CAT) and Apple ( AAPL). China has been holding up the Qualcomm ( QCOM) takeover of NXP Semiconductors ( NXPI). Some analysts also think the Trump tariffs may have played a role in last week's patent infringement Chinese court ruling against Micron Technology ( MU).

Now that Trump and Xi are beyond the brink of a trade war, the big question is what, if anything, can bring them back.

There's one clear answer. Trump has already bent over backwards to save Chinese telecom equipment giant ZTE and its 70,000 jobs. But the rescue job isn't quite over. The Commerce Department still have to give a green light to U.S. component suppliers to resume sales to ZTE. In addition, Congress must reject a Senate amendment to a must-pass defense funding bill that would keep a ban on sales to ZTE. Both of those developments should fall into place by August.

U.S.-China Trade War Could Escalate

Beijing refuses to negotiate under duress. That's why there is a real risk the China trade war will escalate with more rounds of Trump tariffs. But the ZTE reprieve may give Xi an occasion to resume negotiations despite the live fire. After all, those talks only made progress after Trump intervened, pledging to get ZTE back in business quickly.

For a brief moment, Trump touted a deal that would have China buy more from American farmers, instead of cutting purchases of soybeans, cotton and other crops. We'll know later this summer if there's still such a deal to be had.

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8. As Trump Tariffs Hit, The U.S. Is Losing The China Trade War — Big TimeЧт., 05 июля[−]

The major trade news this week is President Trump's decision whether to hit China with new tariffs starting Friday. Those headlines — about whether the Trump tariffs aimed at China are on or off — will be huge for the stock market.

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If they're on, then the U.S. will be at the outset of a technological cold war with Beijing from which there may be no turning back. If they're off, then Wall Street will heave a sigh of relief, knowing that Trump's trade threats will prove to be mostly bark, not bite.

The stock market rally is under pressure, largely due to Trump trade war fears. The S&P 500 index rose solidly Thursday, reclaiming its 50-day moving average. The Dow Jones rallied to just above its 200-day line.

Yet a weightier headline for the future of world trade and U.S. economic leadership already hit on Sunday: "World's Biggest Trading Bloc a Step Closer After Tokyo Meeting." China took another step toward forming a 16-nation trade zone with Japan and India, covering one-third of the world economy.

China Fills Void Amid Trump Trade Retreat

China is moving into the vacuum left after Trump's rejection of the 12-nation Trans-Pacific Partnership forged by President Obama to ensure lasting U.S. influence in the Far East.

"As protectionism concerns increase globally, it's important that the Asian region flies the flag of free trade," Japanese trade minister Hiroshige Seko said at a news conference, playing up potential for a year-end agreement.

Instead of major U.S. trading partners uniting against China, the U.S. is drawing fire from all sides for Trump tariffs. China is widely seen as the prime culprit in global steel overcapacity that spurred Trump's 25% steel tariff. Yet China has been a minor steel exporter to the U.S., so Trump picked a fight with Japan, the EU, Mexico and Canada.

While Japan remains wary of China, Trump's metal tariffs and abandonment of the TPP have Tokyo focused on tighter links with Beijing.

This spring, Trump briefly toyed with rejoining the TPP, having scrapped the deal four days after taking office. That was a clear signal Trump follows his gut instincts at the cost of any strategic approach to trade policy.

Trump Eyes Short-Term Win In Long China Trade War

Trump is trying to use America's big trade deficit as leverage to secure an easy trade-war win. But any win against China will be short term and do little to narrow its $375 billion trade surplus with the U.S. and alter its systematic push to gain access to the intellectual property of U.S. firms.

Before negotiations hit a wall, Trump largely declared victory in late May, when China offered to boost U.S. purchases by $70 billion. Trump touted the emerging deal as a big win for American farmers. The loser wouldn't be China, but other countries that supply it.

No question, stocks will rally if such a deal reemerges to avert a China trade war. But China will have given up little, while the U.S. will have ceded a lot.

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9. Fed Minutes: Policymakers Back Gradual Hikes But See Trump Trade 'Negative Effects'Чт., 05 июля[−]

Federal Reserve officials reaffirmed their commitment to gradually raising the benchmark lending rate amid rising risks from trade battles and emerging-market turmoil that could blunt the tailwind from fiscal policy.

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The minutes of the Federal Open Market Committee's June 12-13 gathering in Washington, released Thursday, also highlighted a debate among policymakers over how many more rate increases would be needed to keep the economy on a stable footing in the long run. A "number" of officials said it might "soon be appropriate" to modify language in the Fed's post-meeting statement language that describes rates as "accommodative," according to the minutes.

"Participants generally judged that, with the economy already very strong and inflation expected to run at 2% on a sustained basis over the medium term, it would likely be appropriate to continue gradually raising the target range for the federal funds rate to a setting that was at or somewhat above their estimates of its longer-run level by 2019 or 2020," the minutes said.

At the meeting, Fed officials unanimously raised the main lending rate for the second time in 2018 — to a target range of 1.75% to 2%. They now expect a total of four hikes this year, from three estimated in March.

U.S. central bankers are trying to keep the economy on a sustainable path as growth gets a boost from tax cuts and additional government spending, with a "few" Fed officials saying in the minutes that fiscal policy "posed an upside risk" to the outlook. At the same time, they're watching closely for signs that an escalating trade war is damping business investment, the biggest contributor to growth in the first quarter.

'Negative Effects'

"Most participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending," the minutes said.

The U.S. has imposed tariffs on imported steel and aluminum and threatened to slap more levies on other products from some of its biggest trading partners, particularly China and the European Union. All have vowed to retaliate in what would amount to a trade war that could raise prices and slow the global expansion.

Despite those risks, "the economy is doing very well," as Chairman Jerome Powell told reporters after the decision. He said the following week that, in principle, " changes in trade policy could cause us to have to question the outlook," adding that business contacts were telling the Fed it might be a reason to delay investment or hiring.

Unemployment was 3.8% in May, matching the lows since the late 1960s, and the Fed's preferred gauge of consumer prices rose 2.3% on annual basis in May. Officials have said they will tolerate a slight overshoot to bolster inflation expectations after years of being under the target.

The minutes said U.S. central bankers debated the amount of labor-market slack left in the economy, with "several" participants saying "there was further scope for a strong labor market to continue to draw individuals into the workforce."

Overheating Risks

Officials also discussed risks of inflation, with "a number" of them saying it was "premature to conclude that the committee had achieved" its 2% inflation target on a sustainable basis. Others voiced the concern that "a prolonged period in which the economy operated beyond potential could give rise to heightened inflationary pressures or to financial imbalances that could lead eventually to a significant economic downturn."

Political and economic turmoil in some parts of Europe and emerging-market economies were also cited as a downside risk to growth and inflation by "many" Fed officials.

Most analyst projections show economic growth accelerated in the second quarter after a 2 percent annualized pace in the first three months of the year.

The Atlanta Fed's GDPNow tracker put the rate of expansion last quarter at 4.1%, while the median estimate of economists surveyed by Bloomberg is for 2.9% for the full year. Many economists expect growth to cool starting in the current quarter from its pace in the April-June period.

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10. IBD/TIPP Poll: Economic Optimism Surges On TrumponomicsВт., 03 июля[−]

Is Trumponomics having a second honeymoon? The IBD/TIPP Economic Optimism Index surged to the 2nd-highest level since 2004 as the jobless rate matched a nearly 50-year low, the Nasdaq briefly scaled new heights and President Donald Trump pushed contentious immigration and trade policies.

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The IBD/TIPP Economic Optimism Index rose 2.5 points to 56.4 in July, just off February's 13-year high of 56.7. Readings above the neutral 50 level reflect optimism.

It's hard to ignore the role of Trumponomics. In fact, Americans' view of federal government economic policies, almost always negative since the financial crisis, vaulted into solidly optimistic territory for the first time since late 2006. Midwesterners haven't felt so good about federal policies since early 2002, and rural voters even longer than that.

Economic Optimism Index Components

The Economic Optimism Index is a composite of three major subindexes. They track views of near-term economic prospects, the outlook for personal finances, and views of how well government economic policies are working. All three rose in July, but the federal policies index led the surge.

The six-month economic outlook gauge climbed 2.2 points to 53.4. That's a solid reading but still well below February's 57.5, two months after President Trump signed the tax cuts into law.

The six-month personal financial outlook index gained seven-tenths of a point to 62.8, still below January's 14-year high of 64.

Meanwhile, the measure of confidence in federal economic policies jumped 4.6 points to 52.9. The gauge hit 58.9 in the Midwest and 54.1 in the South. It remained in slightly pessimistic territory in the more-liberal West and Northeast. In rural areas, the federal policy gauge soared to 63.5 vs. 53.0 in suburban areas and 41.6 in urban areas.

Despite a volatile stock market, the S&P 500 index rose in June, its fourth straight monthly gain. The S&P 500 index reversed lower on Tuesday.

The IBD/TIPP Poll reflects 900 responses collected from June 21-29.

The period included the news from Harley-Davidson ( HOG) on June 25 that the motorcycle maker would move some production offshore to dodge the European Union's 25% tariff in retaliation for Trump tariffs on steel and aluminum. Trump accused the company of waving the "white flag" in surrender and on being too focused on its bottom line.

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11. IBD/TIPP Poll: Economic Optimism IndexВт., 03 июля[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

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The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.4, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

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IBD/TIPP Economic Optimism Index: Overall

The IBD/TIPP Economic Optimism Index saw a sharp 4.6% gain to 56.4 in July. This is the third straight gain for the index, and the second highest it's been since October 2004. It also marks the 22nd straight month that Economic Optimism Index has been over 50 — which signals overall optimism about the economy — a record run for this index. It is also well above its long-term average of 49.4. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index climbed 4.3% to 53.4. in July. The volatile gauge surged 11.4% in January, and then bounced up and down for several months. The reading for this index remains in optimistic territory and well above its long-term average of 46.3. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months rose another 1.1% in July to 62.8, which marks the third straight monthly increase. The index's all-time high of 65.3 was set in January 2004, when the Bush-era tax cuts began to kick in. It jumped this January, the month President Trump's tax cuts went into effect. The Personal Financial Outlook is the most consistently optimistic index in the IBD/TIPP data set. It remains above its long-term average of 57.1.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component shot up nearly 10%, from 48.3 in June to 52.9 in July. That's the highest it's been in nearly 12 years and well above its 17-year average of 44.8. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years, and in March of this year returned to that feel-good zone. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

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Terry Jones
Investor's Business Daily Commentary Editor
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The post IBD/TIPP Poll: Economic Optimism Index appeared first on Investor's Business Daily.


12. Trump China Tariff Decision Will Be Yuuuge For StocksПн., 02 июля[−]

President Donald Trump's imminent decision on whether to hit China with tariffs starting Friday could easily make this the best or worst week of the year for the stock market. The implications of the Trump China tariff decision are that big: Either we're at the outset of a technological cold war with Beijing, or — more likely — Trump's trade threats will prove to be mostly bark, not bite.

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The big Wall Street fear is that the Trump China tariff decision won't just trigger retaliatory tariffs on U.S. goods, but will provoke Beijing to find additional ways to hinder U.S. multinationals like Boeing ( BA), Caterpillar ( CAT) and Apple ( AAPL) in Chinese markets. Beijing has already held the merger of Qualcomm ( QCOM) with NXP Semiconductors ( NXPI) hostage.

The Dow Jones industrial average — which includes Apple, Boeing and Caterpillar — opened solidly lower on the stock market today, but rallied to close slightly higher. The Dow Jones remained just below its 200-day moving average after undercutting that key support last week. The S&P 500 index rose Monday after undercutting its 50-day line once again intraday. The Nasdaq composite led with a 0.8% gain.

But if the Trump China tariff threat is put to rest — or at least put on hold — the relief could be palpable. In a Sunday note, Morgan Stanley warned that President Trump is likely to follow through on his tariff threats.

"We no longer doubt that the U.S. administration's proposals signal the direction of trade policy."

"An escalatory cycle of protectionist actions, not just rhetoric, has begun and will continue," wrote Michael Zezas, chief strategist for U.S. public policy at Morgan Stanley.

Growing alarm over Trump trade policy should give way to a major relief rally if the president calls a cease-fire with China this week.

Trump Tariffs On China

Trump is set to hit Beijing with 25% tariffs on $34 billion worth of mostly tech-related imports on Friday, July 6. The same day, China is ready to hit back — dollar for dollar — with tariffs aimed primarily at autos and agriculture. Chinese imports from Ford and Tesla would be hit with an extra 25% tariff, more than reversing Beijing's cut in auto import tariffs from 25% to 15%, effective July 1. Daimler has already warned that it expects Chinese tariffs on its Alabama-built Mercedes-Benz SUV to hit sales and profits.

Here's why the deadline is so important: Trump has already bent over backward to appease Beijing. If the two sides can't make enough progress toward a trade cease-fire this week to avert the imposition of tariffs, then a deal will become even less likely as threats turn to outright hostilities, which may quickly escalate. The U.S. has tariffs on another $16 billion worth of goods from China, including semiconductors, nearly ready to go, and China is ready to retaliate. Beyond that, Trump has directed trade officials to draw up tariffs on another $200 billion worth of Chinese imports.

But there's good reason to expect a deal, or at least a delay in the Trump China tariff deadline. If Trump really intended to launch a China trade war, he probably wouldn't have gone to bat to save 70,000 Chinese tech jobs.

First, he pledged to reverse sanctions that had forced Chinese communications gear firm ZTE out of business, pushing back against a Senate move to reject a lesser punishment. Then, last week, Trump dropped a plan for emergency China investment and export rules, including a 25% limit on Chinese ownership in firms buying key technology. Trump instead took a less combative tack, backing legislation in Congress to strengthen the Committee on Foreign Investment in the United States, or CFIUS.

Trump: Make Peace Not Trade War

Reading between the lines — and threats — Trump has already made pretty clear that he wants a trade deal, not a China trade war, and he came close to reaching one in May that would have had Beijing buy an additional $70 billion in U.S. goods. Even though it would have done relatively little to narrow the trade deficit with China, Trump touted the emerging deal, tweeting that China would "buy massive amounts of ADDITIONAL Farm/Agricultural products" from the U.S.

China appears open to such a deal, if it can avert tariffs and trade restrictions that jeopardize its "Made in China 2025" strategy. Signs of an economic slowdown in China and financial fragility only raise the importance of a trade cease-fire.

If Trump reaches an accord with China, Wall Street may begin to relax about Trump's threat to hit U.S. auto imports with tax of 20% to 25%. The European Union has reportedly threatened to retaliate with tariffs on $300 billion worth of imports from the U.S., the equivalent of a full-scale trade war. But General Motors ( GM), Toyota ( TM) and other automakers have warned that Trump's plan could sink U.S. auto sales by 2 million vehicles a year and deliver a hit to manufacturing employment. Like Trump's threat to launch a full-scale trade war against Beijing, a big tax on auto imports looks so potentially disruptive to world trade that it may begin to be seen as lacking credibility.

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13. ISM Manufacturing Index Jumps In June As Supplier Deliveries LengthenПн., 02 июля[−]

U.S. manufacturing expanded more than forecast last month as a gauge of supplier-delivery times shot up amid robust orders and production, data from the Institute for Supply Management showed on Monday.

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The factory index climbed 1.5 points to 60.2, matching the second-highest since 2004 and beating estimates for a dip to 58.2. Readings above 50 indicate expansion.

The supplier deliveries gauge jumped 6.2 points to 68.2, the second- highest since April 1979. The subindex shows lead times increasing as producers have trouble meeting demand.

The new orders index dipped 0.2 point to a still-robust 63.5. The production gauge rose to 62.3 from 61.5.

Key Takeaways

While indexes of orders, production and factory employment remained elevated, the ISM's main gauge of June factory activity was inflated by a surge in the group's measure of supplier deliveries, indicating lengthening lead times.

The delays potentially reflect purchasing managers' efforts to acquire materials ahead of President Donald Trump's planned tariffs on Chinese products, which would follow levies on steel and aluminum from around the world. Such demand, coming on top of steady consumption and business investment, is testing capacity limits of both manufacturers and the transportation sector.

"Lead-time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue," Timothy Fiore, chairman of the ISM Business Survey Committee, said in a statement. "Demand remains robust, but the nation's employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business."

Supply-chain disruptions are also helping to push up input prices. The ISM's latest measure of costs of raw and other materials used in manufacturing fell in June but remained close to a seven-year high.

Other ISM Manufacturing Index Details

Employment gauge was little changed at 56 after 56.3. Index of factory order backlogs fell to 60.1 from 63.5. Measure of export orders increased to 56.3 from 55.6. Gauge of prices paid for materials declined to 76.8 from 79.5

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14. Trump Trade War: Trump Trade Policy Is At War With ItselfЧт., 28 июня[−]

Recent days in the global Trump trade war have seen President Donald Trump go to bat to save Chinese tech jobs, while Harley-Davidson ( HOG) shifts some production out of the U.S.

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The cognitive dissonance doesn't end there. Trump has lashed out at Canada for its high tariffs on dairy products. That's despite American dairy farmers pleading with Trump to lift steel tariffs on Mexico, or else Mexicans will cut U.S. cheese out of their diets. Daimler ( DDAIF) warned that Chinese tariffs will sap demand for its Alabama-made SUVs, while Trump threatened to hit imported German luxury cars with a 20% tax.

The Trump trade war is full of contradictions that are partly a function of fighting on so many fronts. The end result looks likely to undermine U.S. interests, U.S. companies and U.S. jobs, while playing into the hands of America's top trade adversary: China.

Trump Trade War Friendly Fire

Trump wants to bend the rules of trade to get foreign manufacturers to produce goods for Americans in the U.S., attacking American companies for deciding to set up shop overseas to meet local demand. Yet Trump is shooting himself in the foot. Retaliatory tariffs by U.S. trading partners and Trump's own tariffs on steel and aluminum are raising the cost of doing business here.

Trump accused Harley-Davidson of waving the "white flag" after the motorcycle maker said Europe's extra 25% tariff on American-made Harleys — in retaliation for Trump's tariffs — would add about $2,200 to the cost of each motorcycle.

Trump argued that U.S. companies that stay strong will be rewarded when trading partners like the EU scrap their tariffs, including a 6% duty on Harleys. But companies have no reason to think Trump's strategy will work. While German carmakers are willing to give up a 10% tariff on imports, they're demanding that Trump cancel a decades-old 25% U.S. tax on imported SUVs and pickup trucks.

Even when the U.S. could take the principled high ground, Trump is alienating U.S. allies and acting as if economic might makes right.

Blame Canada

Trump wasn't wrong in calling out Canadian Prime Minister Justin Trudeau on the country's dairy tariffs of 270%, yet the U.S. has its own sacred cows, so to speak. Overall, Canada has among the lowest tariffs in the world, even slightly lower than the U.S., according to the World Bank.

Meanwhile, Trump's steel tariffs on Canada are so out of bounds that even the United Steelworkers union has called for Trump to drop the tariffs. Canada is the biggest steel exporter to the U.S., shipping 5.8 million metric tons in 2017. Yet, it's also the largest export market for U.S. steelmakers, importing 4.8 million metric tons. Trump tariffs ignore the latter.

Harley-Davidson is hardly the only U.S. company mulling layoffs as collateral damage from the Trump trade war. Mid-Continent Nail of Missouri has reportedly laid off 60 workers and could cut hundreds more if it can't get an exemption from Trump steel tariffs that make its wares uncompetitive.

Some 20,000 companies have sought exclusions. But Commerce Secretary Wilbur Ross said last week that fewer than 100 had been processed, with 42 accepted and 56 denied. Sixteen jobs could be lost for every steel and aluminum job added thanks to tariffs, a study by the Trade Partnerships Worldwide consultancy estimated.

The latest survey of regional manufacturers by the Kansas City Fed found plenty of criticism of the Trump trade war. Statements from business owners included this: "Bracing for the worst concerning China tariffs. We will move the last of manufacturing offshore. Loss of business due to tariffs will have a larger impact than interest rates."

Targeting China, Hitting U.S. Semiconductor Industry

Trump's tariffs on Chinese high-tech-related imports, due to take effect starting July 6, would make U.S. multinationals less competitive.

How? Rather than target mostly finished goods that U.S. consumers buy from Chinese companies, the Trump tariffs hit so-called intermediate goods. U.S. companies import them from China to incorporate in finished U.S. products, which then become pricier vs. rivals.

"That the tariffs fail to hurt Chinese firms directly should not be a surprise," wrote Peterson Institute researchers Mary Lovely and Yang Liang.

President Xi Jinping's Made In China 2025 agenda aims to close the technological gap and end the dependence on advanced tech from non-Chinese companies. But that's an aspiration, the researchers noted, while current Chinese tech still lags that of the U.S. and others.

"It is impossible to hit tomorrow's exports with today's tariffs."

The Semiconductor Industry Association says much the same thing: "The proposed imposition of tariffs on semiconductors from China, most of which are actually researched, designed, and manufactured in the U.S., is counterproductive and fails to address the serious IP and industrial policy issues in China."

Isolating The U.S. — Not China

The chief Trump trade war target is China, which has a $375 billion trade surplus with the U.S., limits market access and systematically conspires to gain access to the intellectual property of U.S. firms.

The U.S. could try to isolate Beijing by creating a broad united front to keep China honest or make it pay a price. This is what President Obama had in mind with the Trans-Pacific Partnership.

But four days into his term, Trump scrapped that 12-nation trade deal, which included intellectual property protections. This spring he briefly toyed with rejoining the TPP.

Instead of major U.S. trading partners uniting against China, the U.S. is drawing fire from all sides for Trump tariffs. China is widely seen as the prime culprit in global steel overcapacity that is at the root of Trump's 25% steel tariff. Yet China has been a minor steel exporter to the U.S., so Trump has picked a fight with Japan, the EU, Mexico and Canada.

Protecting Chinese Jobs

If the biggest trade threat to the U.S. is China and its world-dominating tech ambitions, why is Trump out to save 70,000 jobs at Chinese communications equipment firm ZTE?

Trump decided last month to overturn Commerce Department sanctions against ZTE that banned key U.S. component suppliers from doing business with the firm, forcing it to cease operations.

This week, Trump dropped a plan for emergency investment and export rules, including a 25% limit on Chinese ownership in firms buying key technology. Instead, Trump backed legislation in Congress to strengthen the Committee on Foreign Investment in the United States, or CFIUS.

Trump could have gone as far as banning chip equipment sales to Chinese firms, Moody's said this week. That would have been a bitter pill for Xi and could have derailed trade talks.

Trump Trade War Low-Hanging Fruit

Trump appears to view America's big trade deficit as low-hanging fruit for an easy trade-war win. He largely declared victory a month ago, when China agreed to boost U.S. purchases by $70 billion. Trump touted the emerging deal as a big win for American farmers. The loser wouldn't be China, but other countries that supply it.

That may explain why the Trump trade war appears to be more diplomatic with China than with traditional U.S. allies.

With no allies to join in pressuring China to change its state-subsidized technology strategy, Trump seems to be settling for low-hanging fruit. He appears to be taking a softer line on export controls, pushing the seemingly inevitable technological cold war with China down the road.

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15. After Threatening A China Trade War, Here's How Desperate Trump Is To Avoid OneСр., 27 июня[−]

This week's big planned Trump administration announcement of emergency investment and export rules targeting China is out, and it doesn't include any rules or even mention China. By now it should be clear that Trump is bending over backwards to soothe Beijing and avoid a China trade war.

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Instead of detailing tough new emergency measures, including a reported 25% limit on Chinese ownership in firms buying key technology, Trump will instead back legislation moving through Congress to update the Committee on Foreign Investment in the United States, or CFIUS.

In a statement that never mentions China, Trump noted, "certain countries direct and facilitate systematic investment in United States companies and assets in order to obtain cutting-edge technologies and intellectual property in industries those countries deem important."

Last week, Trump called members of Congress to the White House to stop them from interfering with his plan to save 70,000 Chinese tech jobs at communications equipment firm ZTE put at risk by U.S. sanctions.

Trump's moves appear designed to facilitate progress in trade negotiations ahead of a July 6 Trump tariff deadline that may dramatically intensify the emerging China trade war. On that date, the U.S. is to impose 25% tariffs on $34 billion worth of Chinese high-tech-related imports, with tariffs on another $16 billion in goods due shortly thereafter. China has said it will match Trump tariffs dollar for dollar, whenever they are imposed.

The Dow Jones industrial average, S&P 500 index and Nasdaq all rallied early Wednesday on hopes that Trump's move to delay investment and export restrictions might keep the China trade war on the back burner. But they reversed sharply lower as the bond yield curve narrowed.

Trade Deal Sought, Not China Trade War

The Financial Times reported on Tuesday that Trump had been "spooked" by Monday's market sell-off, which helped spur the change in plans.

Trump has already made clear that he wants a trade deal, not a China trade war, and he came close to reaching one in May that would have had Beijing buy an additional $70 billion in U.S. goods. Trump touted the emerging deal, tweeting that China would "buy massive amounts of ADDITIONAL Farm/Agricultural products" from the U.S.

China appears open to such a deal, if it can avert tariffs and trade restrictions that jeopardize its "Made in China 2025" strategy.

Trump's latest decision could be a reprieve for the semiconductor sector. Chip equipment from key U.S. suppliers Applied Materials ( AMAT), KLA-Tencor ( KLAC) and Lam Research ( LRCX) was seen as one likely area for controlling exports. Chinese companies account for about 6% of the group's sales.

Such restrictions would "severely limit China's ability to develop greater self-sufficiency in chip manufacturing," a key goal of its "Made in China 2025" strategy, Moody's says.

On Tuesday, the House cleared the modernized CFIUS bill, which now will move to a conference merging it with a Senate-passed bill.

Trump's statement said that "such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity."

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16. Blame The Fed For Dow, S&P Struggles, Not Just Trump Trade WarsСр., 27 июня[−]

President Trump's China trade war, the biggest immediate threat to the stock market, may be off again, but the coast doesn't look clear. If you're looking for reasons why Wednesday's rally failed, the Fed is a good place to start. The clearest sign that the Fed is helping to hold back the Dow Jones industrial average and S&P 500 from scaling new heights is the flattening of the yield curve since the last Fed meeting.

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On Wednesday, the gap between two-year and 10-year Treasury yields shrank to as little as 32 basis points, the narrowest since the yield curve inverted in 2007, meaning short-term yields exceeded long-term yields. The two-year yield, at 2.51%, isn't too far off its 10-year high of 2.6% hit last month. But the 10-year yield has slid from a recent peak of 3.13% all the way to 2.83%.

The yield curve has gotten a lot flatter since the Fed meeting two weeks ago, with the gap between two-year and 10-year yields narrowing 12 basis points (from 44 basis points) on June 11. The next day, Fed policymaker projections indicated an expectation of two more quarter-point rate hikes this year, for a total of four in 2018, then three more in 2019.

The flatter yield curve reflects investors curbing their expectations about the strength and durability of the nascent Trump boom, and tighter Fed policy is a prime reason.

The flatter yield curve is more than a signal. Higher short-term borrowing costs courtesy of the Fed are putting upward pressure on the dollar, weighing on the profits of U.S. multinationals and squeezing bank lending margins. Since climbing back to its 50-day moving average on June 11, Bank of America ( BAC) has fallen in 9 of 12 sessions as the yield curve has flattened. Dow component JPMorgan Chase ( JPM) has fallen in 10 of the past 12 sessions, losing about 6% of its value.

Tighter Fed policy, higher short-term rates and a stronger dollar also tend to tighten financial conditions in emerging markets, where companies often borrow in dollars, not their home currencies.

The Fed is tightening policy on two tracks, both hiking rates and gradually reversing its quantitative easing asset purchases made to aid the recovery after the financial crisis.

The Fed is preaching patience even as core inflation approaches its 2% target, but patience is in the eye of the bond holder, and right now markets seem to think that monetary policymakers are too hawkish.

For now, the economy is zipping along and monetary policy, which operates with a lag, isn't much of an impediment. But it is still a risk to the value of financial assets. The problem is that a policy designed to tighten just enough to gently rein in an economy goosed by tax cuts and federal spending hikes could become much too tight by the second half of 2019, as fiscal stimulus levels out.

"Once the impact of the fiscal stimulus fades, we expect economic growth in the U.S. to slow perceptibly," Harm Bandholz, chief U.S. economist at UniCredit Bank, wrote recently. "Accordingly, we anticipate that after the four rate hikes in 2018, the Fed will only raise its target rate one more time in 2019, before the growth slowdown puts an end to the central bank's policy normalization efforts."

If that's right, then the Fed's hawkish plan being priced into markets is holding short-term rates too high, unnecessarily dampening the growth outlook.

Meanwhile, there are other clouds on the horizon that are dampening the global growth outlook. Italian bond yields have surged as Italy's new coalition government threatens to blow up its already-unsustainable debt trajectory. Meanwhile, China is also showing signs of slowing.

"Aside from an escalation in trade tensions, there are several factors that are now combining to darken the outlook for the world economy cyclically and structurally," Nomura chief U.S. economist Lewis Alexander wrote in a Wednesday note. "The Chinese economy has already shown signs of a sharp investment slowdown and the situation could worsen before it improves."

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17. The Trump Economy: Jobs, Regulations, Taxes And TradeСр., 27 июня[−]

President Trump sailed into office in January on a raft of promises about reviving the slow-moving American economy.

He vowed to restore middle class jobs by encouraging major U.S. companies to build their products in the U.S. again. He promised to slash regulations, and in one of his earliest executive actions committed his administration to cutting two regulations for every new rule imposed.

He told Americans to expect tax cuts, including reductions in the U.S. top corporate rate of over 35%, among the highest in the world. And he pledged to lower U.S. trade deficits by raising tariffs on goods from countries that run large trade surpluses with the U.S.

Whether he can achieve this ambitious agenda will depend on his working relationship with Congress — and on his credibility and goodwill among American voters.

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The post The Trump Economy: Jobs, Regulations, Taxes And Trade appeared first on Investor's Business Daily.


18. Dow Jones Cuts Losses; Is Donald Trump About To Blink In China Trade War?Пн., 25 июня[−]

The next shoe to drop in President Donald Trump's China trade war was expected to land this week. Officials were expected to detail new investment restrictions and Trump export controls aimed at China by June 30, with semiconductor equipment a likely focus.

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But Trump trade advisor Peter Navarro in a CNBC interview and Treasury Secretary Steven Mnuchin in a tweet tried to downplay the coming report, saying it isn't aimed at China directly. Mnuchin tweeted that investment restrictions would target any country that steals American technology. Navarro said there would be no investment restrictions.

Stocks rallied into the close but still finished with deep losses. The Dow Jones industrial average closed below its 200-day moving average for the first time in two years, and that post-Brexit vote move two years ago only lasted a day. The S&P 500 index closed just above its 50-day line after trading below that key support most of the session. The Nasdaq composite skidded 2.1%.

Trump Trade War: The Art Of The China Deal?

So has the plan that tanked the stock market really changed? It's hard to be sure, but it wouldn't be a shock. Although Trump threatened a full-scale trade war with China last week, he's also been working to save ZTE, the Chinese communications equipment firm that is the 4th biggest cell phone supplier to the U.S. market.

The logical explanation is that Trump really wants a deal with China. He's been wielding threats to help make it happen, but the stock market reaction on Monday may help convince him to back off a new threat that could make it impossible for China to return to the bargaining table.

U.S. Export Controls On Chip Gear

The biggest near-term concerns about the coming news drop have less to do with Chinese investment restrictions and more to do with Trump export controls.

In a new analysis, Moody's Investors Service said that the toughest export restriction it envisions likely would be a ban on chip equipment sales to Chinese companies, which account for 6%, or $1.8 billion, of combined revenue for Applied Materials ( AMAT), Lam Research ( LRCX) and KLA-Tencor ( KLAC).

Shares of Applied Materials sank 2.6% in the stock market today, while Lam Research lost 2.1% and KLA-Tencor 2.3%.

Total sales in China for those big three U.S. chip-equipment firms make up 18% of total revenue, including sales to non-Chinese companies operating in China. Moody's doesn't rule out the possibility Trump export controls could go so far as to ban sales of chip gear even to non-Chinese companies operating in China, such as Samsung, Intel ( INTC) and Taiwan Semiconductor Manufacturing ( TSM).

Even if Trump export controls only cut off sales to Chinese companies, that could go a long way to deepening trade hostilities between the U.S. and Beijing.

Trump Trade War Threatens 'Made In China 2025'

Such restrictions would "severely limit China's ability to develop greater self-sufficiency in chip manufacturing," a key goal of its "Made in China 2025" strategy, Moody's says.

China aims to close the technological gap, dominate domestic markets and establish global leadership in advanced sectors such as semiconductors, robotics and artificial intelligence. U.S. efforts to counter this threat point to an American technological cold war with China, regardless of Trump's combative approach to trade.

"Outside of Applied, Lam and KLA, we believe alternative suppliers of the array of leading-edge semiconductor equipment that Chinese companies need to produce chips do not exist."

Just a week after the new restrictions are expected to be released, on July 6, 25% tariffs are set to take effect on roughly $34 billion worth of imports from China. Another $16 billion worth of goods could also face tariffs shortly thereafter. The second batch of Trump tariffs includes processor and memory chips.

A study based on the preliminary list of goods to face Trump tariffs found that the bulk would hit multinationals from the U.S. and other countries besides China. The Semiconductor Industry Association said much the same thing on June 15 after the final list of products was released: "The proposed imposition of tariffs on semiconductors from China, most of which are actually researched, designed, and manufactured in the U.S., is counterproductive and fails to address the serious IP and industrial policy issues in China."

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The post Dow Jones Cuts Losses; Is Donald Trump About To Blink In China Trade War? appeared first on Investor's Business Daily.


19. Don't Panic: Here's Why Trump's China Trade War Won't HappenВт., 19 июня[−]

The Dow Jones industrial average and other major stock market averages are tanking Tuesday over President Donald Trump's latest threat of a full-scale trade war with China. Yet Trump's threat seems aimed at Capitol Hill, not Beijing.

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Here's why: After escalating his threat to impose tariffs on another $200 billion worth of Chinese imports late Monday, Trump will meet with GOP senators on Wednesday and ask them to drop their opposition to his rescue of ZTE, the Chinese communications equipment firm driven out of business by U.S. sanctions.

If Trump really intended to launch a trade war, the last thing on his mind would be saving ZTE's 70,000 Chinese jobs.

A plunging Dow Jones, S&P 500 index and Nasdaq composite could help sway Republican senators to give Trump the flexibility he wants to strike a trade deal with China. But while the Dow Jones remained sharply lower at the close, the S&P 500 and Nasdaq pared losses.

Intraday on the stock market today, among Dow Jones components with big exposure to China, Caterpillar ( CAT) lost 3.6% and Boeing ( BA) 3.8%. Apple ( AAPL) and Nike ( NKE) slipped 1.6% and 1.8%, respectively. Intel ( INTC) pared its loss to 0.5%. The Dow Jones itself fell 1.15%, undercutting its 50-day moving average and headed for a sixth straight decline.

Meanwhile, Deere ( DE), which fares well when American farmers are thriving, has seen shares slide about 10% over the past five days. Qualcomm ( QCOM), whose merger with NXP Semiconductors ( NXPI) appears tied up in U.S.-Chinese trade negotiations, fell 1%.

Just a month ago, Trump was crowing about a China trade deal that would see China "buy massive amounts of ADDITIONAL Farm/Agricultural products" from the U.S.

Trump ZTE Deal Sparks Backlash

That deal only came close to happening due to Trump's pledge via a tweet to get ZTE "back into business, fast." As punishment for continuing to doing business with Iran and North Korea in defiance of U.S. sanctions against those regimes, the Commerce Department had ordered ZTE's U.S. component suppliers to cease doing business with the firm.

But Trump's leniency prompted a backlash. The Senate voted on Monday to attach a provision denying relief to ZTE to a must-pass defense funding bill. The White House has said it opposes the ZTE provision, but a Trump veto of a defense bill to save Chinese jobs would be awkward.

Trump Tariff Threat Aimed At GOP Senate

Rather than looking weak with a veto, Trump's threat of dramatically escalating tariffs is a show of strength that has scared investors and may also scare Republican senators into backing down.

Trump already showed his cards with the underwhelming China trade deal he touted last month. He has no stomach for a trade war that makes American farmers pay the price. He also reportedly told Apple CEO Tim Cook that he won't impose tariffs on Apple iPhones assembled in China. Trump had seemed set to sign onto a deal that would have done relatively little to narrow the massive U.S. trade deficit with China.

While the Trump administration has insisted that the enforcement action vs. ZTE was separate from talk talks, it's clear that Chinese President Xi Jinping didn't agree.

After Trump's leniency prompted a backlash and left the fate of ZTE hanging in the balance, Chinese trade negotiators frustrated their American counterparts seeking to finalize an agreement and win more concessions. That strengthened the hand of Trump officials who have advocated a hard line vs. China and had Trump's first round of threatened tariffs on $50 billion worth of high-tech Chinese imports all ready to go.

U.S.-China Trade War Starts July 6?

Any time such threats are made and deadlines are set, there's risk involved. Beijing has a reputation for refusing to back down from a threat. If talks go nowhere before a July 6 deadline for imposing 25% tariffs on $34 billion in Chinese imports, the trade spat may spiral into something more serious. Yet if Trump follows through on his ZTE rescue, the negotiating environment is likely to improve, and there's probably a deal Trump will accept, at least in the short term.

Any trade agreement is likely to please Wall Street, but it's sure to be just a cease-fire in what promises to be a longer term U.S. technological cold war with China.

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The post Don't Panic: Here's Why Trump's China Trade War Won't Happen appeared first on Investor's Business Daily.


20. Retail Sales Top Views As Economic Growth AcceleratesЧт., 14 июня[−]

Retail sales rose in May by the most in six months, exceeding forecasts and bolstering expectations for an acceleration in economic growth this quarter.

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The value of overall sales advanced 0.8% from the prior month, double the median estimate of economists and following an upwardly revised 0.4% gain in April, according to Commerce Department figures on Thursday. So-called retail control-group sales — a key measure that excludes food services, auto dealers, building-materials stores and gasoline stations — rose 0.5%, also exceeding projections.

The results add to signs that lower taxes, elevated confidence and a strong labor market are helping to cushion the blow to Americans' wallets from higher fuel expenses. Solid gains in household purchases — the biggest part of the economy — and steady business investment are among reasons growth is projected to regain momentum in the second quarter.

Estimates for retail sales in the Bloomberg survey ranged from unchanged to a 0.6% gain. Excluding purchases of autos and gasoline, sales climbed 0.8%, also the most since November and topping projections.

A separate report from the Labor Department on Thursday showed filings for unemployment benefits fell by 4,000 to a five-week low of 218,000 last week, adding to signs of a tight job market. Continuing claims for two weeks ago dropped to 1.7 million, the lowest since December 1973.

The strong labor market and solid economic growth are among reasons why Federal Reserve policy makers raised interest rates Wednesday for the second time this year and projected two more hikes in 2018. Economists surveyed by Bloomberg News earlier this month saw gross domestic product expanding at a 3.3 percent pace this quarter, up from 2.2 percent in the previous three months.

Retail Sales Strong At Clothing Stores

Ten of 13 major retail categories showed monthly gains in May, according to the Commerce Department data. Clothing stores had their biggest advance in more than a year at 1.3% and building-materials vendors saw a 2.4% rise, the most since September, when demand got a boost from post-hurricane rebuilding.

The only sectors to show declines were furniture and home furnishings, with a 2.4 % drop — the most since 2013 — along with sporting goods and hobby stores and food and beverage sellers.

The Commerce Department figures aren't adjusted for price changes, so higher gasoline expenses boosted retail sales, which can be volatile from month to month. Filling-station receipts in May increased 2 percent, the most since November, reflecting a jump in fuel prices that are near the highest level since 2014.

While costlier fuel leaves people with less money to buy other goods and services, the latest results suggest Americans are benefiting from steady job and wage gains, along with lower taxes enacted by the Trump administration.

Purchases at automobile and parts dealers rose 0.5%, consistent with recent reports that showed May vehicle sales were surprisingly strong, with gains at automakers including General Motors ( GM) and Ford Motor ( F).

Other Retail Sales Details

Receipts at restaurants and bars climbed 1.3%, the most since January 2017.

Non-store retailers, which includes online shopping, rose 0.1%, after a 1.5% gain in April.

General merchandise stores stores saw the biggest gain in almost a year. The department stores subcategory soared 1.5%, the most since January 2017.

Control-group sales, which are used to calculate gross domestic product, rose at a three-month annualized pace of 5%, up from 2.8% in April

The post Retail Sales Top Views As Economic Growth Accelerates appeared first on Investor's Business Daily.


21. ECB To End Bond Buying In December In Watershed For StimulusЧт., 14 июня[−]

The European Central Bank will halt its bond-buying program by the end of this year -- a landmark decision that sets the euro area up for an exit from years of massive monetary support.

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The euro and bond yields dropped after the ECB said it'll phase out the stimulus tool with 15 billion euros ($17.7 billion) of purchases in each of the final three months of the year. It also pledged to keep interest rates unchanged at current record lows at least through the summer of 2019. President Mario Draghi will explain the decision in a news briefing at 3:30 p.m. in Riga, Latvia, where the Governing Council met.

The End of an Era

Bond buying to continue at 30 billion euros a month until September Purchases to be phased out with 15 billion euros in each of October, November and December. Maturing debt will be reinvested for an extended period after end of net asset purchases. Interest rates will stay at current levels at least through the summer of 2019, or longer if needed for inflation End of net asset purchases remains subject to incoming data.

The euro was down 0.2% at $1.1767 at 1:53 p.m. Frankfurt time.

With the decision to retire its key crisis-fighting tool, the ECB is betting that the euro-area economy is robust enough to ride out an apparent slowdown amid risks including trade tariffs and nervousness that Italy's populist government will spark another financial crisis.

The announcement comes only hours after the Federal Reserve raised U.S. interest rates for the second time this year, highlighting how a decade of easy money globally is gradually coming to an end. The People's Bank of China opted not to follow the Fed in raising borrowing costs, and the Bank of Japan is expected to maintain its stimulus when it meets on Friday.

Draghi will provide updated economic projections at his news briefing, which may help him address any questions over whether policy makers have acted too hastily given a spate of disappointing data in recent weeks. While almost a third of economists in a Bloomberg survey predicted he'd set an end-date for purchases after the Riga meeting, 46% said he'd wait until the next policy session in July.

It is four years to the month since the ECB became the first major central bank to cut one of its key rates below zero. Market expectations are currently for rates to start rising around the middle of next year, and some Governing Council members recently said such an outlook is reasonable.

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The post ECB To End Bond Buying In December In Watershed For Stimulus appeared first on Investor's Business Daily.


22. The Fed Just Threw Cold Water On Dow Jones, Trump Tax CutsСр., 13 июня[−]

The Fed hiked its key interest rate a quarter-point, as expected, on Wednesday, but surprised financial markets by signaling two more rate hikes this year to counter tax cut-fueled economic strength.

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The consensus Fed rate hike outlook shows a total of four increases this year, up from a prior view for three. Policymakers continue to see three more rate hikes in 2019. Bottom line: The Fed had been on the cusp of a hawkish shift and just got off the fence.

After release of the policy statement and quarterly economic projections at 2 p.m. ET, the Dow Jones industrial average, S&P 500 index and Nasdaq composite pulled back modestly, then recovered lost ground during Chairman Jerome Powell's uneventful news conference.

Powell indicated that the rate-setting committee was cognizant of the risk of moving too quickly or too slowly, adding that policymakers also aren't overly worried about inflation exceeding 2%. "The economy is great shape," Powell said.

While the Fed continues to see economic risks as balanced, Powell seemed to emphasize a stance of gradual tightening to "sustain that expansion" by keeping things from overheating.

Yet, the market's initial, limited reaction masked an ominous sign: a flatter yield curve. Firming inflation and Fed rate-hike expectations have pushed up short-term government bond yields. But the narrow gap between short-term and long-term Treasuries signals growing doubts about the durability of the economy's momentum.

While Powell spoke, the 2-year Treasury yield pared its rise to 2.57%, closing to within 40 basis points of the 2.97% 10-year Treasury yield. That's the narrowest yield gap since 2007, when long-term rates fell below short-term rates, a reliable precursor of recession.

Fed Rate Hike Fears

Ahead of the meeting, Wall Street has worried on and off that recent economic indicators would compel policymakers to tighten too much. Inflation is near the Fed's 2% target, wages are finally perking up, and the unemployment rate is hovering around a 50-year low.

At the May meeting, the Fed tried to tamp those fears by stressing that their inflation target is "symmetric," meaning that exceeding 2% for a time is no more reason to panic than modest undershoots.

The Fed, under new chair Powell, faces an unprecedented policy challenge. Fiscal stimulus has always been ordered up during a recession or at the start of a recovery. This time, President Trump and Congress are delivering a double dose of major tax cuts and spending hikes deep into the expansion, when growth was already firm and labor markets tight. The challenge is that policy works with a time lag. So almost as soon as the Fed adjusts policy to respond to economic strength, stimulus will be fading.

"2019 is setting up to be a dangerous year, as the fiscal stimulus rolls off while the impact of the Fed's tightening will be peaking," Greg Jensen, co-chief investment officer of hedge fund behemoth Bridgewater Associates, wrote recently.

Investors shouldn't take the quarterly economic projections to the bank. For one thing, some of the members, including a couple of doves, don't have votes, and the makeup of the committee will change as new Trump appointees are confirmed. More critically, if wage growth keeps accelerating, policymakers will update their views.

While every signal the Fed sent was hawkish on Wednesday, it's worth noting that the consensus doesn't appear that firm. Only eight policymakers projected four 2018 rates hikes, while seven still expected three.

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The post The Fed Just Threw Cold Water On Dow Jones, Trump Tax Cuts appeared first on Investor's Business Daily.


23. Fed Rate-Hike Fears Are Growing, And Here's How You KnowСр., 13 июня[−]

The economy is surging as the jobless rate has plunged near a 50-year low, and five more Fed rate hikes are cued up over the next 18 months — including one at Wednesday's Fed meeting.

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Yet something about this show of economic strength doesn't quite add up. Even as firming inflation and Fed rate-hike expectations have pushed up short-term government bond yields, the flattening yield curve is signaling growing doubts about the durability of the economy's momentum.

Wall Street economists are split as to whether the Fed will hike once or twice more this year after Wednesday. If Fed economic projections released with their policy statement on Wednesday point to a likelihood of just one, the Dow Jones industrial average, S&P 500 index and Nasdaq composite are expected to rally, as Treasury yields pull back.

Yet there's a big question about how long any relief rally can run when the Fed's footsteps seem to be closing in.

Fed Rate Hike Patience?

On Tuesday, the 2-year Treasury yield rose to 2.54%, closing to within 42 basis points of the 2.96% 10-year Treasury yield. That's within a whisker of the narrowest yield gap (41 basis points) since 2007, when long-term rates fell below short-term rates, a reliable precursor of recession.

In other words, a Fed that bucks up stock market investors with its display of patience still may not be patient enough.

The flat yield curve helps explain why both homebuilders, which thrive on low interest rates, and banks, which can benefit from rising rates, are among the market's biggest laggards. The Building-Residential/Commercial group is ranked No. 186 of 197 industry groups tracked by IBD based on stock performance, while the Banks-Money Center group is a lowly 171.

On Tuesday, shares of JPMorgan Chase ( JPM) and Bank of America ( BAC) slipped below their 50-day moving averages. Meanwhile, CFRA analyst Kenneth Leon said KB Home ( KBH) and Toll Bros. ( TOL) could struggle amid a less-than-stellar spring selling season for homebuilders.

Fed Rate Hike Challenge

The Fed, under new chair Jerome Powell, faces an unprecedented policy challenge. Fiscal stimulus has always been ordered up during a recession or at the start of a recovery. This time, President Trump and Congress are delivering a double dose of major tax cuts and spending hikes deep into the expansion, when growth was already firm and labor markets tight. Now it's hitting as core inflation has finally accelerated close to the Fed's 2% target.

Keep in mind that last summer, before Trump's tax-cut push gathered steam, markets were pricing in a single rate hike over the ensuing 12 months. The challenge is that policy works with a time lag. So almost as soon as the Fed adjusts policy to respond to economic strength, stimulus will be fading.

"We are clearly more concerned than the Fed" about the economic outlook for 2019, wrote Harm Bandholz, chief U.S. economist at UniCredit Bank, when policymakers released their projections in March. "As the impact of the (tax cut and spending) stimuli fades, growth rates should begin to slow perceptibly around the middle of the year, before slowing further into 2020."

The potentially good news is that Fed policymakers have taken note of the flattening yield curve and plan to exercise caution so that the curve doesn't invert, with longer rates slipping below short-term rates. Even still, getting the timing right won't be simple.

"2019 is setting up to be a dangerous year, as the fiscal stimulus rolls off while the impact of the Fed's tightening will be peaking," Greg Jensen, co-chief investment officer of hedge fund behemoth Bridgewater Associates, wrote recently.

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The post Fed Rate-Hike Fears Are Growing, And Here's How You Know appeared first on Investor's Business Daily.


24. Core Inflation Accelerates In May, But Won't Alter Fed Rate Hike PlansВт., 12 июня[−]

Core consumer prices, excluding food and energy, rose 0.2% in May, while the core CPI annual growth rate accelerated to 2.2%, the Labor Department reported on Tuesday.

Wall Street expected the core CPI to rise 0.2% on the month and 2.2% from a year ago, with the Amazon ( AMZN) Prime membership fee increase seen contributing.

The overall CPI rose 0.2% on the month and 2.8% from a year ago, as expected.

The latest inflation data come as the Fed begins a two-day policy meeting. A 25-basis-point rate hike is all but certain to be announced Wednesday at 2 p.m. Eastern Time. The biggest question is whether Fed committee members will project one additional rate hike this year, consistent with their view in March, or whether they now think an additional rate hike is needed. Tuesday's in-line CPI data probably won't make much difference to a Fed that has signaled patience.

After the CPI data, the S&P 500 index, Dow Jones industrial average and Nasdaq 100 futures moved modestly higher, while the 10-year Treasury yield dipped slightly.

Prices for recreation services, the category that includes shopping club membership fees, rose 1.8% from a year ago in May vs. a 1.7% year-over-year gain in April.

Amazon Prime Price Hike

Amazon announced in late April that Prime membership would rise to $119 from $99 per year starting May 11, with renewals impacted on June 16. Prime membership benefits have expanded since the last the price hike in 2014. Amazon Prime members receive free shipping, access to Amazon Music and Amazon video, and other perks, including Whole Foods discounts.

Amazon stock rose 0.3% in Monday's stock market trading, still in a buy zone and just below a record high.

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The post Core Inflation Accelerates In May, But Won't Alter Fed Rate Hike Plans appeared first on Investor's Business Daily.


25. How Amazon Prime Could Hurt Stocks, Spook FedПн., 11 июня[−]

No company gets more credit than Amazon ( AMZN) for the tame inflation backdrop that's been a boon to stock market investors in recent years. But if inflation surprises on the upside this week, Amazon could be one of the culprits for its Amazon Prime.

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The Labor Department releases the May consumer price index on Tuesday at 8:30 a.m. ET. Economists expect the core CPI to rise 0.2% vs. April and 2.2% vs. a year earlier. But Goldman Sachs economists say they see greater likelihood that core inflation will hit 2.3% rather than come in at a softer-than-expected 2.1%.

"Our forecast reflects a boost in the recreation category from the Amazon Prime price increase, as well as a rebound in airfares," Goldman noted. Rent, medical services and new and used cars should also contribute to firmer inflation in May after April's tepid 0.1% monthly rise.

Amazon announced in late April that Prime membership would rise to $119 from $99 per year starting May 11, with renewals impacted on June 16. Prime membership benefits have expanded since the last the price hike in 2014. Amazon Prime members receive free shipping, access to Amazon Music and Amazon video, and other perks, including Whole Foods discounts.

Amazon stock rose 0.3% in Monday's stock market trading, still in a buy zone and just below a record high.

Fed Rate Hike Plans

A jump in core inflation would raise investor concern that the Fed will step up its rate-hike intentions. Fed policymakers have tried to assuage fears that they'll overreact to a modest inflation pickup. Fed participants' projections in March showed that a slim majority expected three rate hikes, not four, in 2018. A firmer inflation reading this month, coming after the jobless rate fell to 3.8%, might shift expectations toward four hikes, which could cause yet another negative market reaction.

The Federal Reserve begins its two-day policy meeting on Tuesday. A Fed rate hike is widely expected Wednesday afternoon, but the focus will be on policymakers' revised outlooks.

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The post How Amazon Prime Could Hurt Stocks, Spook Fed appeared first on Investor's Business Daily.


26. IBD/TIPP Poll: Economic Optimism Rises, But Trump Economy Is No PartyЧт., 07 июня[−]

The IBD/TIPP Economic Optimism Index improved in June, but the country's mood remains surprisingly circumspect considering lower joblessness, better wages, and an economy whose growth appears to have accelerated past 3%.

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The index edged up 0.3 point to 53.9, solidly above the 50 neutral level, as Americans' view of their personal finances strengthened and the jobless rate matched a nearly half-century low.

Self-described investors were bullish on the economy, with their responses equating to a 57.5 index reading, yet the rest of the country remained slightly pessimistic, slipping further into negative territory at 48.6.

Optimism and pessimism also were linked to income levels in June. Americans earning at least $50,000 were optimistic (55.8) and those earning more than $75,000 even more so (57.6). Yet Americans earning less than $50,000 were somewhat pessimistic (48.9 or lower).

The IBD/TIPP Poll reflects 905 responses collected from May 29 to June 5. The Labor Department reported the drop in the jobless rate to 3.8% in May on June 1.

The Economic Optimism Index is a composite of three major subindexes.

The six-month economic outlook gauge dipped one-tenth of a point to 51.2. That's well below the readings that topped 55 in the two months after President Trump signed the tax cuts into law in December.

The six-month personal financial outlook index rose 1.1 points to 62.1, still below January's 14-year high of 64.

Meanwhile, the measure of confidence in federal economic policies slipped two-tenths of a point to 48.3. The gauge has only cracked into optimistic territory in a single month since 2007, during the brief honeymoon after Donald Trump's election.

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The post IBD/TIPP Poll: Economic Optimism Rises, But Trump Economy Is No Party appeared first on Investor's Business Daily.


27. IBD/TIPP Poll: Economic Optimism Index For June 2018Чт., 07 июня[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

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The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.4, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

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IBD/TIPP Economic Optimism Index: Overall

View Questions And Full Results

The IBD/TIPP Economic Optimism Index eked out a 0.6% gain to 53.9 in June from 53.6 in May, the second straight gain for the index after posting two monthly declines. In February, the index hit its highest reading since October 2004. It's now the 21st straight month that it has been over 50 — which signals overall optimism about the economy. It is also above its long-term average of 49.4. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index fell 0.2% to 51.2 in June from 51.3 in May after rising 3.2% in May. The volatile gauge surged 11.4% in January, and then bounced up and down for several months. The reading for this index remains in optimistic territory and well above its long-term average of 46.3. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months rose 1.8% to 62.1 in June from 61.0 in May. The index's all-time high of 65.3 was set in January 2004, when the Bush-era tax cuts began to kick in. The Personal Financial Outlook is the most consistently optimistic index in the IBD/TIPP data set. It remains above its long-term average of 57.1.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component dipped 0.4% to 48.3 in June from 48.5 in May. It's down from its level of 50 in March. Still, it remains above its 17-year average of 44.8. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years, and in March returned to that feel-good zone. But it has flagged during recent debates over the budget, tariffs and Fed rate hikes. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

RELATED:

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Past Results

May 2018

April 2018

March 2018

February 2018

January 2018

December 2017

November 2017

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

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December 2016

Media Contact

Terry Jones
Investor's Business Daily Commentary Editor
terry.jones@investors.com | 310.448.6377

Marisa Lam
GMK Communications
marisa@gmkcommunications.com | 650.232.7188

The post IBD/TIPP Poll: Economic Optimism Index For June 2018 appeared first on Investor's Business Daily.


28. U.S. Manufacturing Quickens While Prices Keep Spiraling UpwardПт., 01 июня[−]

U.S. manufacturing expanded at a faster pace in May and order backlogs grew by the most in 14 years, even as price gains for materials continued to accelerate, the Institute for Supply Management said Friday.

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Highlights of ISM Manufacturing (May)

  • Factory index rose to 58.7 (est. 58.2) from 57.3; readings above 50 indicate expansion
  • Measure of new orders improved to 63.7 from 61.2
  • Order backlogs index increased to 63.5, highest since April 2004, from 62
  • Employment gauge increased to 56.3, the first gain in three months, from 54.2 reading

Key Takeaways

Firmer U.S. consumer spending and solid business investment are driving orders and output, consistent with steady improvement for the nation's manufacturers even as their overseas counterparts contend with moderating economies.

Production picked up with orders, while the increase in unfilled orders prompted factories to step up hiring. The Labor Department's monthly figures earlier Friday showed manufacturers added 18,000 jobs in May, slightly above the average for the past two years. American households and companies are spending steadily, helped in part by lower taxes.

Meanwhile, a gauge of input prices advanced for a sixth straight month, reaching the highest level since April 2011. Tariffs on steel and aluminum are driving up costs and are set to continue disrupting supply chains and prices, a primary concern among U.S. firms.

Other Details

  • ISM production measure rose to a three-month high of 61.5 in May from 57.2
  • Gauge of prices paid edged up to 79.5 from 79.3
  • Measure of export orders fell to 55.6, the lowest since October, from 57.7
  • Gauge of supplier deliveries climbed to 62, the second-highest since March 2010, from 61.1; readings above 50 indicate longer delivery times
  • Index of customer inventories fell to 39.6 in May, the lowest since December 2010, from 44.3; readings below 50 indicate stockpiles are being depleted

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29. Economy Adds 223,000 Jobs As 3.8% Jobless Rate Ties Lowest Since 1969Пт., 01 июня[−]

The U.S. economy added 223,000 jobs in May as the jobless rate fell to 3.8%, matching the lowest level in nearly a half century, the Labor Department reported on Friday. Wage growth, the key number for stock market investors worried about more Fed rate hikes, ticked up to a 2.7% annual rate.

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Wall Street economists expected 190,000 new jobs, 3.9% unemployment and 2.7% wage growth.

Including an upward revision to March and April payroll gains of 15,000, the economy has added 179,000 jobs a month over the past quarter.

Dow Jones industrial average, S&P 500 index and Nasdaq 100 futures largely held onto early gains following the report. The 10-year Treasury yield, which had tumbled earlier in the week on a flight to safety amid Italy's political turmoil, rose to 2.92%.

Wage Gains Subdued Despite Pay Hikes

The big puzzle leading up to the May jobs report has been subdued wage growth. One possible factor is that reported wage gains tend to be understated when the survey week of employers doesn't include the 15th, the mid-month pay period. That was the case in April and May.

Faster wage gains appear to be coming on the lower end of the wage scale as companies bid to attract and retain quality workers. On Thursday, Costco ( COST) said it would raise starting pay by $1 an hour to a range of $14 to $14.50 starting this month.

Other hourly wage rates will rise by 25-50 cents. Target ( TGT) raised its base wage $1 to $12 an hour earlier this spring, while CVS Health ( CVS) hiked its minimum wage to $11. Walmart ( WMT), after boosting its starting wage from $9 to $11 earlier this year and expanding paid maternity leave, announced this week that it will subsidize an online college education for associates.

On Wednesday, payroll manager ADP estimated that private firms added 178,000 jobs in May. The April employment gain was revised down to 163,000 from an initially estimated 204,000.

"Job growth is strong, but slowing, as businesses are unable to fill a record number of open positions," said Mark Zandi, chief economist of Moody's Analytics, which collaborates with ADP to produce the report. "Wage growth is accelerating in response, most notably for young, new entrants and those changing jobs. Finding workers is increasingly becoming businesses number one problem."

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30. Dow Jones Extends Losses As Canada Retaliates Vs. Trump Steel TariffsЧт., 31 мая[−]

President Donald Trump reversed course again on Thursday and now plans to impose tariffs on steel and aluminum imports from the European Union, Canada and Mexico. This Trump trade war threat, which tanked the stock market in late February and early March, pressured the Dow Jones Thursday.

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The Dow Jones industrial average fell 1% on the stock market today, finding support so far at its 50-day moving average. The S&P 500 slipped 0.7%. The tech-heavy Nasdaq composite dipped 0.3%. Stocks accelerated losses as Canada joined the European Union and Mexico in retaliating.

Steel and aluminum stocks surged initially, but pared gains. U.S. Steel ( X) rose 1.7%. Steel Dynamics ( STLD) reversed to trade down 0.9%. Aluminum giant Alcoa ( AA) reversed to fall 1%. Century Aluminum ( CENX) climbed 3.3%.

Dow Jones components Boeing ( BA) and Caterpillar ( CAT), heavy steel users vulnerable in a trade war, fell 1.7% and 2.3%.

Harley Davidson ( HOG), whose motorcycles could be hit by EU retaliatory tariffs, lost 2.1%.

Europe, NAFTA Nations Retaliate

The EU said it would impose 25% tariffs on $3.3 billion worth of U.S. imports starting June 20. Mexico also announced plans to strike back by imposing tariffs on pork bellies, apples, grapes, cheeses and flat steel. Canada announced retaliatory tariffs on U.S. steel, aluminum and a variety of other products.

The Trump administration faced a decision with previously granted exemptions from the tariffs of 25% on steel imports and 10% on aluminum imports expiring June 1. Even though the exemptions have covered more than half of steel imports, steel prices have moved higher this year. U.S. prices for steel are already about 50% higher than those in Europe and China, the U.S. Chamber of Commerce said in a statement opposing any expansion of tariffs or quotas.

"Such a move would hit American manufacturers with higher costs, slow the growth of the U.S. construction sector, and put the brakes on job creation in both of these key industries," the Chamber said.

Hitting Canada and Mexico with the tariffs could be a huge blow to Nafta talks. There's little logic in imposing tariffs on metal imports from the Nafta partners. Canada is the biggest steel exporter to the U.S., shipping 5.8 million metric tons in 2017, or about 16% of total steel imports. Yet Canada is also, far and away, the largest export market for U.S. steel makers, so its retaliatory tariffs will hurt. Through the first three quarters of 2017, the U.S. ran a relatively minor trade deficit with Canada of about a half-million metric tons, according to Department of Commerce data.

Trump Trade War Expands

Trump's move to broaden tariffs on metal imports follows news earlier this week that the Trump administration is preparing to hit China with tariffs on $50 billion worth of mainly high-tech imports as initially planned. That came as a surprise after China-U.S. trade talks appeared close to a deal for China to significantly increase purchases of U.S. energy and agricultural goods.

Last week, Trump ordered the Commerce Department to conduct a national security investigation into foreign auto imports. He's said to be considering 25% tariffs on $176 billion yearly imports. News reports say that Trump is determined to keep German luxury cars out of the U.S.

For the past couple of months, it has looked like a trade war might be avoided, Greg Valliere, chief global strategist at Horizon Investments, wrote in a note distributed early Thursday morning. But he said he was ready to throw in the towel on that assessment. "Barring a last-minute breakthrough, a trade war with some of America's closest allies will begin tomorrow."

"The incoherent Washington stance on trade is a daily roller-coaster ride, fueled by bitter infighting between President Trump's fierce trade protectionists and his more moderate advisors," Valliere wrote.

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31. Italy's Populists Just Took Over The Fed — And The Stock Market Is OK With ThatЧт., 31 мая[−]

Italy's populists didn't just wrest control of their own government, they've hijacked Federal Reserve monetary policy too.

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As long as Italy's membership in the eurozone looks about as secure as the Leaning Tower of Pisa, central bankers are going to be much more hesitant to hike interest rates or otherwise tighten policy.

Don't Bet On Aggressive Fed, ECB

As the Italian political crisis erupted and global financial markets plunged Tuesday, Fed rate-hike expectations took a dive. Just over a week ago, markets were pricing in roughly 50-50 odds of four Fed rate hikes in 2018. But during the worst of yesterday's rout, odds of just two Fed hikes spiked close to 50%.

With panic subsiding Wednesday as stock and bond markets rebounded, odds firmed for three hikes this year, according to the CME Group FedWatch tool. But more volatility is likely with any flare-up in Italy's political risks.

The emerging consensus is that the European Central Bank will delay its plan to taper bond purchases. As for the Fed, the five additional rate hikes through 2019 that policymakers penciled in back in March are starting to look less sure.

Good News For Stock Market?

What does this mean for the stock market? Well, this isn't a consensus, but those who saw rising interest rates as the biggest threat to markets are suddenly feeling more upbeat.

Doug Kass, president of Seabreeze Partners Management, wrote that a messy resolution to an Italian rebellion against European Union rules will weigh on global economic growth and corporate profits. The upside to Italy's crisis for stock market investors, in his view, is that upward pressure on inflation and interest rates will ease, lengthening the economic cycle and aiding stock valuations

"A somewhat elongated cycle (caused by less interest-rate stress) reduces the market's downside target by 10%, slightly improves (+4%) the 'fair market value' and modestly increases the top end of the anticipated trading range," Kass wrote.

Easier Fed policy in the face of elevated risk out of Italy makes sense, and not only due to the prospect of slower growth. If the Fed keeps raising rates as planned as the ECB stays in easing mode, that will spur more upward pressure on the dollar. That, in turn, will choke growth in emerging markets where companies often borrow in dollar-denominated debt.

Outflows from emerging markets in a slower-growth environment could contribute to a series of crises in places like Turkey and Argentina.

Will Italy Spark A 1998-Like Fed Rally?

If Italy's crisis, which is really about a long-underperforming economy with too much debt, turns out to be positive for U.S. stocks, it wouldn't be the first time. Stocks took off when the Greenspan Fed cut rates three times in the fall of 1998 to counteract a wave of financial crises from Southeast Asia to Russia. Of course, that was in the middle of the dot-com boom.

Still, when stimulus from tax cuts and higher federal spending begins to ebb in late 2019, softer global growth could further undercut U.S. momentum. Even if the Fed curbs rate-hike plans, monetary policy may still be too tight under such soggy conditions.

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32. Fed Says Economy Grew 'Moderately' Amid Strong ManufacturingСр., 30 мая[−]

The U.S. economy expanded moderately through much of April and May, a subtle upgrade from previous periods, with little indication of overheating, a Federal Reserve survey showed.

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The central bank's Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through May 21, said manufacturing showed "strong" gains, while employment and prices continued to rise "modestly" or "moderately."

"Manufacturing shifted into higher gear with more than half of the districts reporting a pickup in industrial activity and a third of the districts classifying activity as 'strong,"' according to the report, released Wednesday in Washington.

The report may bolster the case for the central bank to raise interest rates when policy makers next meet June 12-13 in Washington. While a political crisis in Italy has roiled debt markets in recent days, the odds of a rate increase at that meeting implied by pricing in federal funds futures contract remained above 90%.

The Fed is broadly expected to lift rates three or four times in 2018, including the move it made in March.

'Soft' Spending

The Beige Book acknowledged that consumer spending was "soft" during the period, hindered by flat auto sales, and again noted that companies were concerned by the uncertainty of international trade policy.

"Still, outlooks for near-term growth were generally upbeat," the report said.

Check out the latest data on U.S. economic growth.

Companies continued to report difficulty finding workers to fill vacancies across skill levels.

"Many firms responded to talent shortages by increasing wages as well as the generosity of their compensation packages," the report said. "In the aggregate, however, wage increases remained modest in most districts."

U.S. unemployment fell to 3.9% in April, the lowest since 2000. Wages, however, have continued to rise only moderately, with year-on-year gains in hourly earnings at 2.6% in April.

'Price Increases'

The survey also reported that, in a few districts, wage increases and rising material costs -- notably for steel, aluminum, oil, lumber and cement -- were becoming more common.

"Some districts also noted that their retail contacts were more able to pass along price increases to their customers than in the recent past," the Fed reported.

The Dallas district saw the biggest gains in overall growth, according to the survey. In the St. Louis district some firms reported "relaxing drug-testing standards and restrictions on hiring felons to alleviate labor shortages."

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33. Why Italy's Political Crisis Is So Bad For Dow Jones, S&P 500 StocksСр., 30 мая[−]

Just when it looked like the new normal of lackluster growth was history, Italy's political crisis threatens to throw a soggy pizza on the Trump economic boom.

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As Italian government bond yields surged on Tuesday, triggering long-dismissed fears about the fate of the European Union's currency area, the Dow Jones industrial average tumbled nearly 400 points, or 1.6%, on the stock market today. The S&P 500 slid 1.2%.

While those fears about a breakup of the euro may be overdone, the uncertainty surrounding Italy is likely to linger and exacerbate global economic fragility at a consequential time.

Just consider how expectations have swung for the U.S. economy: A week ago, the odds of four Fed rate hikes in 2018 were just over 50%, according to the CME Group FedWatch tool. Now those odds have sunk to 15%, and the odds of only two rate hikes have spiked to 44%.

A relatively positive impact of the global flight to safety was to push U.S. Treasury yields lower, with the 10-year yield sliding to 2.79% and the two-year yield to 2.34%, which will lower borrowing costs for companies and consumers. But the 10-year yield has fallen harder, once again squeezing the yield spread and thus banks' net interest margins. JPMorgan Chase ( JPM) and Goldman Sachs ( GS) — Dow Jones and S&P 500 components — skidded 4.3% and 3.4%, respectively, on Tuesday.

Rising Dollar Hits Global Growth

Meanwhile, the U.S. dollar index continued its recent ascent, jumping to its highest level since July 2017.

The roughly 6% rise in the dollar vs. other advanced economy currencies over the past three months is a negative for the earnings of U.S. multinationals, since it makes foreign-earned revenue worth less in dollar terms. But economists also see a stronger dollar as a negative for global growth, especially for emerging markets where companies often borrow in dollar-denominated debt that is harder to service when the local currency falls.

A stronger dollar is already pressuring developing economies. The rush to safety sparked by Italy's political turmoil will add to that pressure, leading to outflows from emerging markets, and increasing financial vulnerability in places like Turkey and Argentina. Brazil is already reeling from a truckers strike.

If a stronger dollar comes at the same time China's economy begins to slow, the global outlook could quickly shift from the best in a decade into a relative soft patch. Economic data from China over the past month have indeed been on the weaker side.

European economies also have slowed, leaving the U.S. as the main standout of late. While there's reason to think that the U.S. economy has enough of a head of steam to avoid a letdown this year, it may not approach the heights expected from the Trump tax cuts.

The real risk is that when the stimulus from tax cuts and higher federal spending begins to ebb in late 2019, a softer global economic backdrop will further undercut U.S. momentum. Even if the Fed curbs rate-hike plans, monetary policy may still be too tight.

Italy vs. Europe

Italy's underperforming, over-indebted economy and financial system emerged from crisis after European Central Bank President Mario Draghi pledged in 2012 to do "whatever it takes" to preserve the currency union in 2012, then launched a massive bond-buying program. But now the question is whether Italian politics will allow Draghi to work his magic.

The ECB had been moving to phase out its bond-buying program. While that's looking increasingly unlikely, Draghi will have limited ability to backstop Italian debt if political leaders remain bent on flouting EU budget deficit rules and embarking on a fiscal expansion.

In March, Italians backed two populist parties, the 5 Star Movement and Northern League, which formed a tentative coalition government this month. The latest crisis erupted when Italian President Sergio Mattarella blocked their appointment of a euro critic as finance minister on Sunday. He then installed pro-market International Monetary Fund economist Carlo Cottarelli as interim prime minister.

A new election could happen in late July, but a top EU official's warning stoked further outrage.

"The coming weeks will show that the development of the markets, government bonds and the economy of Italy will be so far-reaching that this will be a possible signal to voters not to vote for populists on the right or left," European Budget Commissioner G?nther Oettinger said.

Oettinger may be right, but it's also possible that Italians are fed up with EU rules after a prolonged period of economic stagnation.

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34. Is The Trump Trade War With China Back On? Not So FastВт., 29 мая[−]

The White House said it will tee up tariffs on $50 billion worth of Chinese imports by June 15, enabling President Donald Trump to swing away shortly thereafter. So is a Trump trade war with China back on?

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Various news reports gave that impression, even though Treasury Secretary Steven Mnuchin said the trade war was "on hold" barely over a week ago. Yet it's a premature conclusion — at best — that the White House is back on a China trade war footing.

President Trump has acknowledged some misgivings with the tentative deal for China to buy more U.S. energy and agricultural goods. Yet he continued to strike a mostly conciliatory tone for the past six weeks. That includes Trump's agreement to lift the effective death sentence for ZTE, the Chinese telecom equipment giant that's been unable to buy key components due to stiff U.S. sanctions.

Trump may be taking a softer line with China to facilitate nuclear diplomacy with North Korea.

So why release news that plans for 25% tariffs on Chinese imports are advancing? Most likely, the Trump administration is letting the wheels of the bureaucracy keep spinning while negotiations proceed with China.

Stocks Not Moving On China

That benign explanation seems to make the most sense and seems consistent with Wall Street's reaction. While the Dow Jones industrial average and S&P 500 both fell broadly Tuesday on Italy concerns, potential victims of a trade war with China weren't notably weak. Deere ( DE), whose fortunes are heavily tied to U.S. agriculture, slipped 2.3%, barely cutting into its big monthlong rally. Meanwhile, Caterpillar ( CAT) lost 1.4%, not much worse than the broad S&P 500. Boeing ( BA) was off just 2.1%. Caterpillar and Boeing are Dow Jones stocks.

Yet even if a tit-for-tat tariff fight doesn't break out, trade tensions are likely to keep building with China and could explode at any time. The Trump administration said that on June 30 it will detail investment restrictions and stronger export controls to keep the Chinese from acquiring key technology.

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35. Fed Sees Next Hike Soon, Signals Modest Inflation Overshoot OKСр., 23 мая[−]

Federal Reserve officials said the economic outlook warranted another interest-rate hike "soon" and signaled they would welcome a modest overshoot of their 2% inflation target, indicating they're in no rush to tighten more aggressively.

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"Most participants judged that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate for the committee to take another step in removing policy accommodation," minutes released Wednesday of the Federal Open Market Committee's May 1-2 meeting said.

A temporary period of inflation "modestly above 2 percent would be consistent with the committee's symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations," according to the minutes.

While the report all but confirms the central bank is track to raise interest rates at their next meeting in June, Fed officials were reluctant to declare victory on achieving their inflation goal on a sustainable basis. At the same time, they flagged potential changes to the statement at future meetings to indicate rates were no longer as stimulative, and discussed adjustments in the rate of interest on excess bank reserves to relieve some pressures in the money markets.

"It was noted that it was premature to conclude that inflation would remain at levels around 2 percent, especially after several years in which inflation had persistently run below the committee's 2 percent objective," the minutes said.

Symmetric Goal

At the meeting, U.S. central bankers left the target range for the benchmark policy rate unchanged at 1.5% to 1.75% after raising rates in March, and inserted a second reference to their "symmetric" 2% inflation goal in the policy statement on their decision.

Investors had already widely expected officials to raise rates when the FOMC meets June 12-13, according to interest-rate futures prices. Policy makers have been split on whether a total of three or four hikes are warranted for the full year.

Financial markets were unsettled in the days running up to the May FOMC meeting amid concerns over a U.S.-China trade dispute, with stock prices falling and 10-year Treasury yield rising toward 3%.

President Donald Trump has threatened tariffs on as much as $150 billion in Chinese imports, with China vowing to retaliate in kind. While the nations announced a truce over the weekend, Trump has since said he wasn't pleased with the trade negotiations, and tweeted Wednesday that the U.S. may need to change the direction of talks to get a final agreement.

Policy makers relayed concerns from regional business contacts who warned of possible adverse effects from tariffs and trade restrictions, such as delays or pullbacks in capital spending.

In addition, "it was noted that the potential for higher Chinese tariffs on key agricultural products could, in the longer run, hurt U.S. competitiveness."

Yield Curve

The minutes showed officials discussed the flattening yield curve, or the shrinking gap between the yields on long-dated Treasury bonds and short-term securities. That spread -- which turned negative in the run-up to every recession in the past 40 years -- has recently narrowed to around the lowest levels since 2007.

While a few policy makers said the yield curve may have become "a less reliable signal of future economic activity," several others stressed that an inverted yield curve has historically "indicated an increased risk of recession," according to the minutes.

Fed officials met after data showed price gains finally hitting their target after undershooting for most of the last few years. New York Fed President William Dudley and San Francisco's John Williams, who'll replace him next month, have both since said they're comfortable with a modest inflation overshoot, signaling no rush to speed up the central bank's gradual pace of policy tightening.

Preferred Measure

Inflation, according to the Fed's preferred indicator, reached 2% in March. Data released two days after the meeting showed unemployment dipped in April to 3.9%, the lowest since 2000, while year-over-year gains in average hourly earnings were steady at 2.6%.

Officials largely viewed the economy as in good shape and anticipated that the first-quarter slowdown in consumer spending would prove temporary, according to the report. A few policy makers "emphasized the need to build additional resilience in the financial sector at this point in the economic expansion," the minutes said, while noting that "leverage in the nonfinancial corporate sector remained elevated."

Separately, Fed policy makers backed potentially making a "small technical adjustment" of setting the interest on excess reserves, or IOER, rate "modestly below" the top of the federal funds target range to help keep the effective fed funds rate "well within" range.

"Many participants judged that it would be useful to make such a technical adjustment sooner rather than later," the minutes said.

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36. Trump Says U.S.-China Trade Deal Could Be 'Too Hard To Get Done'Ср., 23 мая[−]

President Donald Trump said a trade agreement with China may be "too hard to get done" and that the world's two largest economies may need to change their framework for a deal.

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"Our Trade Deal with China is moving along nicely, but in the end we will probably have to use a different structure in that this will be too hard to get done and to verify results after completion," Trump said on Twitter on Wednesday.

Treasury Secretary Steven Mnuchin said on Sunday the administration agreed to put proposed tariffs on hold while it builds on a "framework" for negotiations with China on trade issues, following two days of high level negotiations in Washington. The nations didn't provide any details of the deal and put no dollar target for cutting the trade gap.

U.S. Commerce Secretary Wilbur Ross plans to visit Beijing in early June to work out the details of a broad commitment from China to increase its purchases of American goods -- particularly of energy and farming goods.

Trump threatened tariffs on as much as $150 billion in Chinese imports after U.S. Trade Representative's office earlier this year concluded that Beijing violates American intellectual-property rights. China vowed to retaliate in kind, sparking fear of a trade war.

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37. Why Dow Jones, S&P 500 Stocks May Not Love Trump-China Trade DealПт., 18 мая[−]

News reports, subsequently disputed by China, say Beijing is prepared to meet President Trump's request of ramping up American imports to the tune of $200 billion a year to avert a trade war. A deal could hit Friday with Chinese and U.S. negotiators meeting in Washington. But if that happens, don't expect an extended Wall Street celebration.

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Putting to rest the risk of a China trade war would be great news. Both sides have detailed plans for 25% tariffs on $50 billion worth of imports. U.S. multinationals like Dow Jones stocks Boeing ( BA), Caterpillar ( CAT) and Apple ( AAPL) face even bigger risks from possible nontariff hurdles to China's market. Boeing staged a low-volume breakout Friday while Caterpillar rose modestly. Apple edged lower, still near record highs.

Yet Trump has been signaling for the past month that he has little interest in a trade war with China. If financial markets aren't really bracing for one, no big Dow Jones relief rally is likely. The bigger issue is that the trade deal that Trump is talking about appears likely to exacerbate all the concerns that have been pouring cold water on the stock market's latest rally attempt.

The Downside Of A U.S.-China Trade Deal

A big increase in American exports to China — even one less than half the size of the supposed $200 billion deal — would be like yet-another injection of stimulus into an economy that's already at risk of overheating. A Trump-China trade deal would put more upward pressure on the dollar, on interest rates, on wages and on inflation.

To dramatically cut its U.S. trade surplus, China would have to shift purchases from other foreign countries, economists say. Already the dollar has been rising because U.S. economic prospects and interest rates have firmed relative to those of other economies. Steering more business to the U.S. and less to other nations would hasten the trend.

Trump's priorities appear to be focused on shrinking the China trade deficit and delivering near-term benefits to the U.S. economy. He also may be prioritizing the increasingly uncertain negotiations with North Korea, in which Beijing is seen as a key partner, over trade concerns.

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38. 4 Reasons Why Soaring Treasury Yields Hit Stocks TodayВт., 15 мая[−]

Treasury yields jumped Tuesday morning with a solid retail sales report, but the rout for both bonds and stocks gathered steam. The 10-year Treasury yield vaulted to 3.09%, the highest since 2011, while the Dow Jones, S&P 500 index and Nasdaq composite fell 0.7%-0.8%. Yet better economic growth should mean better earnings, so why did stock investors join in the sell-off?

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Here are 4 reasons why the market reaction raises concern about the outlook for stock investors:

Rising Treasury Yields Signal More Fed Rate Hikes

First, the obvious: Higher rates are a negative for interest-rate sensitive stocks, notably housing and autos. Big homebuilders Lennar ( LEN) and D.R. Horton ( DHI) were among the biggest losers on the S&P 500 on Tuesday.

Next, the Fed: The rise in 2-year Treasury yields came as markets began to price in more-hawkish Fed policy. Now markets see a roughly 55% chance of a fourth 2018 Fed rate hike coming in December, up from less than 40% odds a month ago. San Francisco Fed President John Williams said Tuesday that he sees three or four rate hikes in 2018 as the "right direction."

No Lift For Bank Stocks

On Tuesday, 10-year Treasury yields rose even more than 2-year yields, steepening the slope of the yield curve. That's good for bank net interest margins and explains why Bank of America ( BAC) and Wells Fargo ( WFC) bucked the stock market downtrend and rose modestly on the stock market today.

But, in general, banks have lagged the broader market in recent months as the yield curve has been getting flatter. The flat yield curve seems to reflect concerns that the Fed will overreact to strong growth fueled by a surge in federal tax-cut and spending stimulus this year. The Fed is seen as setting policy too tight once fiscal stimulus starts to wane, setting the economy up for a letdown in the second half of 2019.

Rising Dollar Hits Profits, Emerging Markets

Third, rising U.S. interest rates have been accompanied by an upsurge in the value of the dollar vs. other major currencies. The U.S. dollar index rose about 0.5% on Tuesday, hitting a new high for 2018. The greenback is up about 5% from February lows. That's a pretty big negative for U.S. multinationals that derive much of their sales overseas, because those foreign sales are now worth less in dollar terms.

A strengthening dollar is also a negative for the global economy because emerging-market economies often borrow in dollars. As the dollar rises relative to their home currencies, servicing dollar-denominated debt becomes more difficult. A higher dollar has added to Argentina's mounting problems.

Global Bond Yields Rise

Fourth, higher U.S. interest rates are sapping demand for overseas debt at a time when U.S. borrowing needs are surging due to spiraling deficits and the Federal Reserve's unwinding of financial-crisis-era bond purchases. On Tuesday, bond yields rose across the world, not just in the U.S., which also crimps growths.

The bottom line: Higher U.S. interest rates are tightening financial conditions around the world, a negative for earnings prospects at home and abroad.

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39. Fed Rate-Hike Odds, Treasury Yields Keep Rising On Solid Retail Sales; Stocks FallВт., 15 мая[−]

Retail sales rose 0.3% in April from the prior month, with a 0.3% gain excluding autos, the Commerce Department reported on Tuesday.

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Wall Street economists expected a 0.3% overall gain but a stronger 0.5% rise ex-autos. Factoring out both gas and autos, sales rose 0.3% vs. the 0.4% increase expected.

But the mixed data look stronger when you factor in an upward revision to March's gain, which was bumped up to 0.8% from 0.6%.

After soft retail spending picked up at the end of the first quarter, the data show consumers started the second quarter with fairly solid momentum. After the report, the 2-year Treasury yield rose to 2.56%, the highest since before the financial crisis, while the 10-year Treasury approached 3.05%.

The Dow Jones, S&P 500 and Nasdaq all opened lower.

Odds of four Fed rate hikes in 2018 rose to 55%, according to CME Group's FedWatch page.

In April, nonstore retail sales rose 0.6% on the month and 9.6% from a year ago. Sales at food service and drinking places slipped 0.3% from March while rising 3.8% from a year ago in April.

Sales at building material and garden supplies dealers rose 0.4% in April and 4.4% from a year ago. But shares of home improvement retailer Home Depot ( HD) fell early Tuesday after quarterly sales came in on the light side.

Meanwhile, auto sales rose 0.1% and 4.3% on the year. Sales at clothing and accessory stores rose 1.4% on the month and 4.1% from a year ago.

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40. Bond Markets Send These 2 Gloomy Signals On Fed Rate HikesВт., 15 мая[−]

While President Trump's apparent China trade-war detente grabbed all the headlines on Monday, Treasury yields and Fed rate-hike odds quietly continued their recent surge.

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That may explain why stocks, which rallied early after Trump's Sunday tweet called for a rescue of Chinese telecom gear giant ZTE, had trouble staying positive. The S&P 500 briefly turned negative before the blue-chip index clawed out a 0.1% gain. The Dow Jones and Nasdaq composite also settled with slim advances.

The two-year Treasury yield, which hit a new post-financial-crisis high of nearly 2.55% on Monday, has kept marching higher despite some market-friendly economic data. Meanwhile, the 10-year Treasury yield rose to 3.0%, a level first breached in late April.

Two data points this month had seemed to set Wall Street up for a monthlong reprieve from Fed rate-hike worries. First, average hourly wages grew a disappointing 2.6% vs. a year ago in April. Then core consumer price inflation unexpectedly held steady at 2.1%.

Perhaps even more important, the Federal Reserve began to send a more forceful message that it won't overreact when inflation creeps above its 2% target, as most expect it will.

Bond Market Sends Two Grim Messages

Nevertheless, odds of a fourth rate hike this year climbed to 51%, up from less than 40% a month ago, according to the CME Group FedWatch page.

The message from the bond market is that there will be no reprieve about Fed concerns anytime soon. One possible contributor to the steadily rising market rates is spiraling federal borrowing needs, even as the Federal Reserve reverses some of its financial-crisis-era bond purchases in a move dubbed quantitative tightening.

The bond market is sending a second message: Even if the Fed doesn't overreact to inflation data, its current rate-hike trajectory may be too aggressive. And some economists think the Fed's current rate-hike intentions already are. The Fed is pulling away monetary stimulus amid a surge in fiscal stimulus this year. But as federal stimulus starts to wane, the economy is due for a letdown in the second half of 2019.

The expectation of strong growth now and a soft patch around the corner explains the narrow gap between the 10-year Treasury and two-year Treasury yields of about 45 basis points.

Yield Curve Bad For Banks

The flat yield curve is bad for banks' net interest margins, since banks borrow at long-term rates and lend at short-term rates. That's why both homebuilders, which thrive on low interest rates, and banks, which can benefit from rising rates, are among the market's biggest laggards.

IBD's Building-Residential/Commercial industry group has sunk to 182 out of 197 industries based on stock performance. Shares of Lennar ( LEN), the largest U.S. homebuilder, have tumbled 25% from their January high. Meanwhile, the Banks-Money Center group — which includes JPMorgan Chase ( JPM), Bank of America ( BAC), Citigroup ( C) and more — has slid to No. 148.

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The post Bond Markets Send These 2 Gloomy Signals On Fed Rate Hikes appeared first on Investor's Business Daily.


41. Trump Gave Up His Best Leverage In China Trade Talks — For Beans?Пн., 14 мая[−]

President Donald Trump's No. 1 rule for making deals is to always come to the table with leverage. But on Sunday, Trump tweeted that he would give up perhaps his biggest leverage in trade talks with China: sanctions on Chinese telecom equipment giant ZTE that amounted to a death sentence.

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So what did Trump get in return for letting ZTE off the hook for violations that included defying a ban on sales to Iran and North Korea? Far from hacking $100 billion to $200 billion from the U.S. trade deficit with China, as Trump had demanded, the deal reported to be emerging would mostly restore the status quo before trade tensions erupted in March.

Since then China has put the brakes on purchases of U.S. soybeans, even before it was set to impose 25% tariffs in retaliation for Trump's threatened tariffs on $50 billion worth of mostly high-tech imports from China. Meanwhile goods from pork to Ford ( F) cars have piled up at Chinese ports amid tighter inspections meant to punish U.S. producers.

China Calls Trump's Trade Bluff

Beijing made a bet that the U.S. wouldn't be able to endure tariffs aimed at U.S. farmers, with an eye on punishing Republicans at the polls in November. It appears, at the moment, that Beijing's calculation was on the money. When China first detailed its plan to match Trump's tariffs blow for blow, Trump threatened to impose tariffs on an additional $100 billion worth of Chinese goods, but that now looks like mere bluster.

Stock Market Rallies As Trade War Fears Ease

Stock market investors viewed the trade developments as good news, diminishing economic risk. The S&P 500, Dow Jones and Nasdaq composite slashed moderate gains to close slightly higher on the stock market today, China wasn't to blame. Qualcomm ( QCOM), a key beneficiary of Trump's latest deal making, held onto early gains, rising 2.7%.

Beijing said it would restart its regulatory review Qualcomm's pending purchase of NXP Semiconductors ( NXPI) after earlier halting that process. That suspension followed Trump's move in March to block Singapore-based Broadcom ( AVGO) from buying Qualcomm. NXP rose 12% on Monday.

Both China and the U.S. are focused on which country's tech firms will develop next-generation 5G wireless network systems. Collaboration increasingly seems to be off the table. The U.S. also is said to be investigating Chinese communications equipment giant Huawei for violating U.S. sanctions policy.

Trump tweeted that he was working with Chinese President Xi Jinping to give ZTE "a way to get back into business, fast," after the Chinese mobile-phone company halted operations due to U.S. sanctions that kept it from buying key components from U.S. suppliers.

U.S. optical components makers that are big ZTE suppliers rallied Monday. Acacia Communications ( ACIA), Lumentum Holdings ( LITE) and Oclaro ( OCLR), which had sold off April 16 on the ZTE ban, were winners Monday, but off session highs.

North Korea Gambit?

One more possible explanation for Trump's dramatic ZTE reversal: He may be putting his North Korean diplomatic initiative ahead of trade goals and is working to shore up Beijing's support.

Jefferies economist Ward McCarthy called the softening of the U.S. position on ZTE "an encouraging development." "It suggests that the U.S. and China are both making progress on trade talks and trying to find ways for both sides to be able walk away from the table and claim that they won concessions, saving face in the process," he wrote.

Yet Trump's comments about letting ZTE off the hook because "too many jobs in China" were at stake prompted something of a backlash. Sen. Marco Rubio, R-Fla., responded that the "Problem with ZTE isn't jobs & trade, it's national security & espionage."

On Monday, Trump defended his ZTE reversal, noting the impact on U.S. companies and the "larger trade deal" being worked on with China.

Last month, the Pentagon banned sales of handsets from ZTE and Chinese communications-equipment giant Huawei on military bases, saying they represented a potential national security threat.

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42. Consumer Prices Tame On Cheaper Cars, Airfares, Easing Inflation FearsЧт., 10 мая[−]

U.S. consumer prices rose by less than forecast in April as costs for automobiles and airfares declined, reducing chances that inflation will run significantly above the Federal Reserve's target in coming months.

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The consumer-price index advanced 0.2% from the prior month after a March decline of 0.1%, a Labor Department report showed Thursday, compared with the Bloomberg survey median of a 0.3% gain. Excluding food and energy, the core gauge was up a below-forecast 0.1% from March — the least since November — and 2.1% from a year earlier, compared with projections for 2.2%.

Prices for used cars had the biggest monthly drop since 2009 and airfares fell the most in four years. The report suggests inflation isn't flaring up in a way that would be troublesome for policy makers, despite higher freight costs, a tight labor market and tariffs that are burdening businesses. The Fed is projected to raise rates in June for the second time this year after its preferred gauge of inflation — a separate consumption-based figure — reached its 2% goal in March.

While rising gasoline prices are pinching Americans' wallets, fuel is providing only a modest boost to the broad CPI, which rose 2.5% in April from a year earlier. Seasonally adjusted gas prices rose 3% in April from the previous month after a 4.9% drop in March, according to the report.

The core CPI reading brought the three-month annualized gain to 1.8%, the lowest since July, after 2.9%.

The shelter category rose 0.3% from the prior month after a 0.4% gain. Owners-equivalent rent, one of the categories designed to track rental prices, advanced 0.3%. Hotel and motel rates, which had posted an outsize gain in March, rose 0.8% in April.

Investors see the Fed as on track to raise interest rates at its June meeting, with policy makers expecting one or two more additional hikes in 2018. The unemployment rate fell to 3.9% in April, the lowest since late 2000, signaling the central bank is near its goal of maximum employment.

Commerce Department figures released April 30 showed the Fed's separate preferred gauge of inflation met policy makers' 2% target in March for the first time in a year. The preferred core index, seen by officials as a better gauge of underlying inflation trends, was up 1.9% from March 2017.

Wages, which feed into inflation pressures, are growing only moderately even as the job market is tight. A separate report released Thursday by the Labor Department showed average hourly earnings adjusted for inflation rose 0.2% from April 2017.

Other CPI Details

  • Energy prices rose 1.4% from the previous month after a 2.8% decline.
  • Food costs advanced 0.3% after 0.1% gain.
  • Costs for new vehicles fell 0.5% after being unchanged the prior month; used-vehicle prices dropped 1.6%, most since March 2009, following a 0.3% decline.
  • Airfares fell 2.7%, most since January 2014.
  • Apparel prices increased 0.3% after falling 0.6%.
  • Expenses for medical care rose 0.1%. These readings often vary from results for this category within the Fed's preferred measure of inflation due to different methodologies.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60% of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.

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43. The Big Squeeze: New Risks For Fed Interest Rates, Recession And Yield CurveСр., 09 мая[−]

Goldilocks has left the building. For proof, just look at interest rates. The 10-year Treasury yield eclipsed 3% in late April for the first time in four years, hitting the S&P 500, Dow Jones and Nasdaq. Clearly, the not-too-hot/not- too-cold economy that supported the nine-year bull market for stocks has fundamentally changed. On Wednesday, the 10-year yield again hit 3%.

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To some extent, that's good: Higher interest rates largely reflect faster economic growth, unemployment headed to a multidecade low and wage gains that are slowly picking up.

Yet financial markets are sending the message that this good news comes with a growing risk of a squeeze on the economy from several directions. First, higher goods and wage costs will squeeze corporate profits. Caterpillar ( CAT) warned recently that the first quarter was the "high-water mark" for operating margins, and profit pressures already are hitting other companies ranging from airlines to packaged food. Second, higher interest rates will squeeze corporate and household borrowers. Rising rates also could squeeze stock prices as investors opt for higher returns from risk-free short-term government bonds.

Yet by far the biggest risk is that policymakers will go overboard. Fed rate hikes to counteract a temporary growth spurt from new tax cuts and government spending could push the economy into a recession if they go too far.

For the stock market, the most obvious sign of peril is the hit to the S&P 500 index, Nasdaq composite and Dow Jones industrial average since late January. But worrisome signs lurk in the details. Both homebuilders, which thrive on low interest rates, and banks, which can benefit from rising rates, are among the market's biggest laggards.

10-Year Treasury Yield: Impact On Banks

IBD's Building-Residential/Commercial industry group has sunk to 176 out of 197 industries based on stock performance. Shares of Lennar ( LEN), the largest U.S. homebuilder, have tumbled from their January high. Meanwhile, the Banks-Money Center group, which includes JPMorgan Chase ( JPM), Bank of America ( BAC), Citigroup ( C) and more, has slid to No. 158.

While the latest data point to a robust housing market, there's no mystery about why housing stocks have tumbled as the 10-year Treasury yield pushes up mortgage rates. But what about the recent underperformance vs. the S&P 500 from banks such as JPMorgan Chase and Bank of America? While higher interest rates have grabbed the headlines, the more ominous signal is the flattening Treasury yield curve. Over the past year, the gap between the 2-year Treasury yield and 10-year Treasury yield has been cut by more than half. The yield curve is at its flattest levels since the lead-up to the 2007 recession.

Treasury Yield spread narrows, yield curve flattensHigher interest rates boost profits for Bank of America, Citigroup and others when the longer-term rates at which they lend increase more than the short-term rates at which they borrow. But the opposite has been happening, so even bank profits are getting squeezed. Two-year yields have climbed with the Fed's overnight rate and expectations of future hikes. But the 10-year yield's rise has lagged. Investors aren't demanding a big long-term premium, which suggests mild growth expectations beyond two years. The 2-year yield has hit its highest rates since August 2008, squeezing the spread between the 2- and 10-year yields.

By the second half of 2019, an economy that the Fed worries is at risk of overheating could hit a soft patch as stimulus levels off. Overly tight Fed policy that raises borrowing costs could turn that soft patch into a ditch.

Treasury Yield Curve Is 'Yellow Light Flashing'

Fed policymakers today are focused on overheating risks, while overlooking the likely slowdown. The Fed's latest projections, issued when the Fed hiked rates in March for the first time this year, penciled in two more rate hikes in 2018, three in 2019 and still two more in 2020. That would lift the Fed's benchmark rate from 1.62% now all the way to 3.375%. If that happens, the 10-year yield could head for 4% and the 30-year fixed-rate mortgage might near 6%.

The bond market's reaction to the more hawkish Fed outlook was swift. Within a week, the spread between the 2- and 10-year Treasury yield narrowed to less than 50 basis points, then fell to as little as 40 basis points in mid-April. The spread is around 47 basis points in the stock market today, with the 2-year yield at 2.53% and the 10-year at 3%.

Neel Kashkari, the dovish president of the Minneapolis Federal Reserve, called the flatter yield curve a "yellow light flashing" a heightened risk of a recession. His take-away: The Fed "may not be that far away from neutral," a rate that neither boosts nor restrains economic growth.

10-Year Treasury Yield Forecast And Recession Risk

"We are clearly more concerned than the Fed" about the economic outlook for 2019, wrote Harm Bandholz, chief U.S. economist at UniCredit Bank. "As the impact of the (tax cut and spending) stimuli fades, growth rates should begin to slow perceptibly around the middle of the year, before slowing further into 2020."

Dec Mullarkey, managing director of investment research at Sun Life Investment Management, told IBD that he expects the 10-year Treasury yield to rise to 3.5% within a year as the Fed follows a path of accelerated tightening. He predicts one rate hike per quarter through 2019, "which ultimately will lead to recession" in 2020.

Fed Interest Rates Vs. Fiscal Stimulus

To be fair, new Fed Chairman Jerome Powell faces an unprecedented policy challenge. Fiscal stimulus has always been ordered up during a recession or at the start of a recovery. This time, President Trump and Congress are delivering a double dose deep into the expansion, when growth is firm and labor markets tight. To top it off, the deficit financing used to pay for stimulus, which will exacerbate what most economists see as an unsustainable fiscal path, has added to upward pressure on interest rates.

Now the Fed's challenge just got even harder. Core consumer price inflation ticked up to 2.1% in March. The Fed's preferred inflation gauge, the core personal consumption price index, rose to 1.9% in March. That's just below the central bank's 2% target.

Average hourly wage growth ticked up to 2.7% in March and will likely head higher in the next few months. CVS Health ( CVS), Starbucks ( SBUX) and Target ( TGT) all announced pay hikes effective this spring. CVS raised its minimum wage to $11 an hour and Target to $12. They are among dozens of major companies that announced wage increases in the wake of corporate tax cuts passed in December.

As core inflation edges past the Fed's target and the jobless rate falls below 4%, standing pat would go against policymakers' deepest instincts.

Fed Rate Hike 'Feedback Loop'

Bandholz expects cooler heads to prevail, with the Fed hiking rates just once in 2019 as data point to a slowdown. But Mullarkey notes that the data "feedback loop is not instantaneous." By the time the Fed recognizes that a soft patch has arrived, a recession may be a fait accompli.

Even if the Fed does shift gears a year from now, false expectations come at a cost today. If policymakers are determined to stick to a path of steady Fed rate hikes, they could dampen the dynamic impact of lower taxes by adding to the growing and unsustainable federal debt burden.

The more future Fed rate hikes that markets price in, the more federal borrowing costs will rise. As the government borrows more to service debt with higher interest rates, borrowing costs for businesses and individuals will face more upward pressure.

10-Year Treasury Yield And Balance Sheet 'Bad Timing'

Deutsche Bank estimates that U.S. Treasury issuance will soar from $1 trillion in 2017 to $1.5 trillion this year and $2.3 trillion next. The surging federal deficit is the main culprit. The Fed will add to the debt pileup as it offloads about $180 billion in government bonds this fiscal year.

The Fed set its plan last fall for quantitative tightening, reversing bond buys made to aid the tepid recovery from the financial crisis. Newly passed tax cuts and spending hikes make those balance sheet reductions look like "bad timing," Mullarkey says.

Corporations carry a record $8.8 trillion in debt that will be more costly to refinance, working at cross-purposes with the tax-cut stimulus.

Meanwhile, higher U.S. interest rates have begun to push up the dollar. That acts to tighten financial conditions not only at home but in developing economies where companies often borrow in dollars.

"The risk in all this is a scenario where economic growth doesn't pick up as the supply-siders expect it to but interest rates move higher as a result of the larger federal deficits and the perception that Trump's fiscal stimulus might boost inflation," wrote Ed Yardeni, the veteran Wall Street economist who now runs Yardeni Research.

That may not happen, but Yardeni sees little evidence that corporations are putting their tax windfalls to work in the real economy: "We are waiting to see some signs that the supply-siders are on the right track. We aren't seeing any yet, though it has been only four months into the Trump tax cuts."

Flatter Yield Curve And Stock Market

Stock market history suggests investors shouldn't worry right away about a flatter yield curve, LPL Financial strategists John Lynch and Ryan Detrick write. "When looking back at the previous five recessions, once the yield curve hit 0.50%, it took a median of nearly a year before the curve inverted," they note.

An inverted yield curve, meaning long-term bond yields fall below short-term yields, is a reliable predictor of recession. Yet recessions typically haven't begun until 20 months after the yield curve inverts.

Also, Lynch and Detrick note, the S&P 500 has enjoyed a median 21.5% gain after the Treasury yield spread narrows to 50 basis points.

The problem with counting on that history is that the Fed faces unusual late-cycle stimulus at a time that federal debt has begun an unprecedented spiral upward.

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The post The Big Squeeze: New Risks For Fed Interest Rates, Recession And Yield Curve appeared first on Investor's Business Daily.


44. IBD/TIPP Poll: Economic Optimism Index For May 2018Вт., 08 мая[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

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The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.4, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

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IBD/TIPP Economic Optimism Index: Overall

The IBD/TIPP Economic Optimism Index rose 1.9% in May to 53.6 from 52.6 in April, reversing two monthly declines. In February, the index hit its highest reading since October 2004. It's the 20th straight month that it has been over 50 — which signals overall optimism about the economy. It is also above its long-term average of 49.4. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index rose 3.2% in May to 51.3 after dropping 6% in April and 8% in March. The volatile gauge surged 11.4% in January. The reading for this index remains in optimistic territory and well above its long-term average of 46.3. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months inched up 0.5% to 61.0 in May from 60.7 in April, it dropped 4.9%. The index's all-time high of 65.3 was set in January 2004, when the Bush-era tax cuts began to kick in. The Personal Financial Outlook is one of the most consistently optimistic indexes in the IBD/TIPP data set. It remains above its long-term average of 57.1.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component increased 2.3% in May to 48.5 from 47.4 in April, but was still below its level of 50 in March. It remains above its 17-year average of 44.8. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years, and in March returned to the feel-good zone. But it subsided during recent budget and gun-control debates. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

RELATED:

Main IBD/TIPP Poll Page

IBD/TIPP Presidential Approval Index

IBD/TIPP Election 2016 Tracking Poll

Past Results

April 2018

March 2018

February 2018

January 2018

December 2017

November 2017

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

January 2017

December 2016

Media Contact

Terry Jones
Investor's Business Daily Commentary Editor
terry.jones@investors.com | 310.448.6377

Marisa Lam
GMK Communications
marisa@gmkcommunications.com | 650.232.7188

The post IBD/TIPP Poll: Economic Optimism Index For May 2018 appeared first on Investor's Business Daily.


45. IBD/TIPP Poll: Investors Are Optimistic; Everyone Else? Not So MuchВт., 08 мая[−]

The IBD/TIPP Economic Optimism Index rose further into moderately optimistic territory in May, gaining one point to 53.6. But the positive vibes came mostly from self-described investors. The rest of the country was slightly pessimistic, with the index registering at 49.9, just below the neutral 50 level.

Optimism and pessimism also were linked to income levels in May. Americans earning at least $50,000 were optimistic (53.3) and those earning more than $75,000 even more so (59.6). Yet Americans earning less than $50,000 were somewhat pessimistic (48.9 or lower).

The stabilizing stock market may have helped perk up investors' mood over the past month. Apple said it would buy back $100 billion in stock and boost dividend payments thanks at least in part to the recent corporate tax cut. Apple ( AAPL) stock skyrocketed last week, pushing the Nasdaq above its 50-day line, while the Dow Jones and S&P 500 index found support at the 200-day line.

On a similar note, the National Federation of Independent Business said Tuesday that a record share of small businesses reported improving profits in the 45-year history of its monthly survey.

While perceptions of the Trump tax reform may change over time, the IBD/TIPP Poll results gibe with other surveys suggesting most people haven't noticed their tax cut in their paychecks via lower withheld federal income taxes.

The IBD/TIPP Poll reflects 900 responses collected from April 26 to May 4. The drop in the jobless rate to 3.9% in April didn't make news until the final day of polling.

Americans Upbeat About Economic Outlook

The Economic Optimism Index is a composite of three major subindexes.

The six-month economic outlook gauge rose 1.6 points to 51.3, back into optimistic territory. That's well below the readings that topped 55 in the two months after President Trump signed the tax cuts into law in December.

The six-month personal financial outlook index ticked up three-tenths of a point to 61, still below January's 14-year high of 64.

Meanwhile, the measure of confidence in federal economic policies rose 1.1 points to 48.5. The gauge has only cracked into optimistic territory in a single month since 2007, during the brief honeymoon after Donald Trump's election.

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The post IBD/TIPP Poll: Investors Are Optimistic; Everyone Else? Not So Much appeared first on Investor's Business Daily.


46. Jobless Rate Sinks To 3.9% But Weak Wage Growth Saves Dow JonesПт., 04 мая[−]

The economy added 164,000 jobs in April as the jobless rate fell to 3.9%, the lowest since 2000. Yet wage growth, the key number for stock market investors on edge about more Fed rate hikes, surprised on the downside, coming in at 2.6%.

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The jobs and wage data slightly lowered odds of four Fed interest-rate hikes in 2018, which should be positive for the stock market. The data didn't initially provide much of a boost. The Dow Jones industrial average, S&P 500 index and Nasdaq composite opened moderately lower after the jobs data, but the major market indexes staged a midmorning rally, fueled by Apple ( AAPL). The Nasdaq led the way into positive territory, soon followed by the Dow Jones and S&P 500.

Wall Street expected 191,000 new jobs, 4.0% unemployment and a 2.7% annual rise in average hourly wages. Yet the undershooting on two of three key jobs metrics may make the job market look less robust than it is.

First, job gains in the prior two months were revised up by a combined 30,000, leaving the 3-month average at a rock-solid 208,000.

Further, Jefferies economist Thomas Simons noted that wage growth is sometimes depressed in months that the Labor Department's survey of businesses doesn't include the 15th of the month, which occurred in April. If that's the case, wage growth could take a leap in May. However, March's wage gain was also revised down, from 2.7% to 2.6%.

Jim Baird, chief investment officer for Plante Moran Financial Advisors, noted that other gauges of wage growth have pointed to stronger gains. The Employment Cost Index released last week showed that private-sector wages and salaries grew 2.9% from a year ago in March.

Treasury Yields Fall, Narrow

After the jobs data, the 10-year Treasury yield eased to 2.935% while the 2-year yield, which more closely tracks Fed rate expectations, held around 2.49%. The narrow spread between long-term and short-term interest rates may reflect concerns that the Fed will hike rates too much in the near term as the economy gets a boost from tax-cut and spending stimulus, leading to an economic letdown.

The stakes have increased for each jobs report as inflation has picked up close to the Fed's target 2% and interest rates have hit multiyear highs. The combination of low and falling unemployment with accelerating wage gains would fit perfectly with the Phillips curve theory that has long guided Federal Reserve policy. For investors, the key point is that most Fed policymakers still seem confident that inflation pressures won't lag too far behind wage pressures, as businesses pass along a portion of their higher wage bills.

To some extent, it's already happening as the Fed's favored gauge of core inflation hit 1.9% in March. Meanwhile, Wall Street has bumped up odds for a fourth rate hike this year to about 40%. Still, the Fed signaled on Wednesday that it won't be overly concerned if inflation rises a bit above 2% for a few months.

Big Retailers Hike Wages

There's good reason to expect a further pickup in wage growth in coming months. A host of large companies including CVS Health ( CVS), Starbucks ( SBUX) and Target ( TGT) have announced wage hikes rolling out this spring that may start to show up in Friday's report.

This year is beginning to look lot like 2016, when wage gains accelerated into summer after Walmart ( WMT) hiked its base wage to $10 an hour. Then Target, Costco ( COST) and others followed. Walmart's minimum wage hike to $11 an hour has contributed to the same kind of dynamic early this year. Target subsequently hiked its base pay to $12 an hour and CVS to $11 an hour.

And as those companies hike wages, their competitors are being pressured to do the same. In March, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

What's different from 2016 is that now the jobless rate is nearly a percentage point lower, meaning more competition for workers. On top of that, numerous companies announced wage hikes in the wake of tax reform.

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The post Jobless Rate Sinks To 3.9% But Weak Wage Growth Saves Dow Jones appeared first on Investor's Business Daily.


47. April Jobs Report: Brace For Faster Wage Growth, More Fed Rate-Hike FearsПт., 04 мая[−]

Wall Street expects the April jobs report to show the economy added 191,000 new jobs last month as the unemployment rate fell to 4% for the first time since 2000. Yet for stock market investors on edge over Fed rate-hike plans, wage growth is the key number. There's a good chance it will surprise on the upside.

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Economists expect average hourly wage growth of 2.7% from a year earlier, same as in March. Yet a host of large companies including CVS Health ( CVS), Starbucks ( SBUX) and Target ( TGT) have announced wage hikes rolling out this spring that may start to show up in Friday's report.

This year is beginning to look lot like 2016, when wage gains accelerated into summer after Walmart ( WMT) hiked its base wage to $10 an hour. Then Target, Costco ( COST) and others followed. Walmart's minimum wage hike to $11 an hour has contributed to the same kind of dynamic early this year. Target subsequently hiked its base pay to $12 an hour and CVS to $11 an hour.

And as those companies hike wages, their competitors are being pressured to do the same. In March, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

What's different from 2016 is that now the jobless rate is nearly a percentage point lower, meaning more competition for workers. On top of that, numerous companies announced wage hikes in the wake of tax reform.

The likely combination of low and falling unemployment with accelerating wage gains would fit perfectly with the Phillips curve theory that has long guided Federal Reserve policy. For investors, the key point is that most Fed policymakers still seem confident that inflation pressures won't lag too far behind wage pressures, as businesses pass along a portion of their higher wage bills.

To some extent, it's already happening as the Fed's favored gauge of core inflation hit 1.9% in March. Meanwhile, Wall Street has bumped up odds for a fourth rate hike this year to more than 40%.

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The post April Jobs Report: Brace For Faster Wage Growth, More Fed Rate-Hike Fears appeared first on Investor's Business Daily.


48. Dow Jones Whipsawed As China Trade War, Trump Impeachment Fears RiseЧт., 03 мая[−]

Wall Street got a break from Fed rate-hike worries on Thursday for a change. But the Dow Jones industrial average couldn't catch a break amid a new outbreak of concern about a China trade war and a growing sense that a messy impeachment fight for President Trump could be in the cards.

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The Dow Jones industrial average, S&P 500 and Nasdaq composite all fell sharply in morning trade on Thursday, before staging an afternoon recovery. The Dow Jones roared back from down nearly 400 points to close with a whisper-thin gain. The S&P 500 index rebounded from below its 200-day moving average to end with modest losses. Meanwhile, the safety bid sent gold prices higher and Treasury yields lower.

Treasury Secretary Steven Mnuchin, arriving in Beijing with a team of negotiators, was greeted by news that China has stopped buying soybeans from U.S. producers.

China warned last month that it will retaliate against U.S. farmers if President Trump makes good on his threat to impose 25% tariffs on $50 billion worth of mostly high-tech Chinese imports.

But Trump's decision on whether to follow through on that threat isn't due until next month. The takeaway is that China looks unlikely to yield to U.S. threats and thinks it can take advantage of Trump's political vulnerabilities.

Trump Impeachment At Least 50% Odds

Meanwhile, Horizon Investments strategist Greg Valliere, who has long tracked political developments for Wall Street, wrote Thursday that he now sees at least 50% odds that Trump will face House impeachment in early 2019. Odds of removal from office are still low, but rising, he wrote.

Valliere said he changed his assessment after several recent developments: The leaked questions that Special Counsel Robert Mueller wants to ask Trump include many about Trump campaign dealings with Russia. Trump just dismissed his top attorney, Ty Cobb, who wanted his client to cooperate with the Mueller probe. And now Rudy Giuliani, who has joined the Trump legal team, said that Trump repaid Michael Cohen for the $130,000 hush-money payment to Stormy Daniels just before the election.

Unlike the Clinton impeachment, the stock market would seem to have a big stake in a potential Trump impeachment. Not least, the 21% corporate tax rate could be low-hanging fruit for a future Democratic president with new spending priorities to fund.

China Presses Trump On Trade

Valliere thinks the stock market can surmount impeachment fears, but he adds that trade war and Fed rate-hike concerns make for a pretty serious wall of worry.

Shares of U.S. agribusiness Bunge ( BG) fell 3.5% after Bloomberg reported comments from the company's CEO saying that China has shifted soybean purchases to Canada and Brazil, at least temporarily.

Trump has taken a softer tack toward China in recent weeks. Late Wednesday, he tweeted about his good relationship with Chinese President Xi Jinping while noting negotiations to create "a level playing field on trade." A few weeks earlier, Trump tweeted that he was "very thankful" for Xi's speech offering concessions on trade, even as China said nothing new was offered.

Given the tone set by Trump and his political interest in avoiding tit-for-tat tariffs that undermine his support in the Midwest, a full-fledged trade war with China continues to look unlikely. However, a cold war over trade could happen and isn't without risk for investors.

Just as U.S. soybean purchases were halted without announcement or the imposition of tariffs, China could quietly target companies like Dow Jones components Boeing ( BA) or Caterpillar ( CAT). A cold war may already be on in advanced technology sectors. After the U.S. blocked Broadcom ( AVGO) from buying Qualcomm ( QCOM) because of its ties to Chinese telecom firms, China retaliated by delaying Qualcomm's acquisition of NXP Semiconductors ( NXPI).

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49. No Fed Rate Hike, But Here's Why The Dow Jones Can't Get A Head Of SteamСр., 02 мая[−]

The Fed meeting ended with no rate hike, as expected. The no news briefly boosted stocks, but they quickly reversed lower. Higher interest rates, inflation and the dollar won't let the Dow Jones and the broader stock market snap out of their recent funk.

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Wall Street expected the Fed statement to recognize that the pickup in core inflation has suddenly brought it close to the 2% inflation target. The Commerce Department reported Monday that the core personal consumption expenditures price index, which excludes food and energy, rose 1.9% from a year ago in March.

"On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2%," the Fed statement said. The Fed also signaled it was willing to let inflation rise above 2%, stating that it's a "symmetric" target.

With no press conference or update of policymakers' economic projections, any hawkish or dovish shift won't be known until Fed meeting minutes come out on May 23.

Despite healthy earnings from Apple ( AAPL), the Dow Jones industrial average and S&P 500 index were both close to the flat line just before the Fed meeting announcement, while the Nasdaq composite was barely higher. Apple is the largest component of the Dow Jones, S&P 500 and Nasdaq.

After the 2 p.m. ET announcement, the Nasdaq expanded modest gains, but only briefly. Heading into the close, the Nasdaq fell 0.4%. The Dow Jones and S&P 500, after briefly turning positive, fell 0.7%. All finished near session lows.

Investors won't get much of a reprieve from Fed rate-hike concerns. The Labor Department's April employment report out on Friday is expected to show that the jobless rate fell to 4.0% last month. Average hourly wage growth above the 2.7% expected also is a threat, with major employers like CVS Health ( CVS), Target ( TGT) and Starbucks ( SBUX) announcing that wage hikes would take effect this spring.

Dollar Weighs On Dow Jones Stocks

The latest culprit for the sluggish stock market is the dollar. The U.S. dollar index hit a new high for the year on Wednesday, continuing its recent resurgence against other major currencies. The greenback's roughly 3% rise since the end of March will have a dampening effect on earnings for U.S. multinationals with broad international exposure like Dow Jones stocks Caterpillar ( CAT), Boeing ( BA) and Merck ( MRK). Earnings in foreign currencies are worth less in dollar terms when the dollar strengthens.

The dollar's strength stems from the pickup in inflation and growing expectations that the Fed will hike rates four times this year. Meanwhile, central banks in Europe and Japan are in no rush to tighten. The widening gap between interest rates in the U.S. and overseas has made the dollar more of a draw.

Interest Rates Rising, Narrowing

Higher interest rates and inflation also could squeeze earnings in coming quarters. Higher interest rates also raise borrowing costs for consumers and businesses and can crimp the affordability of major purchases like autos and housing. Further, two-year Treasury yields have climbed more than 10-year yields, and the flatter yield curve pinches net interest margins for the likes of JPMorgan Chase ( JPM) and Bank of America ( BAC).

After the Fed meeting, the 10-year yield was at 2.972%, while the two-year was at 2.496%. Those were little changed, but the yield spread is near its lowest level in years.

Meanwhile, more companies are beginning to note profit-margin pressure from rising input costs, higher fuel and transportation costs, and rising wages.

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50. As Fed Meets, Rising Rates And Dollar Hit Dow Jones Average, S&P 500Вт., 01 мая[−]

As Fed policymakers began a two-day meeting on Tuesday, the two-year Treasury yield touched its highest level since 2008 and the dollar rose to its highest point all year.

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With fears of a trade war receding, the dollar has surged over the past month. The greenback also has gotten a boost as inflation picks up and expectations grow that the Fed will hike rates four times this year. Meanwhile, central banks in Europe and Japan are in no rush to tighten, so further dollar gains are a fair bet.

Those three trends — higher interest rates, inflation and the dollar — could squeeze earnings in the second quarter and beyond. Those concerns contributed to a bad day for the Dow Jones industrial average and S&P 500 index. In midafternoon trading, the Dow was off 1.4% and the S&P 500 was down 0.8% on the stock market today.

Earnings in foreign currencies are worth less in dollar terms when the dollar strengthens. That's a negative for U.S. multinationals like Caterpillar ( CAT), Boeing ( BA) and Merck ( MRK) as the dollar turns from tailwind to headwind.

Caterpillar lost 2.8%, Boeing 2.6% and Merck 3.3%.

Higher interest rates also raise borrowing costs for consumers and businesses and can crimp the affordability of major purchases like autos and housing. Ford Motor ( F) reported a 5% drop in auto sales in March, though Fiat Chrysler ( FCAU) saw surging Jeep sales.

Ford fell 1% and Fiat Chrysler dropped 1.2%.

Further, two-year Treasury yields have climbed more than 10-year yields, and the flatter yield curve pinches net interest margins for the likes of JPMorgan Chase ( JPM) and Bank of America ( BAC).

JPMorgan slipped 0.9% and BofA shed 0.8%.

Meanwhile, more companies are beginning to note pressure on profit margins from rising input costs, higher fuel and transportation costs, and rising wages.

No fireworks are expected from Wednesday's policy statement at 2 p.m. ET. The Fed is virtually certain to maintain its key interest rate. The next quarterly press conference from Fed Chair Jerome Powell and update of economic projections won't happen until June.

The two-year yield rose as high as 2.52% on Tuesday, the highest since the month before Lehman Bros. went bust, before pulling back to 2.50%. Meanwhile, the 10-year yield that helps determine mortgage rates ticked up to 2.96%. That sub-50-basis-point spread suggests markets are beginning to worry that the Fed will go overboard in hiking rates in the face of temporary tax-cut and spending stimulus.

The U.S. dollar index, which tracks the greenback against a basket of advanced economy currencies, rose as high as 92.57 on Tuesday, up more than 0.5%. The U.S. dollar index has spent much of the year below 90.

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51. U.S. Factory Gauge Dips To Nine-Month Low As Inflation Heats UpВт., 01 мая[−]

U.S. manufacturing expanded last month at the slowest pace since July, while prices paid for materials continued to accelerate amid supply constraints and tariff concerns, data from the Institute for Supply Management showed Tuesday.

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Highlights of ISM Manufacturing (April)

  • Factory index fell to 57.3 (est. 58.5) from 59.3; readings above 50 indicate expansion
  • Measure of production declined to 57.2 from 61; lowest level since November 2016 and biggest drop in a year
  • Prices-paid gauge rose for fifth consecutive month to 79.3, the highest since April 2011, from 78.1
  • Employment gauge dropped for a second month, to 54.2 from 57.3; matches lowest since May 2017

Key Takeaways

The results included signs that factories are having trouble keeping up with demand. A measure of order backlogs was the highest in almost 14 years, and delivery times lengthened to match the second-longest since March 2010. The gauges for new orders and production weakened for a fourth straight month.

Even with the April decline, the main index is close to the 57.9 average since January 2017 and is consistent with solid-but- moderating activity. Trump administration policies have created both tailwinds and headwinds for manufacturers: Tax cuts are expected to underpin demand, while materials costs are accelerating, partly from supply-chain disruptions stemming from tariffs on imported steel and aluminum. Energy costs are also on the rise, with oil reaching a three-year high last month.

Economists taking note of the softer ISM factory payrolls index may nonetheless wait for its services counterpart before tweaking forecasts for April employment. The group's non- manufacturing survey data are due Thursday, a day before the Labor Department's jobs report.

Other Details

  • ISM gauge of new orders cooled to 61.2, lowest since July, from 61.9
  • Index of backlogs rose to 62; supplier delivery gauge advanced to 61.1, matching the second-highest level since 2010
  • Measure of customer inventories rebounded to 44.3 from 42
  • Export orders measure fell for second month to 57.7, lowest in 2018, from 58.7

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52. Trump Punts Again On Steel Tariffs As China Draws LineВт., 01 мая[−]

The Trump administration announced late Monday that it will extend steel and aluminum tariff exemptions for the European Union, Mexico, Canada and other allies for another month.

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Although the tariffs of 25% on steel and 10% on aluminum were justified on national security grounds, President Donald Trump seems to have realized that the real national security threat relates to advanced technologies, not industrial metals.

Treasury Secretary Steven Mnuchin and other U.S. officials are heading to China this week for talks to avoid a trade war. But Beijing signaled that some things aren't open for discussion. China won't consider Trump's demand that Beijing offer a plan to shrink the trade deficit by $100 billion. Nor will it back off its Made in China 2025 agenda to achieve leadership in artificial intelligence, robotics and other cutting-edge technology, aided by $300 billion in funding from the Chinese government.

Steel and aluminum shares such as U.S. Steel ( X) and Alcoa ( AA) initially surged as Trump signaled he opposed any exemptions to global tariffs of 25% for steel imports and 10% for aluminum. But shares reversed after Trump granted exemptions to countries responsible for more than half of imports.

Steelmaker Nucor ( NUE), in announcing earnings on April 19 said that pricing had improved and predicted "sustainable strength" in steel markets. But Nucor management argued against the breadth of exemptions granted by Trump. "We believe broad-based tariffs with few exceptions are needed to address the historic volume of unfairly traded imports and transshipping that is done to avoid trade duties," the company said in a statement.

Aluminum stocks surged again the other week, but that was due to an unrelated Trump administration action. The Treasury Department slapped sanctions on United Company Rusal, the Russian aluminum giant. Earlier in April, the Treasury began implementing sanctions authorized by Congress last year to punish Russia for interfering in the 2016 election.

Alcoa shares were the biggest beneficiary, but the gains didn't last long. Aluminum prices and Alcoa stock fell back after the Treasury Department said it won't enforce the sanctions for now.

"The U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries," Mnuchin said. "Rusal has approached us to petition for delisting. Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider Rusal's petition."

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53. Fed Inflation Gauge Nears 2% Target On Eve Of Policy Meeting; S&P 500 RisesПн., 30 апр.[−]

The core personal consumption expenditures price index, the key Fed inflation gauge, rose 1.9% from a year ago in March, nearing policymakers' 2.0% target. Wall Street economists expected a 2% annual increase, with a 0.2% monthly gain. The overall PCE price index did hit a 2% annual rise.

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After the report, the Dow Jones industrial average, S&P 500 and Nasdaq 100 futures held onto early gains on the stock market today.

Meanwhile, the 10-year Treasury yield ticked down to 2.96%. The 2-year Treasury yield held at 2.49%, up 1 basis point.

Treasury yields have surged over the past month as concerns about a trade war with China gave way to worries about firming inflation, a tight job market and a hawkish Fed. But the rise of the 10-year yield to a record high hasn't done much for bank stocks, because short-term rates have climbed even more.

Yield Trends Hit Builders, Big Banks

IBD's Banks-Money Center industry group, including more tightly regulated systemically important financial institutions Bank of America ( BAC), JPMorgan Chase ( JPM) and Wells Fargo ( WFC) is rated No. 156 out of 197 industry groups based on price performance and momentum. Meanwhile the Building-Residential/Commercial industry group is ranked No. 168 as homebuilders like Lennar ( LEN) have struggled amid higher rates, even as current housing data remain strong.

The flattening yield curve reflects worries that the Fed will go overboard with interest-rate hikes to counteract a temporary growth spurt from new tax cuts and government spending.

The Fed begin a two-day policy meeting on Tuesday. It's expected to stand pat when it releases a policy statement at 2 p.m. Eastern Time on Wednesday. Economists expect wage growth to hold at 2.7% when April jobs data come out Friday morning.

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54. GDP Growth Cools To 2.3% On Weakest Consumer Spending Pace Since 2013Пт., 27 апр.[−]

U.S. economic growth cooled last quarter as consumers pulled back following outsize spending in the prior period, though solid business investment cushioned some of the weakness.

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Gross domestic product, the value of all goods and services produced in the nation, rose at a 2.3% annualized rate after climbing 2.9% in the prior quarter, the Commerce Department reported Friday. The median forecast of economists surveyed by Bloomberg called for a 2% gain. Consumer spending, the biggest part of the economy, rose 1.1%, matching estimates and marking the smallest gain since 2013.

While GDP growth was the best for any January-March period since 2015, it's a step down from three quarters of GDP growth above or near 3%, and a reminder that the first quarter remains plagued by data quirks. Analysts expect a rebound as tax cuts take hold amid a strong job market, though tailwinds such as low inflation and borrowing costs are starting to dissipate, and trade tensions represent a headwind.

"The first quarter has been persistently weak in recent years," David Sloan, senior economist at Continuum Economics, said before the report. "We expect a rebound. Tax cuts will support consumer spending and business investment," while "trade is certainly a risk."


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A separate Labor Department report Friday showed that a broad measure of employee compensation rose more than expected in the first quarter, adding to signs that the tight job market is supporting a pickup in pay.

The 2.3% pace of GDP growth is still faster than what the Federal Reserve sees as the economy's long-term potential rate, and officials have previously said they view the first-quarter slowdown as transitory, with the economy poised to reach a milestone in May — the second-longest expansion on record. Investors expect the central bank to raise interest rates in June for the second time this year.

Trump's Goal

Even so, the results underline the difficulty of achieving President Donald Trump's goal of 3 percent sustained growth, despite corporate and individual tax cuts that went into effect in January. Other figures on Friday cast a shadow over the strong, synchronized global upswing: Europe's economy lost momentum in the first quarter as expansions slowed from the U.K. to France, partly because winter storms ripped through the region.

In addition to the slowdown in consumer spending, the U.S. first-quarter GDP report showed cooling in business-equipment spending and residential investment, with the government citing a downturn in brokers' commissions on home sales. Spending on nonresidential structures and intellectual property accelerated in the period, limiting any broader slowdown.

Government spending slowed to a 1.2% gain from 3%, as both federal and state and local outlays cooled. Trade added 0.2 percentage point to growth, while inventories added 0.43 point, a reversal from the prior quarter, when they subtracted a combined 1.69 points. Trade and inventories are two of the most volatile components in GDP calculations.

The report also showed price pressures are picking up. The GDP price index rose 2% in the first quarter. A measure of inflation, tied to consumer spending and excluding volatile food and energy costs, advanced at a 2.5% annualized pace, the fastest since 2011, adding to signs that price gains are picking up.

After adjusting for inflation, final sales to domestic purchasers — which strip out inventories and trade — rose at a 1.6% pace, the slowest in two years, after a 4.5% advance that was the fastest since 2010.

Analysts' forecasts for economic growth ranged from 0.5% to 2.8%. The GDP estimate is the first of three for the quarter, with the other releases scheduled for May and June when more information becomes available.

Quarter's Quirks

Economists say statistical quirks, or so-called residual seasonality, have been behind some of the disappointing first- quarter GDP results in recent years. In five of the past eight years, the first quarter turned out to be the worst one of the year. The Commerce Department's Bureau of Economic Analysis is revamping its methodology to try to address the issue.

Beyond quarterly gyrations, underlying demand looks resilient, analysts said before the report. Retail sales rose more than expected in March and automobile purchases improved. Data released Thursday showed a better picture for the trade deficit toward the end of the first quarter but a weaker handoff for investment.

Meanwhile, changes in U.S. trade and tariff policies are posing a risk to the outlook. The economy may expand 2.8% in 2018, according to the median of forecasts compiled by Bloomberg, before slowing in the following two years.

The first-quarter figures showed household consumption added 0.73 percentage point to GDP growth, following 2.75 points in the prior quarter that representing a 4% annualized gain.

Nonresidential fixed investment, or spending on equipment, structures and intellectual property, increased at a still-solid 6.1% annualized pace, contributing 0.76 percentage point to growth. It grew at a 6.8% rate in the previous quarter.

Among the details, business spending on equipment rose 4.7%, following a three-year high of an 11.6% jump. Investment in nonresidential structures, including office buildings and factories, rose 12.3%, the most in a year. Housing investment was unchanged from the prior quarter following a 12.8% gain.

Consumer Spending

The slowdown in U.S. consumer spending reflected slower auto sales as well as purchases on clothing, footwear, food and beverages, according to the report. That occurred despite a 3.4% annualized gain in disposable income, the biggest jump since 2015, thanks to tax cuts under the new law.

With Amazon.com ( AMZN) and Walmart ( WMT) battling for consumer dollars, lower spending could underscore the challenges facing companies that sell food and household products. Large consumer companies, including Nestle, Unilever ( UN) and Reckitt Benckiser Group, have said they're struggling to raise prices on their products because of intense retail competition.

In addition, investors have focused on some company comments that suggest the economy may be weaker in 2018 than anticipated. Construction-equipment maker Caterpillar, a bellwether for growth, said this week that its first-quarter adjusted profit per share "will be the high water mark for the year," sending its shares down the most since mid-2016.

At the same time, Boeing said it's seeing solid global demand, while United Parcel Service said the U.S. economy is showing "healthy fundamentals."

The post GDP Growth Cools To 2.3% On Weakest Consumer Spending Pace Since 2013 appeared first on Investor's Business Daily.


55. Stocks Dive As Treasury Yield Hits 3%, Investors Bet On 4 Fed Rate HikesВт., 24 апр.[−]

The 10-year Treasury yield hit 3% on Tuesday for the first time in more than four years, reflecting expectations that the Fed will hike its key rate four times in 2018. Stocks, which have struggled as Treasury rates have rallied strongly in recent sessions, sold off sharply yet again.

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Fed expectations are fluid. Around 10 a.m. Eastern Time, the CME Group FedWatch page showed roughly 53% odds of a fourth quarter-point rate hike coming in December, up from one-in-four odds after the deceptively strong March jobs report two weeks ago.

But as the S&P 500 index and Dow Jones both closed 1.7% lower and the Nasdaq composite lost 1.3%, the 10-year Treasury yield pulled back to just below 3% and odds of a fourth Fed hike slipped to 39%.

Bank Stocks Outperform Higher Rates

Bank stocks were among the better performers in afternoon trade on the stock market today. But Bank of America ( BAC) reversed lower for a 0.4% decline as the market closed, and JPMorgan Chase ( JPM) lost 0.5%. Bank of America and JPMorgan Chase are both still below their 50-day lines.

Superregional Fifth Third Bank ( FITB) surged 4.1% after soundly beating earnings estimates, but was well off session highs. West Coast-based Umpqua Holdings ( UMPQ) gained 1.4%, extending its recent breakout.

Bank stocks can see a big benefit from higher long-term rates if the spread vs. short-term rates widens. But the big move in the 10-year in recent weeks has seen narrowing spreads.

While a higher 10-year Treasury means higher mortgage rates for home buyers, housing stocks got a lift initially Tuesday from strong earnings and housing data. Shares of PulteGroup ( PHM) gapped higher on strong earnings, rising 2.9%, while Lennar ( LEN) fell 1.7% and D.R. Horton ( DHI) advanced 0.6%.

March new home sales rose 4% to a 694,000 annual rate, well above the 630,000 rate expected and not far off November's 11-year high. Also, the Case Shiller 20-City Home Composite Price Index rose 6.8% from a year ago in March, the best gain since June 2014.

Still, Tuesday's market action suggests, at least in the near term, that higher market interest rates may pose a hurdle for the S&P 500 and and the stock market generally as it aims to shake off the recent correction.

Inflation Accelerating

Since jobs day, the Labor Department reported that core consumer inflation accelerated to 2.1% from a year ago in March. And now higher oil prices, which once again rose to their highest level since 2014 on Tuesday, could add to upward pressure on prices.

At a minimum, the risk of another inflation undershoot has diminished. All the near-term risk is to the upside. That, in turn, could dampen demand for U.S. debt at a time when deficits are beginning to spiral higher and the Fed is curtailing its own holdings of Treasury and mortgage debt.

In a Tuesday note, Lewis Alexander, Nomura's chief U.S. economist, projected that the Fed's preferred inflation gauge, the core personal consumption expenditures price index, looks likely to rise to 2.3% by the end of 2019, up from 1.6% in February.

Core PCE inflation for March will be reported on Monday, April 30.

The Federal Reserve will meet on May 1-2 but isn't expected to hike rates again until the June meeting. Fed policymakers who want to move gradually but are concerned about the economy overheating will privately cheer financial markets moving proactively, essentially doing the Fed's work for it.

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56. It's Not Just Apple: 10-Year Treasury Yield Hits 4-Year High, S&P 500 Dives On Fed, Inflation FearsПт., 20 апр.[−]

Now that President Trump has turned down the heat on a China trade war, investor concern about rising inflation and a hawkish Federal Reserve may be taking center stage. On Friday, the 10-year Treasury yield rose to 2.96%, just eclipsing the four-year high touched in February. The run-up in yields is a quiet reason for the stock market's struggles late in the week, even though chip warnings and Apple ( AAPL) iPhone fears dominated the headlines. The S&P 500 index slid 0.85% on the stock market today, with the S&P 500, Dow Jones, Nasdaq composite and Apple all falling below their 50-day lines.

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Odds of a fourth Fed rate hike in December have climbed above 40%, according to the CME Group FedWatch page. That's up from a one-in-four chance after the deceptively strong March jobs report two weeks ago.

Since jobs day, the Labor Department reported that core consumer inflation accelerated to 2.1% from a year ago in March. And now higher oil prices, which hit their highest level since 2014 this week, could add to upward pressure on prices.

United Airlines ( UAL) said this week that its jet fuel costs surged 26% from a year ago in the first quarter. Airlines have had trouble pushing through price increases but can be expected to try again.

At a minimum, the risk of another inflation undershoot has diminished. All the near-term risk is to the upside. That, in turn, could dampen demand for U.S. debt at a time when deficits are beginning to spiral higher and the Fed is curtailing its own holdings of Treasury and mortgage debt.

Treasury Yield Spike Hits Builders, Lifts Banks

Housing stocks continued to skid after seeing a bout of selling on Thursday amid the prospect of higher mortgage rates. Lennar ( LEN) lost 1.8% and D.R. Horton ( DHI) 1.7%.

Financial stocks, which can see a gain in net interest income from higher rates, have fared relatively well. Bank of America ( BAC) edged up 0.3% on Friday, while JPMorgan Chase ( JPM) was down 0.2%. Both outperformed the general market.

The March jobs report showed that wages have started to edge higher. That will likely continue in the next few months. CVS Health ( CVS), Starbucks ( SBUX) and Target ( TGT) all announced pay hikes effective this spring. CVS raised its minimum wage to $11 an hour and Target to $12. They are among dozens of major companies that announced wage increases in the wake of corporate tax cuts passed in December.

As those wage hikes take effect and lift worker pay in coming months, replacing several months of notably soft wage growth last spring, the annual pace of wage gains is likely to keep trending higher.

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57. Beige Book: Tariff Fears Cloud Solid Economic Outlook, Fed SaysСр., 18 апр.[−]

New tariffs and concerns over widening trade disputes cast a shadow over the Federal Reserve's most recent survey of U.S. businesses even as all 12 regions reported continued robust job growth with few signs of overheating, the Fed said in its Beige Book report.

"Outlooks remained positive, but contacts in various sectors including manufacturing, agriculture and transportation expressed concern about the newly imposed and/or proposed tariffs," according to the Beige Book .

The report, based on anecdotal information collected by the Fed district banks in March and early April, showed companies continued to struggle to fill open jobs, particularly skilled positions. Despite that, "most districts reported wage growth as only modest."

"Businesses were responding to labor shortages in a variety of ways, from raising pay to enhancing training to increasing their use of overtime and/or automation," according to the report compiled by the Dallas Fed and released Wednesday in Washington.

The report gives fodder to both sides of a debate among Fed policy makers over how long they can continue raising interest rates at a gradual pace without allowing a tight labor market to spark excessive inflation.

Unemployment remained at 4.1% in March for the sixth straight month, a level that hasn't been bettered since 2000. Wages have responded only sluggishly, however. Year-on-year gains in hourly earnings rose by an average 2.7% in the year through March.

All 12 districts reported "modest" or "moderate" overall economic growth. Consumer spending increased in most regions, compared with the February report, when it was described as "mixed."

Prices Rising

The report also reflected a "scattered" incidence of companies passing price increases on to customers.

"Business generally anticipate further price increases in the months ahead, particularly for steel and building materials," the report said.

Input prices continued to rise, especially in transportation and construction, where the costs of fuel and materials rose briskly. There were also "widespread reports that steel prices rose, sometimes dramatically, due to the new tariff."

The Boston Fed provided a vivid example of the unintended consequences of the Trump administration's effort to reduce the U.S. trade deficit through tariffs and new bilateral agreements. One unnamed company, hurt by levies on Chinese aluminum that caused prices to jump threefold, reported to the central bank that "these tariffs are now killing high-paying American manufacturing jobs and businesses."

The post Beige Book: Tariff Fears Cloud Solid Economic Outlook, Fed Says appeared first on Investor's Business Daily.


58. Retail Sales Rebound In Sign Consumer Slump TransitoryПн., 16 апр.[−]

U.S. retail sales rose by more than expected in March in the first gain in three months, suggesting consumer demand regained steam on the back of tax cuts and refunds.

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Sales advanced 0.6% following a 0.1% drop in the previous month, according to Commerce Department figures released Monday. That compared with the median estimate of economists for a 0.4% increase. So-called retail control-group sales, which are used to calculate gross domestic product and exclude food services, auto dealers, building-materials stores and gasoline stations, gained 0.4%, matching estimates.

The improvement in demand went beyond a bump in auto sales, as consumers went shopping at furniture and home stores along with electronics and appliance sellers. The results underscore that the declines from December to February were more of a pause following a post-hurricane spending binge. That supports the Federal Reserve's view that such weakness was transitory, as well as the central bank's outlook for two or three more interest-rate increases this year following a quarter-point hike in March.

Eight of 13 major retail categories showed increases. Sales at health and personal-care stores rose 1.4%, the most in two years. Auto sales rose 2%, the most since September; a report last week showed purchases of cars and light trucks rose to a 17.4 million annualized rate in March, the fastest this year.

Weaker categories included building-materials stores, which fell 0.6%; apparel-store sales, down 0.8%; and sporting goods, hobby, book and music stores, which declined 1.8%, the most since December, the data showed.

Optimistic Consumers

Consumer optimism has held at relatively high levels thanks to factors including job-market strength, rising wages and lower taxes. Refunds from 2017 returns may have also given retail sales a boost in March.

Even with the bounceback, consumer spending probably expanded at a slower pace in the first quarter. Control-group sales rose at a 1% annualized rate over the last three months, compared with 7.6% in the three months through December.

The relatively weak spending has kept estimates for economic growth in check, with analysts forecasting before Monday's report that gross domestic product expanded at a 2.2% annualized pace in the January-March period, down from 2.9% in the previous quarter.

The data on Monday also showed that a decline in gasoline costs, as reported last week in the Labor Department's consumer price index, may have weighed on filling-station receipts. Gas-station sales dropped 0.3%, the most since July, according to the Commerce report. Excluding automobiles and gasoline, sales advanced 0.3% for a second month.

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59. Trump's Shocking TPP Flip-Flop Reveals China Tariff Plan Is A DudЧт., 12 апр.[−]

President Trump may have shelved two wars in one day. First, he tweeted that an imminent attack on Syria may not happen for a long time. That boosted the S&P 500 and other stock indexes out of the gate. Next, Trump signaled his China trade war may be on hold.

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Sen. Ben Sasse, R-Neb., a Farm Belt critic of Trump's strategy to win trade concessions from China by threatening tariffs, revealed the president's startling about-face on trade. In an apparent admission that the U.S. can't win a tariff fight with China, Trump told new economic advisor Larry Kudlow to work on joining the Trans-Pacific Partnership trade agreement.

Sasse, who attended a White House meeting along with other senators from agricultural states, said that Trump told Kudlow to "Go get it done."

On his fourth day in office, Trump backed out of the TPP, the 12-nation trade agreement pushed by President Obama as a way for the U.S. to counter China's influence in East Asia.

And throughout the presidential campaign, Trump leaned heavily on his TPP opposition as part of his anti-trade message and used the issue as a key point of attack against opponent Hillary Clinton. She had earlier supported the TPP when she was secretary of state but backed away from it during the campaign.

Whether Kudlow will get it done on terms that Trump will accept is far from clear. But the go-ahead to try is much more than symbolic. It indicates that Trump prefers a more strategic, multilateral approach to a head-to-head confrontation that could lead to a full-blown China trade war.

Shares of Deere & Co. ( DE) rose 4% on the stock market today, making it among the best-performing S&P 500 issues. Deere stands to be among the biggest losers from a trade war in which China targets American farmers.

Among Dow Jones components with a big presence in China, Boeing ( BA) rose 3.1%, Caterpillar ( CAT) 2.3%, Cisco Systems ( CSCO) 2.1%, Intel ( INTC) 3.2% and Apple ( AAPL) 1%. Apple, Intel, Boeing, and Cisco rank among companies with the highest volume of sales to China.

Backing Off China Trade War?

The TPP builds in intellectual property protections central to trade tensions with China. The other 11 nations include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Last month, those remaining countries pledged to move forward with the trade pact without the U.S.

Trump told the lawmakers that he was looking at ethanol policy as one way to protect farmers if China retaliates against them. After Trump detailed the $50 billion worth of high-tech Chinese imports that would face 25% imports, China hit back last week. China said that it would slap tariffs on $50 billion worth of American imports, including soybeans, wheat, corn, cotton and other agricultural commodities. China imported $14 billion worth of soybeans from the U.S. last year.

Trump initially lashed out with a threat to slap tariffs on another $100 billion worth of Chinese imports. But Trump has taken a less combative approach this week, thanking Chinese President Xi Jinping for a new willingness to take down trade barriers, even though Xi denies any such moves.

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60. Fed Minutes: Policymakers Lean Toward Faster Fed Rate HikesСр., 11 апр.[−]

Federal Reserve officials leaned toward a slightly faster pace of tightening at their March meeting as their growth outlook and confidence in hitting their inflation target strengthened, according to Fed minutes released Wednesday.

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"A number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected," the Federal Open Market Committee said in the records of its March 20-21 meeting.

At the gathering, the first under Chairman Jerome Powell, Fed officials lifted interest rates by a quarter percentage point and mostly penciled in two or three more moves this year. Even with the improved outlook, a "strong majority" of Fed officials voiced concern that a trade war would harm the economy, and some policy makers said the recent turbulence in financial markets highlighted risks to growth, the minutes showed.

"Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook," the minutes said. "But a strong majority of participants viewed the prospect of retaliatory trade actions by other countries" as a downside risk.

Investors saw about a 78% chance that interest rates will be higher after the June meeting, according to federal funds futures prices at 12:40 p.m. New York time. The central bank's current target is a range of 1.5% to 1.75%, after the March hike.

Growth 'Well Above Potential'

U.S. central bankers saw costs and benefits to an economy operating "well above potential," ranging from a faster return of inflation to target and an increase in labor force participation. "On the other hand, an overheated economy could result in significant inflation pressures or lead to financial instability," the minutes said.

The minutes showed participants discussed the possibility of revising statement language "at some point" to acknowledge that monetary policy "would likely gradually move from an accommodative stance to being a neutral or restraining factor for economic activity."

Officials gathered to discuss policy with more powerful cross- currents than usual buffeting the U.S. economy.

Tax cuts have lifted business sentiment and the outlook for growth, with the Fed seeing a "significant boost to output over the next few years" from the tax law and a federal budget boost. At the same time, a few officials "noted that the changes in tax policy could boost the level of potential output," the minutes said.

Yet a simmering U.S.-China trade dispute has roiled markets in recent weeks and tightened financial conditions, which could argue for going slower.

Trade Tensions

As the FOMC deliberated, the Trump administration was considering tariffs on Chinese imports, the prospect of which sent U.S. stocks tumbling by close to 6 percent that week, after a volatile February thanks in part to an unexpectedly strong reading on wages. Equities have since recouped some of those losses amid signs of eased trade tensions.

"Many participants reported that their contacts had taken the previous month's turbulence in stride, although a few participants suggested that financial developments over the intermeeting period highlighted some downside risks associated with still-high valuations for equities or from market volatility more generally," the minutes said.

At the meeting, central bankers raised their median estimates for U.S. growth to 2.7% for 2018 from 2.5% projected in December.

They also saw the jobless rate falling to 3.6% by the end of 2019, further below their 4.5% estimate of unemployment's long-run sustainable rate. The rate was 4.1% in March, holding at the lowest since 2000.

Even with the strengthening labor market, most officials "still described the pace of wage gains as moderate," according to the minutes. "A few participants cited this fact as suggesting that there was room for the labor market to strengthen somewhat further."

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61. Inflation Firms In March As Core CPI Rises 2.1%Ср., 11 апр.[−]

Core consumer prices, excluding food and energy, rose 0.2% in March, while the core CPI annual rate accelerated to 2.1%, the Labor Department reported on Wednesday.

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Wall Street expected the core CPI to rise 0.2% on the month and 2.1% from a year ago. The annual rate rose partly because a weak year-earlier reading, when Verizon ( VZ) shifted to unlimited data plans, was dropped from the calculation.

Overall CPI dipped 0.1% on the month, while the annual increase accelerated to 2.4%. The monthly rate was expected to be flat, but gasoline prices fell sharply.

The Federal Reserve has a 2% inflation target, but favors the core PCE deflator over the core CPI. The core PCE deflator has shown slightly lower inflation.

After the report, Dow Jones industrial average, S&P 500 and Nasdaq 100 futures remained solidly in the red on the stock market today. That followed Tuesday's market trend-shifting follow-through day thanks to big gains on the S&P 500 index and other major averages.

The 10-year Treasury yield fell before the report and remained lower.

The Fed is expected to hike rates three times this year, as the economy looks headed for relatively strong growth and the jobless rate could sink to a multidecade low. Fed policymakers expect that wage pressures will rise as unemployment falls, with companies on passing some of their higher labor costs via price increases.

Wage Growth Picking Up

Last week, the Labor Department reported that average hourly wage inflation ticked up to 2.7% in March after February's surprisingly soft reading. Faster wage growth is just beginning to show up after recent wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX), Bank of America ( BAC) and dozens of others.

Kroger ( KR) from Walmart and Amazon ( AMZN) via its Whole Foods face fierce competition. That offers some reason to doubt whether wage pressure lead to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Yet even doves on the Fed are beginning to sound more hawkish. "Although last year we faced a disconnect between the continued strengthening in the labor market and the step-down in inflation, mounting tailwinds at a time of full employment and above-trend growth tip the balance of considerations in my view," Fed Governor Lael Brainard said last week.

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62. Thanks, For Nothing: China's Xi Jinping Offers Nothing New, But Trump ThrilledВт., 10 апр.[−]

China President Xi Jinping made little or no new concessions to avoid a U.S.-China trade war in his highly anticipated economic speech on Tuesday, but stock market investors focused on the positive — and so did President Donald Trump.

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In afternoon trading on the stock market today, the Dow Jones industrial average, S&P 500 index and Nasdaq composite all turned in strong gains. The Dow Jones, S&P and Nasdaq are in the midst of a rally attempt.

Among Dow Jones components with a big presence in China, Boeing ( BA) rose 3.8%, Caterpillar ( CAT) 3.5%, Cisco Systems ( CSCO) 3.25%, Intel ( INTC) 3.5% and Apple ( AAPL) 1.9%. Apple, Intel, Boeing, and Cisco rank among companies with the highest volume of sales to China.

Xi Jinping Gives An Inch, Maybe

Xi offered just one new commitment, to "significantly lower" tariffs on China auto imports this year, without giving any specifics. Even that was largely in line with a government pledge last November to "gradually and properly" cut auto tariffs. Still, shares of U.S. automakers rose, including Telsa ( TSLA) and General Motors ( GM).

Beyond that, Xi repeated ill-defined promises to loosen investment restrictions and better protect the intellectual property of foreign companies who operate in China, generally with joint-venture partners needed to access markets.

Xi would, of course, prefer to avoid a trade war with the U.S. But he made clear that China won't be pushed to adopt reforms faster than it wants. He hinted President Trump is the one with an antiquated world view.

"The cold war and zero-sum mentality looks out of place in today's world," Xi said. "Arrogance or only focusing (on) one's own interests will get nowhere. Only peaceful development and cooperation can truly bring win-win or all-win results."

Trump 'Very Thankful'

President Trump said in a tweet Tuesday afternoon that he was "very thankful" for Xi's "kind words on tariffs and automobile barriers."

Trump's Farm-Belt Concerns

Still, as long as there is no escalation, President Trump's simmering China trade war should have a minor impact on the economy and stocks. At the moment, there's reason to doubt the extent to which U.S. tariffs on $50 billion in high-tech Chinese imports will even take effect.

Trump's 25% tariffs can't kick in until after a month-long comment period giving businesses a chance to air their views as negotiations proceed. But the calm before any storm may last much longer if Trump wants protections in place for U.S. farmers.

Trump's statement last Thursday decried China's plan to retaliate with tariffs that match U.S. trade restrictions blow for blow. "China has chosen to harm our farmers and manufacturers," Trump's statement read. In other words, China's strategy may be working.

American farmers, and farm equipment makers like Deere & Co. ( DE), may be among the biggest losers in a China trade war.

Trump said that he's tasked the Department of Agriculture to work on ways "to protect our farmers and agricultural interests." That may be hard to do without an emergency congressional appropriation.

Billions of dollars are at stake for U.S. farmers, with China imposing 25% tariffs on $14 billion worth of soybeans alone. Corn, cotton, tobacco and other crops also face tariffs. Farm state GOP lawmakers are said to worry about what Trump's trade war could do to their electoral prospects. At the least, Trump tariffs threaten to undermine the GOP's message about tax cuts finally unleashing economic growth.

Looking For Leverage

It's not clear that Trump and the GOP are prepared for the fallout from China's retaliation against the first $50 billion worth of Chinese imports he plans to target. Slapping tariffs on an additional $100 billion worth of Chinese imports, as Trump threatened last week, seems very unlikely.

In the initial round of tariffs, U.S. trade officials bent over backwards to avoid hitting Chinese imports that would harm American consumers. Nike ( NKE) shoes and Apple iPhones were left unscathed. Doubling, or tripling, down on tariffs without hitting consumers may not be possible.

The takeaway for investors is that Trump's China trade war will likely be mostly talk for months to come. Further, Trump is probably discovering he has less leverage than he believed. Trade war costs would increase as Trump escalates. While he'll hold out the threat of using a hammer, he may not have much of a hammer at his disposal.

The U.S. could win broader concessions with a coalition of international trading partners united against Beijing's unfair trade practices. New Trump economic advisor Larry Kudlow has begun talking up the idea of a " trade coalition of the willing."

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63. Trump Tariffs: Why $100 Billion China Trade War Threat May Be Good NewsПт., 06 апр.[−]

President Trump's latest threat to double down on his China trade war would be so bad that it may actually be good news in disguise.

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Yet his proposal to slap tariffs on another $100 billion worth of Chinese imports could signify that Trump now recognizes a trade war won't be "fun" or "easy to win."

The Dow Jones, S&P 500 index and Nasdaq composite all tumbled more than 2% on the stock market today. The S&P 500 index undercut its 200-day line once again intraday, but closed above that key support. The Dow Jones, with a number of components that could be collateral damage in a trade war with China, led the way lower.

Boeing ( BA) lost 3.1%, Caterpillar ( CAT) 3.5%, Nike ( NKE) 2.9%, Cisco Systems ( CSCO) 2.6%, Intel ( INTC) 3.2% and Apple ( AAPL) 2.6%. Apple, Intel, Boeing, Cisco and Nike rank among companies with the highest volume of sales to China.

Trump's late Thursday statement decried China's plan to retaliate with tariffs that match U.S. trade restrictions blow for blow. "China has chosen to harm our farmers and manufacturers," Trump's statement read. In other words, China's strategy may be working.

China Trade War Hits U.S. Agriculture

American farmers, and agricultural equipment makers like Deere & Co. ( DE), may be among the biggest losers in a China trade war.

Trump said that he's tasked the Department of Agriculture with working on ways "to protect our farmers and agricultural interests." That may be hard to do without an emergency congressional appropriation.

Billions of dollars are at stake for U.S. farmers, with China imposing 25% tariffs on $14 billion worth of soybeans alone. Corn, cotton, tobacco and other crops also face tariffs. GOP lawmakers from farm states are said to worry about what Trump's trade war could do to their electoral prospects. At the least, Trump tariffs threaten to undermine the GOP's message about tax cuts finally unleashing economic growth.

So it's not clear that Trump and the GOP are prepared for the fallout from China's retaliatory measures against the first $50 billion worth of Chinese imports he plans to target.

Trump's 25% tariffs on high-tech imports won't take effect for at least a month. That will give businesses a chance to comment and negotiations to proceed. But the calm before any storm may last much longer if Trump wants protections in place for U.S. farmers.

Hard To Shield American Consumer

Further, the likelihood of Trump tariffs on up to another $100 billion worth of Chinese imports seems low. U.S. trade officials bent over backwards to avoid hitting Chinese imports that would harm American consumers. Nike shoes and Apple iPhones were left unscathed. Doubling down on tariffs without hitting consumers may not be possible.

The takeaway for investors is that Trump's China trade war will likely be mostly talk for months to come. Further, Trump is probably discovering he has less leverage than he believed. As trade war costs hit home increasingly as Trump escalates, there's a good chance he will make a concerted effort at negotiation. While he'll hold out the threat of using a hammer, he doesn't have much of a hammer at his disposal.

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The post Trump Tariffs: Why $100 Billion China Trade War Threat May Be Good News appeared first on Investor's Business Daily.


64. Better Wage Growth In March Keeps Four Fed Rate Hikes In PlayПт., 06 апр.[−]

Don't be fooled by the weak job growth or higher-than-expected unemployment in March. Better wage growth and less labor-market slack mean the stock market won't get much of a reprieve from Fed rate-hike fears.

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The good news: The surprisingly weak 103,000 job gain throws a bit of cold water on the notion that the economy is overheating. Yet a hawkish shift by the data-dependent Federal Reserve will continue to remain a risk for investors with every wage and inflation report. The consumer price index coming out on Wednesday is the next one to watch. UniCredit Research expects the core CPI, excluding food and energy, to rise 2% from a year ago vs. 1.8% in February.

Following the report, Dow Jones industrial average, S&P 500 index and Nasdaq composite initially moved higher, then relapsed in late morning trade on the stock market today. The Dow Jones, S&P 500 and Nasdaq composite were all down 1% or more.

Before the report, stock market futures were deep in the red in reaction to President Trump's threat to strike back at China even harder, with tariffs on an additional $100 billion in imports.

The 10-year Treasury yield slipped about 5 basis points to 2.78% as stocks fell and the jobs and unemployment data surprised on the soft side. Odds of four Federal Reserve rate hikes this year, one more than expected, eased to about 26% after the report, according to CME Group's FedWatch tool.

Average hourly wages rose 8 cents to $26.82 an hour, lifting the annual gain to 2.7%, in line with expectations.

Wall Street economists expected a 175,000 job gain, 4.0% unemployment and 2.7% average wage growth.

Still, job growth has averaged a solid 202,000 the past three months, including revisions. A balmy February likely shifted some seasonal job employment forward, depressing March job creation.

Harm Bandholz, chief U.S. economist at UniCredit, pointed out that jobless rate actually did decline in March — if you don't round to the tenths — from 4.14% to 4.07%. Over the past 12 months, the labor force has increased by 125,000 per month, on average, well below the pace of job creation. "Looking forward, we continue to expect the jobless rate to fall towards 3.5% by the end of the year."

Employers also have been increasing work hours, further evidence of less slack. On a weekly basis, the average wage rose 3.3% from a year ago in March, the best gain in seven years.

Investors should expect the improvement in hourly wage growth to be the start of a trend for two reasons.

First, dozens of major employers announced wage hikes over the past few months, but few came early enough to show up in February's jobs report. Walmart ( WMT) and CVS Health ( CVS) hiked their minimum wages to $11 an hour. Six months after raising its minimum wage to $11, Target ( TGT) said last month that it will pay all current associates at least $12 an hour starting this spring.

Second, wage growth receded in the spring of 2017, rising just 2.2% at an annual rate from March through June. As those months that saw depressed pay gains drop off, replaced by months with firmer growth this year, the annual rate will trend higher.

Walmart Wage Growth Contagious

Take a closer look at Walmart's wage changes. Before its pay hike announced in January 2018, Walmart hadn't raised its base wage in nearly three years. That's a big deal. When Walmart hiked its minimum wage for all current associates to $10 an hour in February 2016, that wage hike was contagious.

Walmart is big enough to put upward pressure on wages for other employers. Target and Costco ( COST) were among those who quickly hiked pay shortly after that 2016 move. Average hourly earnings growth rose to 2.8% that July before momentum flagged.

Walmart's 2016 wage hike came when the jobless rate was nearly 5%. Now it's around 4%, so competition for workers has intensified. At least for workers on the lower end of the wage spectrum, pay hikes appear to be broad-based. Starbucks ( SBUX), Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all have said they're raising pay. Meanwhile, dozens of banks, including Bank of America ( BAC) and Wells Fargo ( WFC) hiked their minimum wage to $15 an hour for tellers.

Fed Rate Hike Implications

As wage gains accelerate and the jobless rate moves below 4% in coming months, Fed policymakers may lean toward four interest-rate hikes in 2018, not just three. Fed models assume that inflation will follow wage growth higher. There's reason to be skeptical. For example, Kroger said last month that it will use the bulk of its tax cut to offset the cost of higher wages and lower prices. The competitive environment facing Kroger from Walmart and Amazon ( AMZN) via its Whole Foods division offers at least some reason to doubt whether wage pressure will feed through to higher prices.

The post Better Wage Growth In March Keeps Four Fed Rate Hikes In Play appeared first on Investor's Business Daily.


65. Goodbye Goldilocks: Wage Growth Set To Accelerate In March Jobs ReportЧт., 05 апр.[−]

Wage growth will likely accelerate in the March jobs report and beyond, with hawkish implications for the Fed interest-rate outlook. Goldilocks is on her way out.

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Wall Street economists expect the monthly employment report out at 8:30 a.m. ET to show a gain of 175,000 jobs. The unemployment rate should dip to 4%, the lowest since December 2000. Average hourly wage growth should tick up to 2.7% on an annual basis from a so-so 2.6% in February.

Expect the improvement in wage growth to be the start of a trend for two reasons.

First, dozens of major employers announced wage hikes over the past few months, but few came early enough to show up in February's jobs report. Walmart ( WMT) and CVS Health ( CVS) hiked their minimum wages to $11 an hour. Six months after raising its minimum wage to $11, Target ( TGT) said last month that it will pay all current associates at least $12 an hour starting this spring.

Second, wage growth receded in the spring of 2017, rising just 2.2% at an annual rate from March through June. As those months that saw depressed pay gains drop off, replaced by months with firmer growth this year, the annual rate will trend higher.

Walmart Wage Growth Contagious

Take a closer look at Walmart's wage changes. Before its pay hike announced in January 2018, Walmart hadn't raised its base wage in nearly three years. That's a big deal. When Walmart hiked its minimum wage for all current associates to $10 an hour in February 2016, that wage hike was contagious.

Walmart is big enough to put upward pressure on wages for other employers. Target and Costco ( COST) were among those who quickly hiked pay shortly after that 2016 move. Average hourly earnings growth rose to 2.8% that July before momentum flagged.

Walmart's 2016 wage hike came when the jobless rate was nearly 5%. Now it's around 4%, so competition for workers has intensified. At least for workers on the lower end of the wage spectrum, pay hikes appear to be broad-based. Starbucks ( SBUX), Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all have said they're raising pay. Meanwhile, dozens of banks, including Bank of America ( BAC) and Wells Fargo ( WFC) hiked their minimum wage to $15 an hour for tellers.

Fed Rate Hike Implications

As wage gains accelerate and the jobless rate moves below 4% in coming months, Fed policymakers may lean toward four interest-rate hikes in 2018, not just three. Fed models assume that inflation will follow wage growth higher. There's reason to be skeptical. For example, Kroger said last month that it will use the bulk of its tax cut to offset the cost of higher wages and lower prices.

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The post Goodbye Goldilocks: Wage Growth Set To Accelerate In March Jobs Report appeared first on Investor's Business Daily.


66. Trade War: China Targets Boeing, GM, Tesla To Match Trump TariffsСр., 04 апр.[−]

Beijing just detailed the cost of President Trump's China trade war. Boeing ( BA), General Motors ( GM), Tesla ( TSLA), Ford ( F) and U.S. soybean growers could pay the price for Trump tariffs on $50 billion in Chinese imports.

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Stock market investors could also pay a price. The Dow Jones industrial average, S&P 500 index and Nasdaq 100 all fell sharply at the open, tough they soon pared losses somewhat on the stock market today. Shares of Boeing lost 4%, Tesla 1%. GM and Ford pared big losses to just fractional declines. Apple ( AAPL), which has the highest volume of sales in China of any U.S. multinational, slipped 1.1%. Apple didn't appear to be a target of Beijing's potential reprisals.

China didn't wait long to make good on its threat to hit the U.S. with tariffs that are proportional to those threatened by the Trump administration. After the White House detailed the $50 billion worth of Chinese high-tech products that stand to face 25% tariffs, China responded in kind.

Beijing said that it will target $50 billion worth of American products with 25% tariffs, including airplanes, cars and soybeans.

China trade war tensions might still ease. The Trump tariffs won't take effect for at least 30 days, giving U.S. businesses a chance to comment as negotiations with China proceed.

Late Tuesday, the U.S. Trade Representative's office detailed plans for a 25% tariff on some $50 billion in mostly high-tech imports. The duties will fall on lithium batteries, semiconductors, communication satellite technology, as well as some TV components and even flamethrowers

"This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China's harmful acts, policies, and practices," the USTR said in a report. The list covers about 1,300 products.

The USTR said it was focusing on key technologies that China aims to dominate, while "trying to minimize the effect on U.S. consumers."

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67. China Vows To Fight Back As Trump Details Tariffs On 1,300 Chinese GoodsСр., 04 апр.[−]

The next episode of President Donald Trump's China trade war has two possible storylines, Beijing signaled on Tuesday. Either the two sides negotiate a truce, or China will match Trump tariffs blow for blow. China stepped up its rhetoric Tuesday, with the Trump administration detailing China tariffs.

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" We will certainly take countermeasures of the same proportion and the same scale, same intensity," Cui Tiankai, China's ambassador to the United States, said in a China Global Television Network interview.

Despite the tough talk from China, the stock market staged a modest, up-and-down recovery on Tuesday. The Dow Jones industrial average and S&P 500 index both rose more than 1% on the stock market today, while the Nasdaq composite advanced 1%. The Nasdaq led a broad-based sell-off Monday amid growing China trade war concerns and tech-stock weakness, with the S&P 500 undercutting its 200-day moving average.

Apple ( AAPL), Boeing ( BA) and Nike ( NKE), all Dow Jones components, are among the companies with the highest dollar-value exposure to China based on total sales. Apple climbed 1% Tuesday. Boeing rose 2.6%. Nike climbed 4%, reclaiming its 50-day line.

Beijing Retaliates In China Trade War

So far, China's actions have met that standard of matching U.S. tariffs in scale. Over the weekend, Beijing detailed the $3 billion worth of U.S. products that will face tariffs in China. Those products include fresh and dried fruit, wine, pork, and certain steel products.

Beijing didn't impose those tariffs in retaliation for the anti-China trade measures Trump announced on March 22, as Wall Street first thought. Rather, China struck a proportional blow against Trump's steel and aluminum tariffs, which largely spared the country.

Trump Administration Details China Tariffs

Late Tuesday, the U.S. Trade Representative's office detailed plans for a 25% tariff on some $50 billion in mostly high-tech imports. The duties will fall on lithium batteries, semiconductors, communication satellite technology, as well as some TV components and even flamethrowers

"This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China's harmful acts, policies, and practices," the USTR said in a report. The list covers about 1,300 products.

The USTR said it was focusing on key technologies that China aims to dominate, while "trying to minimize the effect on U.S. consumers."

China was quick to reiterate that it would respond in kind, with countermeasures coming soon.

Stock market futures fell slightly late Tuesday.

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68. IBD/TIPP Poll: Economic Optimism Index For April 2018Вт., 03 апр.[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

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The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.4, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

Income Tax Revenues Are Up 9% This Year — Is Trump Tax Cut Paying For Itself?Supply-Side Economics: Democrats scoffed at Republicans who said the Trump tax cuts would at least partially pay for themselves through higher economic growth. But it looks like the GOP had it right... Read More

IBD/TIPP Economic Optimism Index: Overall

See All Questions And Full Results

The IBD/TIPP Economic Optimism Index fell 5.4% in April to 52.6, the second straight monthly drop after hitting its highest reading since October 2004 in February. It's the 19th straight month that it has been over 50 — which signals overall optimism about the economy. It is also above its long-term average of 49.4. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index fell 6% in April, after dropping 8% in March, clawing back all of January's 11.4% jump. At 49.7 for the month, the index was also below 50. Still, the reading for this index remains well above its long-term average of 46.3. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months dropped 4.9% to 60.7 in April after being unchanged in March at 63.8. The index's all-time high of 65.3 was set in January 2004, when the Bush-era tax cuts began to kick in. The Personal Financial Outlook is one of the most consistently optimistic indexes in the IBD/TIPP data set. It remains above its long-term average of 57.1.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component fell 5.2% in April to 47.4 from 50 in March. It remains above its 17-year average of 44.8. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years, and in March returned to the feel-good zone. But it subsided during last month's budget and gun-control debates. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

RELATED:

Main IBD/TIPP Poll Page

IBD/TIPP Presidential Approval Index

IBD/TIPP Election 2016 Tracking Poll

Past Results

March 2018

February 2018

January 2018

December 2017

November 2017

October 2017

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July 2017

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Media Contact

Terry Jones
Investor's Business Daily Commentary Editor
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The post IBD/TIPP Poll: Economic Optimism Index For April 2018 appeared first on Investor's Business Daily.


69. IBD/TIPP Poll: Economic Optimism Loses Trump Tax-Cut SparkВт., 03 апр.[−]

The IBD/TIPP Economic Optimism Index fell 3 points to 52.6 in April, continuing to fade after hitting a 13-year high of 56.7 in February.

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The six-month economic outlook, one of three IBD/TIPP Economic Optimism Index subgauges, slid to 49.7. That's just below the 50 neutral level. In February, the outlook gauge hit 57.5, the highest since October 2012, as economic optimism rode a wave of tax cuts, bonuses and wage hikes.

The March 22-29 survey of 902 people came after President Trump stirred fears of a trade war with China. The Dow Jones tumbled more than 1,100 points in the first two days of polling, as Trump announced plans to hit China with 25% tariffs on up to $60 billion in high-tech imports. Trump also announced steel and aluminum tariffs, but has since has granted temporary exemptions covering more than half of imports.

With China trade war concerns returning and Amazon ( AMZN) tumbling on several Trump tweets, the Dow Jones and S&P 500 index sank below their 200-day lines Monday. The Nasdaq composite isn't far behind.

Meanwhile, polling shows that most Americans haven't noticed bigger paychecks as tax cuts lowered their withholdings earlier this year. Average hourly wages rose just 2.6% from a year ago in February, the Labor Department reported. Some of the tax-cut dividends will come via a bigger child tax credit that is paid at tax time.

Wage Gains On The Way

Wage gains appear likely to pick up momentum. Target ( TGT) announced a hike in its minimum wage to $12 an hour last month. That followed Target's increase to $11 in October. After tax cuts passed in December, Walmart ( WMT) and CVS Health ( CVS) raised their minimum wages to $11 an hour. While dozens of major employers have hiked base wages, it's still unclear if the middle class will get a lift.

The Economic Optimism Index's other two main subindexes also retreated.

The six-month personal financial outlook index fell to 60.7, slipping further from January's 14-year high of 64.0.

Meanwhile, the measure of confidence in federal economic policies slipped 2.6 points to 47.4. March's neutral reading was the second-most favorable view of government since 2007. The gauge briefly turned positive in Trump's post-election honeymoon.

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The post IBD/TIPP Poll: Economic Optimism Loses Trump Tax-Cut Spark appeared first on Investor's Business Daily.


70. Trump Tariffs: China Trade War Just Took This Surprise TurnПн., 02 апр.[−]

Stock market investors reacted with relief when China said two weeks ago that it would impose tariffs on only $3 billion in U.S. imports following various Trump tariffs.

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Wall Street saw the move as a very modest response to 25% tariffs on $60 billion in Chinese products President Trump announced March 22.

Here is the surprise: China confirmed over the weekend that everyone got it wrong. Beijing said it set those penalties as retaliation for the steel and aluminum tariffs Trump made official on March 8.

China accounts for just 2% of U.S. steel imports, the primary target of Trump's metal tariffs, so Beijing's reprisals don't look that moderate.

The Dow Jones and S&P 500 index fell sharply on the stock market today. That was partly due to investors bracing for another week of possible negative trade news. The Nasdaq composite tumbled as Tesla ( TSLA) and FANG stocks including Amazon ( AMZN) slumped.

Trump tweeted over the weekend that he would end Nafta unless Mexico halts " big drug and people flows" across the border. He also took some more shots at Amazon over the weekend and again on Monday.

Dow Jones components Boeing ( BA) and Caterpillar ( CAT) are among the U.S. multinationals whose sales in China could suffer if trade war tensions mount.

Trump Tariffs: Details On China Duties Soon

The Trump administration has promised to detail the "largely high-tech" products from China that will face 25% tariffs by April 6.

Investors will be eagerly awaiting China's plan for responding to these new Trump tariffs.

But Trump isn't done ratcheting up trade tensions with Beijing. More intensive investment restrictions to keep China from acquiring American-made technology are still to come.

China's tariffs on $3 billion in goods will apply to 128 products, including fresh and dried fruit, wine, pork and certain steel products.

The news isn't all bad. China has sent some conciliatory signals and Trump's tariffs were smaller than expected. Still, investors don't have enough clarity to dismiss the possibility of a trade war.

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71. Four Cryptocurrency Futures: How Bitcoin, Blockchain Could Transform The Financial SystemПн., 02 апр.[−]

Imagine being told one day that your paychecks would be in Bitcoin. Pretty cool, right? Except your liquid assets could tumble in value at any moment in this cryptocurrency future. And you'd have to convert your cryptocurrency to dollars to buy groceries at Walmart ( WMT), coffee at Starbucks ( SBUX) or books on Amazon ( AMZN).

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The surge in value of Bitcoin and its digital currency rivals has not been matched by their everyday utility. Payment processor Stripe cut off Bitcoin support in January, citing slow transaction times and high fees.

"We've seen the desire from our customers to accept Bitcoin decrease," explained Stripe product manager Tom Karlo.

Bitcoin and other digital rivals are nowhere near ready for prime time. They might never match the utility of today's financial-system incumbents, the banks and payment companies that facilitate the flow of funds over tens of millions of merchant locations.

Yet much like millennials will never have a landline, a coming generation might do without bank accounts thanks to secure, peer-to-peer cryptocurrency transactions. Blockchain technology and the vast new crypto wealth have opened the door to four cryptocurrency futures that could usher in a new financial order.

Four Cryptocurrency Future Scenarios

What are these possibilities?

  • The Federal Reserve could issue its own digital currency, as some global central banks are exploring.
  • Large companies such as Amazon, Walmart and Starbucks might issue digital coins that inspire trust and gain wide acceptance.
  • Retail giants, by accepting payments in the currency, could elevate Bitcoin, Ethereum or another cryptocurrency above the others vying to offer safety, soundness and utility.
  • Finally, if trust is lost in government-backed, or fiat, currencies, a cryptocurrency future could come about by default. That may be a risk not only in places like Venezuela, but in the U.S., where federal deficits are spiraling.

"Virtual currencies might just give existing currencies and monetary policy a run for their money," International Monetary Fund director Christine Lagarde predicted last fall. "Citizens may one day prefer virtual currencies, since they potentially offer the same cost and convenience as cash — no settlement risks, no clearing delays, no central registration, no intermediary to check accounts and identities," she said.

That explosive potential helps explain why so many tech entrepreneurs and investors turned cryptocurrencies into a 21st Century gold rush, even as JPMorgan Chase ( JPM) CEO Jamie Dimon has trashed Bitcoin as "a fraud."

Dimon and other titans of finance voice certainty that commercial banks will remain indispensable, cryptocurrencies will stay on the fringe, and governments will want to keep it that way.

FedCoin? Central Banks Mull Future Of Cryptocurrency

Blockchain's potential to revolutionize the financial system has some central banks studying whether to issue their own digital currency. Yale University scholars have proposed the FedCoin. In this cryptocurrency future, FedCoin could make monetary policy more flexible and forceful, even allowing for negative interest rates.

If a cryptocurrency acted as a reliable, widely accepted store of value, people could cut ties to their banks. They could keep some crypto cash in digital wallets, with other liquid assets in mutual funds, stocks and government bonds.

A Bank of England study concluded that a central-bank cryptocurrency could boost GDP by 3%. Gains would come, in part, from shrinking "monetary transaction costs that are analogous to distortionary tax rates."

Yet FedCoin looks far-fetched at present because of the massive disruption it could cause. Central bank crypto dollars "could endanger the economically and socially important financial intermediation function of commercial banks," JPMorgan analysts warned.

The contribution of fractional reserve banking to global growth — turning each $1 of deposits into $10 in loans — could fade. "We would expect that central banks would think twice before disturbing this source of capital to the private sector."

Bitcoin Crash Or Cryptocurrency Revolution?

Dimon is surely right about one thing: The cryptocurrency future will depend heavily on government. That could mean smothering it with regulation, stealing its thunder via FedCoin or cultivating it with a light regulatory touch.

Bitcoin hit its 2018 low early on Feb. 6, the morning of a key Senate cryptocurrency hearing, briefly undercutting $6,000. The chairmen of the Securities and Exchange Commission and Commodity Futures Trading Commission both urged stronger oversight. But the financial regulators stopped short of sounding an alarm. Nor did they call for any legislation to rein in cryptocurrencies. In the weeks after that hearing, Bitcoin rebounded to around $11,000 but it has retreated yet again to below $7,000.

Bitcoin had doubled in the first half of December, hitting a peak above $19,000 just as Bitcoin futures began trading on Cboe Global Markets ( CBOE) and CME ( CME). The anticipation of futures trading, touted as validation from U.S. regulators, stoked speculation.

At the Senate hearing, Sen. Mark Warner, D-Va., who earned his fortune as an early investor in the cell phone industry, said he sees a parallel between mobile phones then and cryptocurrencies now. "The same kind of transformation is about to take place," he said.

Could Bitcoin Raise Systemic Risks?

Warner criticized the CFTC for embracing Bitcoin options at this stage. He fretted that total cryptocurrency market capitalization could hit $20 trillion — vs. $300 billion now — with another 2017-like surge.

"This rises potentially to the level of a systemically relevant event," Warner said.

Yet there's reason to doubt that cryptocurrency frenzy will return. JPMorgan Chase, Bank of America ( BAC) and Citigroup ( C) — Ma Bell in Warner's analogy — banned credit-card purchases of cryptocurrencies. Meanwhile, the SEC and foreign governments have cracked down on initial coin offerings. And lately, Alphabet ( GOOGL)-unit Google, Facebook ( FB) and Twitter ( TWTR) have banned cryptocurrency ads.

Even Ethereum founder Vitalik Buterin warned via Twitter not long ago that cryptocurrencies " could drop to near-zero at any time." He added that "traditional assets are still your safest bet."

The Bank for International Settlements, the central banker for global central banks, has warned that cryptocurrencies in the future could become a "threat to financial stability" if regulators aren't vigilant. U.S. regulators appear to be playing catch-up. As of Feb. 6, the cryptocurrency working group put together by Treasury Secretary Steven Mnuchin had held a single meeting.

Politicians and central bankers worry that cryptocurrencies won't hold value in a panic. "When things really go bad, where do Americans turn?" Philadelphia Federal Reserve President Patrick Harker asked a fintech conference last fall. "Well, they're going to come back to the government. That's the history of the country."

Another 'Large Player' For Cryptocurrencies

Harker did allow that other currency models might work if another "large player" besides the government provided trust.

Who could fill that role? Starbucks Chairman Howard Schultz offered some thoughts on the coffee chain's January earnings call.

"I personally believe that there is going to be one or a few legitimate, trusted digital currencies off of the blockchain technology," Schultz said. He doubted that Bitcoin would be one of them.

Cryptocurrencies "will have to be legitimized by a brand in a brick-and-mortar environment, where the consumer has trust and confidence in the company that is providing the transaction."

Starbucks wants to play a role but isn't making a big investment in a cryptocurrency future right now, Schultz said.

Amazon, Cryptocurrency Kingmaker — Or Central Bank?

Cryptocurrency investors have speculated that Amazon might accept Bitcoin or one of its digital rivals. That specific cryptocurrency would vault past competitors as a trusted store of value and useful medium of exchange. Amazon even registered the domains AmazonEthereum.com, AmazonCryptocurrency.com and AmazonCryptocurrencies, kicking such talk into high gear.

Alternatively, Amazon, Walmart — or a consortium of large companies — might issue their own cryptocurrency. Doing so could let them save on transaction costs and act as a competitive weapon.

But Amazon has also been cozying up with JPMorgan. Recently, Amazon and JPMorgan have partnered in a health care venture and in creating a new type of bank account.

Yet imagine if Amazon or Walmart rewarded loyal customers with tokens that could escalate in value. The tokens would jump to the head of the cryptocurrency pack with potential for broad acceptance as a currency. Customers would likely hoard the tokens, rather than spend them. The effect on sales and profits might be electric.

For a digital currency to gain wide acceptance from outside businesses, the issuer would have to act like a central bank. Governing a currency requires trust, so some functions might need independence from corporate issuers.

Those milestones could ease fears of a massive cryptocurrency crash. The Fed shouldn't need to rush in and save the day if AmazonCoin or WalmartCoin crashed.

Currencies rely on conservative and predictable rules to assure the public that massive money printing won't destroy value. Could people trust the central bank of Amazon?

Then again, will people always be able to count on the Fed?

Cryptocurrency Future: Competition For Central Bank Fiat Money

The Fed controls the creation of money, but central bankers seem to be losing their grip. Any loss of faith in the dollar and the Fed bodes well for a cryptocurrency future as dollar-skeptics look for an alternative store of wealth — besides gold.

Bitcoin's peer-to-peer electronic payment system, first proposed in 2008 to verify transactions through a decentralized public blockchain, arrived on the scene as the global financial crisis triggered bailouts of one big bank after another.

Bitcoin fulfilled famed economist Friedrich Hayek's idea of denationalizing money. He believed competition could help keep central banks honest and prevent runaway inflation.

Doubts fueled by "ballooning balance sheets of the major central banks in the aftermath of the global financial crisis" motivated early cryptocurrency investors, JPMorgan analysts wrote. Yet the lack of any upsurge in inflation since "has surely reduced concerns about fiat (legal tender issued by a central bank) money."

A Fiscal Train In Cryptocurrency Future?

Yet the Fed now faces a much different challenge: a runaway federal deficit even amid a strong U.S. economy. The deficit will top $1 trillion in fiscal 2019 and $2 trillion by 2027, and there's no fix in sight. Republicans have overseen big deficit-financed tax cuts and increased government spending. Democrats want more generous Social Security benefits, Medicare for all and debt-free college.

"The continued growth of public debt raises eventual sustainability questions if left unchecked," Goldman Sachs economists warned recently.

The Fed seems on track to suffer the same fate as the Bank of Japan. The BoJ has been forced to accommodate sky-high government deficits with easy money and asset purchases. Japan, with a falling working-age population, hasn't had a whiff of inflation. But the U.S. might be a different story.

Deutsche Bank global credit strategist Jim Reid put this shocking headline on a November report: "The Start of the End of Fiat Money?" Reid argued high debt levels will keep the Fed and other central banks too accommodative, putting fiat currencies at risk.

"The fiat currency system may be seriously tested over the coming decade and ultimately we may need to find an alternative," Reid wrote. "Cryptocurrencies are all the rage at the moment and are as much about blockchain as anything else, but there could be an increasing desire for alternative" mediums of exchange in the years to come."

Keep in mind that fiat money is a relatively young innovation. It's only truly been the norm since President Nixon ended the dollar's quasi-gold standard in 1971.

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72. U.S. Factory Gains Cool As Raw Materials Prices Heat UpПн., 02 апр.[−]

U.S. factories expanded at slightly slower pace in March and a measure of raw-material prices hit an almost seven-year high, according to the widely watched ISM manufacturing index released Monday. Manufacturers struggled to keep up with demand, data from the Institute for Supply Management showed Monday.

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ISM Manufacturing Highlights

The ISM manufacturing index Factory index eased to 59.3 (est. 59.7) from 60.8 m/m; readings above 50 indicate expansion. Measure of new orders fell to 61.9, the lowest since August, from 64.2. Prices-paid index rose for a fourth straight month to 78.1, the highest since April 2011, from 74.2; employment gauge declined to 57.3 from 59.7

Key Takeaways

A measure of customer inventories dropped to the lowest level since July 2011 and a gauge of backlogs held at an almost 14-year high. Together that indicates factories continue to have trouble keeping up with demand from consumers and businesses, while paying ever-higher prices for raw materials.

Even so, the figures are consistent with expectations of further gains in manufacturing production in coming months, and the main index remains near the highest level since 2004. While a measure of factory payrolls softened, the underlying details of the ISM report bode well for employment. The Labor Department's March jobs report is due later this week.

Other Details

  • ISM index of backlogs held at 59.8, the highest level since May 2004
  • The production gauge eased to 61 from 62.
  • Export orders measure fell to 58.7 from 62.8. Supplier deliveries gauge cooled to 60.6 from 61.1.

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73. Inflation Perks Up In February But Not Enough To Shift Fed Rate HikesЧт., 29 марта[−]

The favored Fed inflation gauge, the core personal consumption expenditures price index, rose 0.2% on the month and 1.6% from a year ago in February, the Commerce Department reported Thursday.

Core inflation came in a tad hotter than the 1.5% annual rate expected. Including food and energy prices, the PCE price index rose 0.2% on the month and 1.8% from a year ago vs. expectations of 0.2% and 1.7% increases.

After the report, Dow Jones industrial average and S&P 500 index futures rose a little more, while the 10-year Treasury yield was little changed around 2.77%.

If the inflation data stay tame, and core PCE inflation remains well below the Fed's 2% inflation target, the U.S. central bank probably won't hike its key interest rate four times this year. At last week's Fed meeting, policymakers' projections saw core inflation rising to 1.9% this year as the Fed hikes three times.

Policymakers are getting more confident that inflation will start to firm. Their projections point to 2.1% core inflation in 2019, just above their target.

The Fed still believes in the Phillips curve, which predicts rising wage growth as unemployment falls. Before too long, wage pressures put upward pressure on consumer prices.

Wage Hikes Hint At Inflation Pressures

So far, official measures haven't detected a pickup in wages. The Labor Department reported weaker-than-expected 2.6% annual average hourly wage inflation in February. But faster wage growth should begin to show up this spring, reflecting recently announced wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX) that didn't happen soon enough for the latest jobs report.

As those companies hike wages, their competitors are being pressured to do the same. Earlier this month, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

Can Retailers Pass On Higher Costs?

The competitive environment facing Kroger from Walmart and Amazon ( AMZN) via its Whole Foods division, among others, offers at least some reason to doubt whether wage pressure will feed through to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Still, inflation is likely to remain near the top of investors' concerns this year. Fed policymakers expect to hike rates another three times in 2019 and two more in 2020, which is far more than financial markets think can or should happen.

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74. Don't Look Now, But Trump Just Scored A Trade WinПн., 26 марта[−]

The stock market's expect-the-worst reaction to President Trump's trade confrontations last week seemed to overlook one positive development after another. Yet by Monday, investors couldn't help but notice the good news piling up in Trump's trade wars.

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Trump's first clear-cut trade victory, with South Korea, and hints of progress in negotiations with China fueled a stock market rebound. The Dow Jones industrial average, S&P 500 index and Nasdaq composite all rose at least 2.7% on the stock market today. U.S. multinationals that could suffer in a trade war with China were rebounding. Dow Jones giants Boeing ( BA) and Caterpillar ( CAT) were up 2.5% and 3.4%, respectively.

There's a good chance that Monday's action is a real turning point, not just a head fake that investors should ignore, suggests Ray Dalio, co-chief investment officer of Bridgewater Associates, the world's largest hedge fund.

"If this is the negotiating that I expect, the next move will be toward some trade agreements that will look like victories for Trump, so tensions will subside and the markets will like it," Dalio wrote on LinkedIn. "That's the most likely scenario. I would consider that scenario to be broken if there is any new worsening in trade relations with China from here. We will find out soon enough."

South Korea Trade Deal

On Monday, South Korea said it reached a deal to avoid steel tariffs by limiting its steel exports to 70% of the level of recent years. Seoul also doubled the number of U.S. auto imports it will allow to bypass safety standards to 100,000.

General Motors ( GM) announced in February that it would close one of its auto plants in South Korea. GM shares rose 2.3% on Monday, while Ford ( F) gained 2.6%.

China Signals More Openness

Meanwhile, China continued to send all the right signals. Premier Li Keqiang told a conference of global CEOs that China would treat foreign and domestic firms equally, would not force foreign firms to transfer technology, and would strengthen intellectual-property rights, CNBC reported. To access markets in China, foreign companies have been required to form joint ventures that put their intellectual property at risk, so Li is indicating that far-reaching changes could be coming.

Trump's proposed tariffs on China turned out to be much smaller than feared, and China's initial retaliatory measures were far more modest. And more countries got exemptions from Trump's steel and aluminum tariffs, which now look like a minor deal. And Trump backed off a key Nafta demand that 50% of the parts in vehicles imported from Mexico and Canada be produced in the U.S.

Even as trade-war fears knocked the Dow Jones and S&P 500 to their worst weekly losses in over two years, all those positive surprises led Nomura chief U.S. economist Lewis Alexander to conclude on Friday, "Perhaps trade tensions are not quite as high as previously assumed."

Still, it's too soon to conclude that a breakthrough is coming in trade with China, wrote UniCredit Group chief economist Erik Nielsen over the weekend. "It's certainly a possibility that these latest U.S. trade policy measures will achieve the desired fundamental change in China's protectionist policies," he wrote. Yet, "China has a bit of a record of pledging changes at politically convenient times, while plowing ahead at its predetermined pace."

Trump's trade policy hasn't had the smoothest of introductions, with his global steel and aluminum tariffs turning out to be applied on a fairly narrow basis. As Trump makes China the focus of his trade war, he is seeking allies, not more battlegrounds. The White House has reportedly offered to make the exemption from steel and aluminum tariffs permanent for the European Union in exchange for cooperation in pressuring China for economic reforms.

Despite some reasons for optimism, both Bridgewater's Dalio and UniCredit's Nielsen see some possibility that trade tensions could combine with military tensions and have a real downside.

"At the same time, I can't help but wonder if the trade war is part of a bigger impending conflict," Dalio wrote, while Nielsen headlined his weekend missive "Cold War II seems to have broken out with no letup in sight."

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75. Trump Tariffs: Why Dow Jones, S&P 500 Are Falling Despite Steel Tariff Exemptions, China RestraintПт., 23 марта[−]

President Donald Trump's tariffs on steel and aluminum imports, which roiled the stock market less than three weeks ago, now look like a much smaller deal after big new exemptions were granted on Thursday, just before they were set to take effect.

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Yet dramatically shrinking metal tariffs were an afterthought on Thursday, as Trump made China the central front in his trade war and fear of retaliation against U.S. multinationals sent the stock market tumbling anew. The Dow Jones industrial average, S&P 500 index and Nasdaq composite tumbled well over 2% Thursday on Trump's confrontational trade policy. The major averages sold off into the close on the stock market today, with the S&P 500 losing 2.1%.

China is showing maximum restraint for now. Overnight, Beijing said it would impose 25% tariffs on just $3 billion worth of U.S. goods, including pork, fruit, wine, steel pipe and recycled aluminum. That compares to Trump's proposed tariffs on Chinese robotics, aerospace, biopharma and other goods that could amount to about $15 billion — 25% on roughly $60 billion worth of imports. Even Trump's tariffs look modest in comparison to the $375 billion U.S. goods trade deficit with China and the $60 billion in tariffs that were floated.

A day after the stock market tumble, investors initially exhibited relief Friday that the near-term consequences may be limited, but the major averages turned mixed. Dow Jones components Boeing ( BA) closed up 0.4%, while Caterpillar ( CAT) fell 1.8%. Both fell more than 5% on Thursday.

China did not lay out any measures that would negatively affect Boeing and Caterpillar, but they could be at risk if Beijing decides to step up its retaliatory measures.

China's U.S. ambassador told Bloomberg that Beijing could scale back Treasury purchases in response.

'First Of Many' U.S.-China Trade Actions

Investor relief over China's measured response may be limited because Trump's tariffs to punish Beijing for intellectual property theft likely mark the beginning of a fractious era for China-U.S. economic and geopolitical relations, which can't help but pose significant risks for U.S. multinationals.

Trump said Thursday that the tariffs were just the "first of many" actions to reduce the U.S.-China deficit. China's U.S. ambassador said that his country is "not afraid" to fight a trade war.

The Trump administration is targeting products that are key to Beijing's Made in China 2025 initiative aimed at achieving global technology leadership. Tariffs are expected to go hand-in-hand with investment restrictions that blunt China's ability to acquire American technology. China, for its part, is saying that U.S. accusations of IP theft are without merit.

The unstated rationale of Trump's actions are pretty clear: The U.S. wants to maintain technological — and military — leadership over China, and that goal has to take precedence over economic cooperation when the two come in conflict. At the announcement of the tariffs, Trump's plan got an endorsement from Marillyn Hewson, CEO of Lockheed Martin ( LMT). Lockheed's F-35 uses stealth technology that lets it evade detection. Shares of Lockheed rose 3% on Friday.

The Trump administration appears to have made a sudden realization that launching a trade war with global trading partners over steel and aluminum would hamper Washington's efforts to contain the growing threat posed by China.

Steel Tariff Exemptions Expand

The 25% steel and 10% aluminum tariffs were set to take effect on Friday, but the Trump administration clarified late Thursday that countries representing more than half of U.S. steel imports would receive exemptions through May 1. Exempted countries include European Union members, Canada, Mexico, South Korea, Brazil, Australia and Argentina. After May 1, Trump could decide to permanently exempt those nations based on the status of talks.

Steel stocks fell hard on Thursday after U.S. Trade Representative Robert Lighthizer telegraphed the change in policy. On Thursday, shares of U.S. Steel ( X) sank 11% to levels last seen before Trump ramped up his steel tariff talk in mid-February. Steel Dynamics ( STLD) fell 7.5%, Nucor ( NUE) 6.5% and AK Steel ( AKS) 8.7%. Steel stocks extended losses Friday.

The Obama administration has been a target of some criticism for an inadequate response to IP theft. Yet it did have a plan for maintaining a sphere of influence in East Asia and Southeast Asia, expanding markets for U.S. multinationals and providing stronger IP protections: the controversial Trans Pacific Partnership. Dropping out of that pact was among the first acts of Trump's presidency, but Treasury Secretary Steven Mnuchin has said in recent weeks that the U.S. could seek to rejoin the pact.

Trump, by contrast, has been focused on bringing more U.S. intellectual property back home, through corporate tax cuts. But U.S. multinationals can't hope to serve global markets only from American shores. China, meanwhile, is laser-focused on deepening economic integration with economies throughout Asia through its 21st Century Silk Road initiative. The more the U.S. distances itself from trading partners, the easier it will be for China to emerge unscathed from a trade war.

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76. After Trump Tariffs Hit, China 'Not Afraid' To Fight Trade WarПт., 23 марта[−]

President Donald Trump made punishing China for trade misdeeds official U.S. policy on Thursday, imposing tariffs of 25% on up to $60 billion of imports, with a focus on high-tech goods. While not as hostile as the $60 billion worth of tariffs floated in recent days, the move signals the beginning of a fractious era for China-U.S. economic relations as the two countries vie for technological supremacy.

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Trump said Thursday's tariffs were "the first of many," while China's U.S. ambassador said Beijing is "not afraid" of a trade war.

The tariffs would apply to "appropriate products," said U.S. Trade Representative Robert Lighthizer, as the U.S. strikes back at China's "policy of forced technology transfer" and cybertheft. Those products will reportedly include robots, aerospace, high-speed rail, biotech and other categories.

Once the list of some 1,300 products is made official, U.S. companies will have a window to comment and potentially seek relief. Trump, who signed a "memorandum targeting China's economic aggression," according to the White House, characterized the tariffs not as the start of a trade war, but part of "a very large negotiation" with Beijing.

But Trump said Thursday's action will be the "first of many" to tackle the "out of control" U.S.-China trade gap.

China 'Not Afraid' Of Trade War

China signaled it was ready for a trade war.

"We don't want a trade war with the United States, or with anybody else. But we are not afraid of it. If somebody tries to impose a trade war on us, we will fight," Ambassador Cui Tiankai said in a video posted on the Chinese embassy's Facebook page. He said China "would fight to the end..with all necessary measures."

But he added that China will continue to work to "manage our possible differences in a constructive way." He also said allegations that China is abetting intellectual property theft are "groundless."

The Dow Jones industrial average, the S&P 500 index and the Nasdaq composite initially pared losses somewhat after the announcement, but sold off into the close, with all the major averages closing down at least 2.4%. The Dow tumbled 2.9%.

Even as U.S. tariffs on steel and aluminum imports start to kick in on Friday, Trump is making China the central front in his trade war, aiming to punish intellectual-property infringement by Chinese companies, abetted by strong-arm tactics from Beijing. That became clearer after Lighthizer said that the European Union, Brazil, South Korea, Argentina and others would get at least temporary exemptions from the steel and aluminum tariffs as negotiations proceed. Exemptions already had been granted to Mexico and Canada.

The tariffs aimed against China aren't enough to have a noticeable impact on economic growth, and it's not yet clear how China will respond in the short term. But the stock market fallout on Thursday may reflect an understanding by investors that U.S. has begun confronting China in what will be a long-term conflict with major ramifications for economic relations.

"The damage will be real, it will probably be substantial, and it will mount over time," wrote Brad McMillan, Chief Investment Officer for Commonwealth Financial Network. "For companies that sell to China, or indeed any country outside the U.S., the effects are likely to be negative — which is why markets are reacting again."

Dow Stocks Boeing, Caterpillar Hit Hard

Boeing ( BA), which China has previously said could be targeted for reprisals if Trump starts a trade war, helped lead the Dow Jones lower early Thursday. Caterpillar ( CAT), another Dow Jones component that could see exports suffer and also could face collateral damage if China retaliates against U.S. agricultural imports, also traded lower. Boeing was off 5.3% and Caterpillar 5.7% on the stock market today.

Ahead of the announcement, Best Buy ( BBY) told Reuters on Wednesday that it will stop selling mobile phones from China's Huawei. Apple ( AAPL), which contracts out global iPhone production in China and sells a lot of phones in the country, is also potentially vulnerable in a trade war. But Beijing has no incentive to make it harder for tech firms to use China as a manufacturing base. Shares of Apple, yet another Dow Jones component, fell 1.4% after sliding below the 50-day line Wednesday.

China Tariff Response Key

Stock market reaction will depend on the scale and timing of U.S. trade restrictions, and on China's response. So far, China seems to be emphasizing plans to respond by targeting soybeans and other agricultural imports, and halting progress on greater access to China's financial sector and other markets.

While China is expected to strike back, it may do so in a relatively limited fashion as it challenges Trump's actions at the World Trade Organization. That would initially limit the scope of the conflict.

That also would mirror the European Union's plan to retaliate if Trump's steel and aluminum tariffs go into effect, as they could as soon as Friday. The EU has detailed a list of $3.4 billion worth of American products that could face retaliatory tariffs, including Harley-Davidson ( HOG) motorcycles, Jack Daniels whiskey and Florida orange juice, but it plans to double down if the WTO ultimately finds Trump's tariffs justified on national-security grounds to be illegal.

Trump's authority to hit China with tariffs comes from section 301 of the 1974 Trade Act, which has seen little use since the WTO came on the scene. The act gives the president power to impose tariffs or other restrictions when a trading partner "engages in discriminatory or other acts or policies which are unjustifiable or unreasonable and which burden or restrict United States commerce."

The Trump administration has asked China to propose ways of narrowing the $375 billion U.S. goods deficit with Beijing by $100 billion, but it's not clear that a confrontational approach will yield progress.

China Trade War Impact On U.S. Consumers, Companies

Hitting China with massive tariffs may be difficult to do without hurting American consumers and American brands produced in China. As Trump prepares to direct relatively heavy economic fire toward China, trade groups representing Walmart ( WMT), Apple, Best Buy and other retailers warned that tariffs would raise prices for American consumers, whether or not tariffs prove effective in shrinking the trade deficit. Under Armour ( UAA), Nike ( NKE) and other shoe companies echoed similar concerns. (Walmart and Nike are both Dow Jones components, with Nike reporting earnings late Thursday.)

Trump's economic advisors are focused on taxing U.S. imports that are key to Beijing's Made in China 2025 initiative aimed at achieving global technology leadership. Tariffs are expected to go hand-in-hand with investment restrictions that blunt China's ability to acquire American technology. Among the possibilities would be restricting the ability of Chinese companies to list on U.S. stock indexes.

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77. Steel Stocks Dive On Trump Tariff Exemptions As China Trade Is Top PriorityЧт., 22 марта[−]

Now that President Trump is making China the focus of a potential trade war, the White House has suddenly realized that it's not the best time to anger other big trading partners.

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To avoid the risk of finding itself facing trade hostilities all over the world, the Trump administration is mulling much broader exemptions from steel and aluminum tariffs than announced two weeks ago. U.S. Trade Representative Robert Lighthizer told the Senate Finance Committee that tariffs set to take effect on Friday won't initially apply to the European Union, Argentina, South Korea, Brazil and Australia.

Steel stocks fell to their lowest levels since mid-February, when Trump's support for big steel tariffs became clear. U.S. Steel ( X) crashed 11%, Steel Dynamics ( STLD) 7.5%; Nucor ( NUE) 6.5% and AK Steel ( AKS) 8.9% on the stock market today. Shares of Century Aluminum ( CENX), the biggest beneficiary of a planned 10% tariff on aluminum imports, tumbled nearly 18%.

Already, Trump had exempted Canada and Mexico, which account for about 25% of U.S. steel imports. The broader exemptions now being considered mean half of steel imports will initially be exempt.

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78. Fed Rate Hike Is No Surprise, But Stock Market Weakens On Powell, 2019 OutlookСр., 21 марта[−]

The Fed hiked its key interest rate on Wednesday, surprising no one, while signaling no rush to step up its gradual pace of monetary tightening this year. The S&P 500 index and other major averages, after initially extending modest pre-announcement gains, then weakened as Jerome Powell held his first post-meeting news conference as Federal Reserve chairman.

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The initial market focus was on the Fed's near-term policy trajectory, but the takeaway may not be quite so positive once investors digest the more hawkish long-term outlook which hints at concern that there's greater risk of the economy overheating.

As in December, the quarterly economic projections reflecting the individual views of each Federal Reserve policymaker pointed to a likelihood of three quarter-point rate hikes in 2018, not four, as Goldman Sachs and some other Wall Street firms anticipate. But the Fed did step up its rate-hike outlook for 2019.

Fed policymakers now expect three quarter-point rate hikes in 2019, up from two in December, as the jobless rate falls to 3.6% in 2019 and core inflation rises to 2.1%, just above the Fed's target.

The Fed's patience could give stocks a bit of running room as policymakers await evidence that faster economic growth, fueled by the big Trump tax cut and spending increases that have yet to hit, will boost wage growth and inflation.

Powell said that if the Fed hikes too fast, "inflation doesn't get up to 2%."

Stock Market Pares Gains

The Dow Jones industrial average, S&P 500 index and Nasdaq composite initially extended moderate gains following the 2 p.m. ET policy statement. But after Powell began speaking at 2:30 p.m. ET, the Nasdaq led the averages into negative territory in the stock market today. The Dow Jones and S&P 500 fell 0.2% while the Nasdaq lost 0.3%. However, the small-cap Russell 2000 managed to climb 0.6%.

The S&P 500 and Dow Jones remain below their 50-day moving averages, while the Nasdaq recently found support at that key level. Bank stocks were among the gainers after the Fed meeting, thanks to signals that policymakers are willing to let the economy run at least a little hotter.

The 10-year Treasury yield initially slipped after the announcement, then turned higher to about 2.92%, before backtracking as stocks weakened. The yield is not too far off the key 3% threshold that hasn't been breached in more than four years.

If there's one reason why stocks turned lower as Powell spoke, it could be because of his discussion of the significance of the Fed, for the first time, expecting above-target core inflation of 2.1%. The forecast raises the question of whether the Fed may really think of the 2% inflation target as symmetric — meaning that the current undershoot should be balanced out by a future overshoot.

Yet Powell, in his press conference, said policymakers will aim to avoid any "sustained or persistent deviations."

"We're always going to be seeking 2%."

Investors probably shouldn't be too reassured by a largely status-quo announcement on 2018 policy from the Fed. There's good reason to expect policymakers to step up their expectations to four 2018 Fed rate hikes by June — even if inflation remains tame.

Once a pickup in wage growth materializes — and it's very likely to this spring after wage hikes by Walmart ( WMT), Target ( TGT), CVS Health ( CVS), Starbucks ( SBUX), FedEx ( FDX), JPMorgan Chase ( JPM), Bank of America ( BAC), Wells Fargo ( WFC) and others — Fed members will likely adjust rate-hike expectations upward.

The Fed's most influential dove, Lael Brainard, in 2017 explained earlier this month why low inflation won't prevent a more hawkish policy turn: Policymakers need to stay "vigilant" to contain any financial-system excesses.

Unemployment appears on course to fall to rarely seen levels that tend to come with " elevated risks of imbalances, whether in the form of high inflation in earlier decades or of financial imbalances in recent decades," Fed Governor Brainard said, alluding to the dot-com and housing bubbles.

Brainard echoed new Fed Chairman Jerome Powell's congressional testimony last month that economic headwinds have turned to tailwinds. Powell said there was still no evidence in the data that stronger growth has led to an acceleration in wage gains, which Fed theory sees as a precursor of upward price inflation.

Brainard noted, "While asset valuations appear to be elevated, overall risks to the financial system remain moderate because household borrowing is moderate" and the banking system is "well-capitalized" after financial reforms. Still, she said, "We will need to be vigilant" because a booming economy can lead to a relaxation in lending standards.

Vigilance is code for being proactive, raising rates if the economy runs hot, even before any acceleration of inflation. Yet there's a risk that the Fed will overreact to faster growth this year and into 2019, which is fueled by a one-time fiscal boost from tax cuts and a big increase in federal spending. That's the recipe for a big economic slowdown late next year or in the first half of 2020.

Bank Stocks Fare Well

Bank of America, Wells Fargo and other bank stocks, which can benefit from higher short-term rates, especially when long-term interest rates rise even more, were only slightly higher before the Fed meeting statement on Wednesday, though JPMorgan Chase saw healthier gains. Bank of America and JPMorgan rose a little more after the announcement.

Even though the 10-year yield was slightly lower, the 2-year yield fell a little more. A wider yield spread is good for bank profits.

E-brokers are among financial stocks that benefit from a higher Fed interest rate, in part because floating-rate margin loans for trading accounts are based on short-term rates that move in tandem with Fed policy. TD Ameritrade ( AMTD) CFO Stephen Boyle said on the Jan. 23 earnings call that the next 25-basis-point increase to the Fed's target rate could yield an estimated $60 million to $110 million in pretax income. Shares of Ameritrade were up slightly ahead of the Fed announcement and rose a little more later.

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79. Trump's China Trade War Could Start To Get Real ThursdayСр., 21 марта[−]

President Trump is preparing to unveil a plan to hit China with at least $30 billion worth of tariffs, and possibly twice that amount, as soon as Thursday.

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News reports say the announcement could be delayed and that the tariffs won't take effect immediately, largely because the White House is still settling on its approach.

Yet the news leaves little doubt that Trump is preparing to make China the central front in his trade war to punish intellectual-property infringement by Chinese companies, abetted by strong-arm tactics from Beijing.

By comparison Trump's steel and aluminum tariffs that sent financial markets into a tizzy last month were relatively minor — amounting to $9 billion a year, even before he started handing out exemptions to Mexico, Canada and potentially other trading partners.

As Trump prepares to direct relatively heavy economic fire toward China, trade groups representing Walmart ( WMT), Apple ( AAPL), Best Buy ( BBY) and other retailers warned that tariffs would raise prices for American consumers, whether or not tariffs prove effective in shrinking the trade deficit. Under Armour ( UAA), Nike ( NKE) and other shoe companies echoed similar concerns.

Trump's economic advisors are reportedly focused on taxing U.S. imports that are key to Beijing's Made in China 2025 initiative aimed at achieving global technology leadership.

Yet, in some respects, taking on China in this way makes more sense than via steel and aluminum tariffs. While China is the biggest source of global steel overcapacity, it represents only about 2% of U.S. steel imports.

Even though candidate Trump often directed nearly as harsh rhetoric at Mexico, the White House clearly doesn't want to fight a two-front trade war at this juncture. The Trump administration gave Mexico and Canada indefinite exemptions from the steel and aluminum tariffs while the countries renegotiate Nafta, despite halting progress in the talks to date. Mexico and Canada are both big importers of U.S. steel as well amid the fluid North America supply chains. So hitting them with steel tariffs makes little sense.

Still, it's looking likely that Trump will be engaging in trade-related skirmishes — and U.S. companies will be at risk of collateral damage — on multiple fronts.

On Wednesday, the European Union proposed a 3% tax on digital revenue, hitting U.S. tech giants such as Apple, Facebook ( FB), Google parent Alphabet ( GOOGL) and Amazon ( AMZN).

The proposal to raise about $6 billion in tax revenue per year will need all 28 EU members for approval but could be adopted on a country-by-country basis. The idea precedes Trump's election and is justified based on the companies' low tax rates in the EU, yet the move could contribute to growing trade tensions between the U.S. and European allies.

In preparation for Trump's steel and aluminum tariffs that are set to take effect on Friday if no exemption is granted, the EU has detailed a list of $3.4 billion worth of American products that could face retaliatory tariffs, including Harley-Davidson ( HOG) motorcycles, Jack Daniels whiskey and Florida orange juice. European officials plan to challenge Trump's tariffs at the World Trade Organization and up the ante in retaliation if the ruling goes their way.

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80. 'Vigilant' Fed Is About To Shift The Rate-Hike Goal PostsВт., 20 марта[−]

A Federal Reserve rate hike on Wednesday is a near certainty, so the focus will be on Fed policymakers' projections of future policy, especially whether they see a fourth hike in the cards in 2018.

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If Fed members don't step up their expectation for three quarter-point hikes on Wednesday, they're very likely to by June — even if inflation remains tame.

The Fed's most influential dove in 2017 explained earlier this month why low inflation won't prevent a more hawkish policy turn: Policymakers need to stay "vigilant" to contain any financial-system excesses.

Unemployment appears on course to fall to rarely-seen levels that tend to come with " elevated risks of imbalances, whether in the form of high inflation in earlier decades or of financial imbalances in recent decades," Fed Governor Lael Brainard said, alluding to the dot-com and housing bubbles.

Brainard echoed new Fed Chair Jerome Powell's congressional testimony last month that economic headwinds have turned to tailwinds. Powell said there was still no evidence in the data that stronger growth has led to an acceleration in wage gains, which Fed theory sees as a precursor of upward price inflation.

Yet once a pickup in wage growth materializes — and it's very likely to this spring after wage hikes by Walmart ( WMT), Target ( TGT), CVS Health ( CVS), Starbucks ( SBUX), FedEx ( FDX), Bank of America ( BAC), Wells Fargo ( WFC) and others — Fed members will adjust rate-hike expectations upward, if they don't do so on Wednesday.

Stocks overall have paused in recent weeks, with the Nasdaq composite, S&P 500 index and Dow Jones industrial average all falling more than 1% Monday as Facebook ( FB) triggered selling. The S&P 500 and Dow Jones are both below their 50-day moving averages. But the major averages have rallied sharply over the last several years. The major averages rose modestly on Tuesday.

Brainard noted, "While asset valuations appear to be elevated, overall risks to the financial system remain moderate because household borrowing is moderate" and the banking system is "well capitalized" after financial reforms. Still, she said, "We will need to be vigilant" because a booming economy can lead to a relaxation in lending standards.

Vigilance is code for being proactive, raising rates if the economy runs hot, even before any acceleration of inflation. Yet there's a risk that the Fed will overreact to faster growth this year and into 2019 which is fueled by a one-time fiscal boost from tax cuts and a big increase in federal spending. That's the recipe for a big economic slowdown late next year or in the first half of 2020.

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81. Trump Is Said To Pick Larry Kudlow As New Top Economic AdviserСр., 14 марта[−]

Donald Trump plans to name economist and CNBC contributor Larry Kudlow to replace Gary Cohn as director of the White House National Economic Council, adding a longtime confidant to the president's inner circle, a person familiar with the decision said.

X Trump may announce the move as soon as Thursday, according to CNBC, which reported the president's decision earlier. On Tuesday, Trump said Kudlow had "a very good chance" at getting the job. White House spokeswoman Sarah Huckabee Sanders said the president spoke with Kudlow by phone on Tuesday but declined to describe the conversation.

Kudlow, 70, is expected to provide a familiarity and loyalty to Trump, who has seen a flood of high-level departures throughout his administration, including by some of the aides with whom he is closest personally. A television host from New Jersey, Kudlow is seen as temperamentally and politically similar to the president.

He's also seen within the White House as having credibility on both Wall Street and in Washington, where he served as an adviser to former President Ronald Reagan.

Trump has made clear that he's hoping to use the turnover to reshape his staff closer to his own image, and has tired of a senior staff that often opposed the policies and priorities Trump supported on the campaign trail.

Cohn announced his departure last week after Trump moved forward with steep tariffs on steel and aluminum imports -- a plan Cohn had vociferously opposed.


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Kudlow has also clashed with Trump in the past. Earlier this month, he wrote a column for CNBC describing the president's tariffs as "a regressive tax on low-income families."

"Trump should also examine the historical record on tariffs, because they have almost never worked as intended and almost always deliver an unhappy ending," Kudlow wrote in the March 3 column, which also included praise for other parts of the president's economic agenda. Kudlow has strongly backed the tax overhaul that Trump signed at the end of last year.

Yet, as he left the White House on Tuesday for a trip to California, Trump said Kudlow "now has come around to believing in tariffs."

In 2016, when a tape surfaced before the election featuring Trump boasting about grabbing women's genitals, Kudlow said he was "furious" and threatened to vote for Mike Pence as a write-in candidate.

The post Trump Is Said To Pick Larry Kudlow As New Top Economic Adviser appeared first on Investor's Business Daily.


82. U.S. Retail Sales Unexpectedly Fall For Third Straight MonthСр., 14 марта[−]

U.S. retail sales unexpectedly fell in February for a third month, adding to signs that consumer spending will cool this quarter from the previous period's hot pace, according to Commerce Department figures released Wednesday.

X

Highlights of Retail Sales (February)

  • Overall sales fell 0.1% (est. up 0.3%) after 0.1% decrease in prior month (prev. down 0.3%); Dec. figure revised to down 0.1%.
  • Purchases at automobile dealers fell 0.9%, the second straight month with such a reading.
  • So-called retail-control group sales, which are used to calculate GDP and exclude food services, auto dealers, building materials stores and gasoline stations, rose 0.1% (est. up 0.4%) following unchanged.
  • Seven of 13 major retail categories showed declines.

Key Takeaways

The results indicate consumer spending, the biggest part of the economy, is easing after strong gains in the fourth quarter. Shoppers may be taking a breather following a run-up in borrowing in late 2017, and relatively tepid wage growth is limiting Americans' purchasing power.

In addition to declines at auto dealers and gas stations, February's figures reflected lower demand at furniture and home furnishing stores, electronics and appliance vendors, food and beverage sellers and health and personal care stores. General merchandise stores saw a 0.4% decline in receipts, the most since May, following a similar advance in January.

On the brighter side, building-material stores reported a 1.9% sales gain in February, following a 1.7% decline.

Even with the latest sluggish sales figures, job-market strength, rising property values and lower taxes are buoying Americans' sentiment and should support steady gains in spending. Consumption was probably sufficient to keep Federal Reserve policy makers on track for a widely expected interest- rate increase next week.

Other Details

  • Excluding automobiles and gasoline, sales rose 0.3%, matching forecasts, after a 0.1% decline the previous month
  • Receipts at gasoline stations fell 1.2%

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83. Inflation Comes In A Bit Soft In February; S&P 500, Dow Jones RiseВт., 13 марта[−]

Core consumer prices, excluding food and energy, rose 0.2% in February, but the annual inflation rate held steady at 1.8%, undershooting expectations, the Labor Department reported on Tuesday.

X The soft inflation reading could slightly lower odds of a fourth Fed interest-rate hike in 2018. After the report, Dow Jones industrial average, S&P 500 and Nasdaq 100 futures extended gains, with the major averages opening modestly higher on the stock market today. The 10-year Treasury yield pointed lower.

The overall consumer price index rose 0.2% on the month and 2.2% from a year ago, matching expectations.

The Fed is expected to hike rates three times this year, with quarter-point moves, as the economy looks headed for relatively strong growth and the jobless rate could sink to a multidecade low. Fed policymakers expect that wage pressures will rise as unemployment falls, leading companies to pass on some of their higher wage bills in the form of price increases.

So far, official measures haven't detected a pickup in wages. The Labor Department reported weaker-than-expected 2.6% annual average hourly wage inflation in February. But faster wage growth should begin to show up this spring, reflecting recently announced wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX) that didn't happen soon enough for the latest jobs report.

As those companies hike wages, their competitors are being pressured to do the same. Last week, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

The competitive environment facing Kroger from Walmart and Amazon.com ( AMZN) via its Whole Foods division, among others, offers at least some reason to doubt whether wage pressure will feed through to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Yet even doves on the Fed are beginning to sound more hawkish. "Although last year we faced a disconnect between the continued strengthening in the labor market and the step-down in inflation, mounting tailwinds at a time of full employment and above-trend growth tip the balance of considerations in my view," Fed Governor Lael Brainard said last week.

Bottom line: Inflation is going to remain a concern for Wall Street throughout 2018.

More Inflation Details

The soft inflation reading came as medical care services inflation was unchanged in February, after January's 0.6% monthly gain, and prices for medical care commodities including prescription drugs slipped 0.3%.

Meanwhile, prices for food away from home rose 0.2%, while the cost of food consumed at home fell 0.2%, more evidence of the competition from Amazon in the grocery arena.

Outside of energy, inflation is showing up in transportation services, whose prices rose 1.0% on the month and 4.5% from a year ago. The cost of shelter rose a moderate 0.2% on the month and 3.1% from February 2017.

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84. Stock Market Cheers Final Goldilocks Jobs Report — Before Wage Hikes Kick InПт., 09 марта[−]

The U.S. economy added 313,000 jobs in February, while the unemployment rate held at 4.1%, the Labor Department said on Friday.

X Average hourly wages rose 4 cents to $26.75 an hour, up a tame 2.6% from a year earlier. That missed consensus expectations of 2.9% rise. January's wage gain, originally reported as a 2.9% rise, was revised down to 2.8%.

Wall Street expected a gain of 205,000 jobs and 4.0% jobless rate.

December and January payrolls were revised up by a combined 54,000.

After the jobs report, the Dow Jones industrial average, S&P 500 index and Nasdaq 100 futures moved significantly higher on the stock market today. The S&P 500 index, which closed a point below its 50-day moving average on Thursday, reclaimed that key level at Friday's open.

The 10-year Treasury yield rose a few basis points to 2.9% but the jobs and wage data didn't substantially bolster the case for the Federal Reserve to add an extra interest-rate hike in 2018.

Despite the blowout jobs number, the data may give stocks a tad more running room before Fed hike expectations begin to bite, but investors shouldn't take too much comfort.

While the data don't show that Goldilocks-type wage gains are history, bigger pay gains are likely coming this spring, reflecting recently announced wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX), which don't show up yet in the February jobs report.

And as those companies hike wages, their competitors are being pressured to do the same. This week, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

The retail sector added 50,000 jobs, while construction employment surged 61,000 and manufacturers hired a net 31,000.

The likely combination of low and falling unemployment with accelerating wage gains would fit perfectly with the Phillips curve theory that has long guided Federal Reserve policy. As far as investors are concerned, the key point is that most Fed policymakers still seem pretty confident that inflation pressures won't follow too far behind wage pressures, as businesses pass along a portion of their higher wage bills.


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That's why an interest-rate scare is looking possible, even if a legitimate inflation scare doesn't materialize.

The competitive environment facing Kroger from Walmart and Amazon.com ( AMZN) via its Whole Foods division, among others, offers at least some reason to doubt whether wage pressure will feed through to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Kroger gave weak profit guidance as it forecast smaller profit margins, sending shares crashing 12% on Thursday.

Walmart's minimum-wage hike to $11 an hour was its first for new, entry-level workers since 2015, when it raised its minimum wage to $9 an hour. Then, in early 2016, Walmart hiked pay for all current associates to a minimum of $10 an hour, leading Target, Costco ( COST) and others to raise their own wages. The point is that wage hikes can come in bunches. It didn't really happen last year, when wage growth hit a bit of a lull. But it does appear to be happening in 2018.

If it does, Wall Street will continue to bump up odds for a fourth rate hike in 2018. Already those odds are about 1 in 3, up from about 20% a month ago, according to the CME Group's FedWatch tool.

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85. Friday's Jobs Report Is All About The 2018 Wage WaveПт., 09 марта[−]

If the February jobs report out Friday morning comes in as strong as Wall Street expects, it will set financial markets up for another Fed interest-rate scare later this spring.

X Here's the reason: Economists expect the new jobs data to match January's 2.9% hourly annual wage gain — the best since 2009. That's even though that surprising data point appeared inflated by a dive in the work week that disproportionately reduced hours for low-wage workers. But even bigger pay gains are likely coming this spring, reflecting recently announced wage hikes from Walmart ( WMT), Target ( TGT), CVS Health ( CVS) and Starbucks ( SBUX), which won't show up yet in the February jobs report.

And as those companies hike wages, their competitors are being pressured to do the same. This week, Kroger ( KR), Dollar Tree ( DLTR) and Ross Stores ( ROST) all said they're raising wages for employees, and their stocks sold off amid worries about profit margins.

Wall Street also expects that the jobless rate dipped to 4.0% in February for the first time since 2000, as the economy added a robust 205,000 jobs.


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The combination of low and falling unemployment with accelerating wage gains fits perfectly with the Phillips curve theory that has long guided Federal Reserve policy. As far as investors are concerned, the key point is that most Fed policymakers still seem pretty confident that inflation pressures won't follow too far behind wage pressures, as businesses pass along a portion of their higher wage bills.

That's why an interest-rate scare is looking increasingly likely, even if a legitimate inflation scare doesn't materialize.

Yet the competitive environment facing Kroger from Walmart and Amazon.com ( AMZN) via its Whole Foods division, among others, offers at least some reason to doubt whether wage pressure will feed through to higher prices. Kroger said on Thursday that it will use one-third of its tax cut to boost shareholder returns, but the other two-thirds will go to higher wages and lower prices.

Kroger gave weak profit guidance as it forecast smaller profit margins, sending shares crashing 12% on Thursday.

Walmart's minimum-wage hike to $11 an hour was its first for new, entry-level workers since 2015, when it raised its minimum wage to $9 an hour. Then, in early 2016, Walmart hiked pay for all current associates to a minimum of $10 an hour, leading Target, Costco ( COST) and others to raise their own wages. The point is that wage hikes can come in bunches. It didn't really happen last year, when wage growth hit a bit of a lull. But it does appear to be happening in 2018.

If it does, Wall Street will continue to bump up odds for a fourth rate hike in 2018. Already those odds are about 1 in 3, up from about 20% a month ago, according to the CME Group's FedWatch tool.

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86. Trump Tariffs On Steel, Aluminum Go Easy On Canada, Mexico; Dow Jones, S&P 500 ClimbПт., 09 марта[−]

President Trump will indefinitely delay imposing steel and aluminum tariffs on Mexico and Canada, but other countries could face tariffs within 15 days.

X Trump explained his policy Thursday afternoon before a signing ceremony, saying that other countries will be invited to negotiate exemptions from import tariffs of 25% on steel and 10% on aluminum.

Trump said he was acting to stop "an assault on our country" in the form of cheap, imported industrial metal, calling it "not merely an economic disaster, but a national security disaster."

He claimed that his policy is already paying dividends, with U.S. Steel ( X) and Century Aluminum ( CENX) both announcing increased capacity and hiring.

Trump said that in the next 15 days his administration will decide which countries will face tariffs and to what extent, based on "who's treating us fairly," not just in regard to trade but also military relationships.

Wall Street seemed relieved about the clarification with regard to Mexico and Canada. America's Nafta partners account for 25% of U.S. steel imports but are also major export markets for U.S.-made steel.

The Dow Jones industrial average, S&P 500 index and Nasdaq composite all strengthened to close modestly higher on the stock market today. Meanwhile, shares of steel companies, the major potential beneficiaries of Trump's trade prescriptions, remained under pressure. U.S. Steel, Steel Dynamics ( STLD) and Nucor ( NUE) fell nearly 3% on Thursday with AK Steel ( AKS) down 4%.


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While tariffs could raise U.S. manufacturing costs for companies like Ford ( F), General Motors ( GM) and Boeing ( BA), the bigger concern is that they would spark a tit-for-tat retaliation. Boeing and GM shares turned higher on Thursday afternoon, while Ford was off 0.2%.

Still, the sense of relief on Wall Street is far from complete. The European Union has threatened to retaliate if Trump moves forward with the tariffs, targeting companies like Harley-Davidson ( HOG).

Steel and aluminum tariffs aren't the only trade concern likely to occupy Wall Street in the months to come. The White House is also reportedly mulling wide-ranging tariffs on Chinese imports to punish Beijing for permitting rampant theft of U.S. intellectual property.

The Trump administration is asking China to propose actions that would shrink the bilateral trade deficit by $100 billion.

Trump Steel Tariffs Can 'Go Up Or Go Down, Depending'

Trump has tried to provide reassurance that the impact of the steel and aluminum tariffs would be largely benign, saying it would be done in a "loving" way and inviting key trading partners to negotiate an alternative to his proposed trade prescription.

On Thursday he went further, talking about the flexible approach he would take in setting or adjusting the 25% and 10% rates on a country-by-country basis. "I'll have a right to go up or go down depending on the country, and I'll have a right to drop out countries or add countries."

Yet there's more than a little danger that Trump is miscalculating. The environment for negotiating may turn poisonous if he enacts tariffs that trading partners see as unjustified and a danger to a global trading system which has depended on respect for World Trade Organization rules.

Trump's steel tariffs are seen as an affront by most U.S. trading partners because the bulk of steel industry overcapacity comes from China, yet China itself would barely be touched, at least directly, by the 25% tax since it accounts for just 2% of U.S. steel imports.

Trump seems to be using the threat of steel tariffs as leverage to undo other perceived inequities with trading partners that contribute to the high U.S. trade deficit. Yet the whole effort undermines the justification for his tariffs — that the U.S. will impose them because a glut of steel and aluminum imports poses a danger to national security.

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87. Trump Tariffs May Exempt Canada, Mexico, White House Says; Nasdaq, S&P 500, Dow Jones BounceЧт., 08 марта[−]

Donald Trump may exempt Mexico, Canada and other countries from steel and aluminum tariffs, the White House said Wednesday afternoon, sending the Nasdaq composite higher while the S&P 500 index and Dow Jones industrial average slashed losses.

X "There are potential carve-outs for Mexico and Canada based on national security, and possibly other countries as well based on that process," White House press secretary Sarah Huckabee Sanders told reporters at a daily briefing.

Sanders said that other nations could receive exemptions.

"That would be a case-by-case and country-by-country basis but it would be determined whether or not there is a national security exemption," she said.

Canada is the biggest steel exporter to the U.S., with Mexico also a major shipper.

Sanders said Trump plans to sign the tariffs by the end of the week.


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The Nasdaq composite, slightly lower before the Sanders statement, rose 0.3% in late afternoon trade on the stock market today. The S&P 500 index briefly turned positive but closed fractionally lower. The Dow Jones was off just 0.3%. Stocks had been under pressure following the late Tuesday resignation of White House economic advisor Gary Cohn, who opposes the steel tariffs.

Dow Jones stocks Boeing ( BA), United Technologies ( UTX) and Caterpillar ( CAT) also pared intraday losses. Boeing, United Technologies and Caterpillar are big steel and aluminum users. They also could be affected if the tariffs trigger a broader trade war with Europe, Nafta partners and China.

U.S. Steel ( X) pared its intraday gain somewhat, but closed up 2.6% at 45.69.

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88. Target Hikes Base Wage To $12 An Hour, One-Upping Walmart Despite Earnings SqueezeСр., 07 марта[−]

Target ( TGT) said it will raise its minimum wage for current associates to $12 an hour this spring, after hiking its base wage to $11 in October, trumping Walmart ( WMT) once again even as the brick-and-mortar discount giants both missed on earnings and gave weak guidance as they try to keep pace with Amazon ( AMZN).

X Target's move to $12 follows announcements earlier this year from Walmart and CVS Health ( CVS) that they will match Target's $11-an-hour wage.

Numerous other big employers including Starbucks ( SBUX) and JPMorgan Chase ( JPM) also announced wage hikes following the passage of tax cuts. The trend suggests a pickup in national average hourly wage gains in coming months, which is likely to raise concerns about a faster pace of Fed rate hikes.

CEO Brian Cornell on Tuesday also reiterated Target's commitment to raise its minimum wage all the way to $15 an hour by the end of 2020, which "establishes Target as an employer of choice."


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Cornell said Target's wage hike last fall immediately translated to a 30% spike in seasonal job applicants, giving Target "a much stronger pool of talent to hire from."

Target shares took a hit on Tuesday after the big-box discounter came up just shy of earnings estimates and offered disappointing guidance. Analysts expressed concern that the company's investments in store remodels and labor will limit the earnings uplift from better sales trends.

Shares of Target tumbled 4.5% to 71.79 on the stock market today, plunging through the 50-day line for the first time since late November.

Walmart stock slipped 1%. Walmart tumbled last month after also coming up light on per-share profit in holiday quarter and 2018 earnings guidance. Shares are trying to find support at the 200-day line.

Amazon shares rose 0.9%, hitting a new high.

Some analysts have speculated that Target could be the next big acquisition for Amazon.com, giving it the wide store distribution it needs with a nice fit for Amazon's Prime demographic.

But Amazon may not be willing to take on the political glare that would come from a Target deal in a period of rising antitrust sentiment in Congress. At a minimum, Amazon would surely face enormous pressure to embrace Target's $15 minimum wage commitment.

In perhaps a reflection of Wall Street's concern about the earnings impact of Target's investments, the company said the wage hike will apply to current associates, suggesting the minimum wage for new workers will remain $11 an hour for now.

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89. IBD/TIPP Poll: Economic Optimism Index For March 2018Вт., 06 марта[−]

The monthly IBD/TIPP Economic Optimism Index, a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism.

X The IBD/TIPP Economic Optimism Index is made up of three subindexes, including one for the respondent's outlook six months into the future, the respondent's personal financial outlook, and how the respondent views current federal policies. The goal each month is to give as accurate a reading of the current state of the economy as possible.

The average for the index over the past 17 years has been 49.4, or slightly pessimistic. The index high of 62.9 was reached in March of 2002, six months after the 9/11 attacks, as Americans rallied behind the U.S. response to the terrorist attacks and confidence grew that the post-9/11 economy would not go into recession as widely feared. The index bottomed in August 2011 at 35.8, as the economy struggled to emerge from the financial crisis and key initiatives to boost economic growth had yet to have an impact.

IBD/TIPP also produces the Presidential Leadership Index at the beginning of each month.

See the schedule of upcoming IBD/TIPP poll releases.

IBD/TIPP Economic Optimism Index: News & Analysis

Income Tax Revenues Are Up 9% This Year — Is Trump Tax Cut Paying For Itself?Supply-Side Economics: Democrats scoffed at Republicans who said the Trump tax cuts would at least partially pay for themselves through higher economic growth. But it looks like the GOP had it right... Read More

IBD/TIPP Economic Optimism Index: Overall

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The IBD/TIPP Economic Optimism Index fell 1.9% in March to 55.6, after hitting its highest reading since October 2004 in February. It's the 18th straight month that it has been over 50 — which signals overall optimism about the economy. It is also above its long-term average of 49.4. The index stood at 44.4 in December 2007, the month that the U.S. officially entered a recession.

Six-Month Economic Outlook

The Six-Month Outlook is a forward-looking gauge that looks at how consumers feel about the economy's prospects over the next half year. The index fell 8% in March, taking back a big chunk of January's 11.4% jump. The reading for this index remains well above its long-term average of 46.3. This index stood at 32.1 in December 2007, the month the economy fell into recession.

Personal Financial Outlook

The gauge of how Americans feel about their own finances in the next six months remained unchanged in March at 63.8. The index remains close to its all-time high of 65.3 in January 2004, when the Bush-era tax cuts began to kick in. The Personal Financial Outlook is one of the most consistently optimistic indexes in the IBD/TIPP data set. It is well above its long-term average of 57.1.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component gained 2.7% in March to reach 50, following a 6.6% gain in February as the impact of the Trump tax cuts started to become clear. At 50, it is well above its 17-year average of 44.8. This index briefly moved into optimistic territory in February 2017 for the first time in 10 years, and now at 50 has returned to the feel-good zone. Intended to gauge how Americans view government policies put in place by the president, Congress, the courts and the Federal Reserve, the Federal Policies Index has consistently been the least optimistic of the three subindexes that make up the Economic Optimism Index.

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The post IBD/TIPP Poll: Economic Optimism Index For March 2018 appeared first on Investor's Business Daily.


90. IBD/TIPP Poll: Economic Optimism Dips From 13-Year High As Americans See Their Tax CutsВт., 06 марта[−]

The IBD/TIPP Economic Optimism Index eased 1.1 points to 55.6 in March, taking a step back after hitting a 13-year high in February.

X The polling from Feb. 22 to March 1, reflecting 901 responses, came after a month that saw most Americans' paychecks get a boost from lower tax withholdings and the first real bout of stock-market weakness in two years. While political support for the tax cuts has strengthened, polling shows that only about 1 in 4 registered voters noticed an increase in their paychecks. Some of the tax-cut dividends will come via a bigger child tax credit that is paid at tax time.

Positive news continued to roll in from the response to corporate tax cuts, with CVS Health ( CVS) hiking its minimum wage to $11 an hour, following earlier pay-hike announcements from Walmart ( WMT), JPMorgan Chase ( JPM), Starbucks ( SBUX) and dozens of other companies since the tax cuts were passed.

President Trump on March 1 announced plans to impose a 25% steel tariff and a 10% aluminum tariff on all imports. That spooked markets, at least temporarily, and economists warn that could hurt jobs and GDP growth over time. But the news on the last day of IBD/TIPP polling likely had no impact on March's Economic Optimism Index.

All income groups exhibited optimism, though optimism decreases with income. falling from 58.7 for those earning above $75,000 to 50.2 for sub-$30,000 earners.


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The Economic Optimism Index is a composite of three major subindexes that track views of near-term economic prospects, the outlook for personal finances over the coming six months, and views of how well government economic policies are working.

The gauge of the six-month economic outlook fell 4.6 points to 52.9, a month after hitting its highest level since October 2012.

The six-month personal financial outlook index held at 63.8, still close to January's 14-year high of 64.0.

Meanwhile, the measure of confidence in federal economic policies rose 1.3 points to 50.0. That neutral reading reflected the second-most favorable view of government since 2007, with the gauge briefly popping into positive territory during the honeymoon after Donald Trump's election.

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91. Will Trump Steel Tariffs And Policies Spark An Economic Clash With China And Xi Jinping?Сб., 03 марта[−]

President Trump's national security strategy has drawn sharp critiques for its pointed challenge to China's economic policy and geopolitical ambitions. But a forceful new stand by China's leader last fall may have paved the way for a run-in, with huge stakes for America's world standing, businesses and investors.

X China's party congress, the huge meeting of Communist Party members held every five years in Beijing, is usually a boring affair that passes with little notice. But in October President Xi Jinping declared at the congress that China should "take center stage in the world." He also made clear the days of political liberalization are at an end.

That puts Xi Jinping and China squarely on a collision course with Donald Trump and the U.S. — an inevitable clash of "Make America Great Again" against "Make China Great Again."

"One result of this strengthening of state intervention is a worsening environment for American investors in China and greater barriers to American companies exporting to China," said Scott Kennedy, director of the Project on Chinese Business and Political Economy at the Center for Strategic and International Studies (CSIS) in Washington.

Xi's grip on China could continue for a long time. On Feb. 25 the Communist Party revealed it plans to end China's constitutional limits on presidential terms. Outsiders viewed the news, which affected U.S.-traded Chinese education stocks TAL Education Group ( TAL) and New Oriental Education ( EDU), as another step toward more authoritarian rule in China.


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Besides trade, Xi's policy shift raises new questions about intellectual property, data security, censorship and treatment of U.S. companies in China vis-a-vis Chinese companies. Among those with big stakes are giant technology stocks like Apple ( AAPL), Google, Facebook ( FB) and Microsoft ( MSFT).

The one softening influence on China's tone has been its dependence on exports to finance its economic goals. But President Trump on March 1 signaled he will slap tariffs on steel and aluminum from foreign producers, using "national security" as a reason for the action.

Since the U.S. has already imposed 24 separate trade penalties on China for its steel exports to the U.S. — far more than any other country — the news of more tariffs is likely to create even more trade and political friction. Stocks fell sharply on trade war concerns Thursday and early Friday. In stock market trading Friday, the Nasdaq bounced back to close up 1.1% and the S&P 500 ended up 0.5%, but the Dow Jones industrial average fell 0.3%.

China's State Control Of Economy

With Xi now marching toward one-man rule and with greater protectionist sentiment abroad, China's freewheeling brand of capitalism, officially encouraged since Deng Xiaoping's years in the late 1970s, may be over.

Xi's attention-grabbing move to put his official stamp on the nation's future, dubbed "Xi Jinping Thought," embraces greater political power for Xi and his fellow party rulers, and increased centralization of state control over the economy.

The New York Times called Xi's new philosophy "a flattering echo of 'Mao Zedong Thought,'" named for China's xenophobic first, and most totalitarian, communist leader.

Trade and economic conflict seem inevitable. Friction is especially likely over U.S. tech and internet companies, which increasingly find themselves hemmed in by China's ubiquitous rules that favor local companies over foreign ones.

The U.S. ran a massive $347 billion trade deficit with China in 2016, which President Trump has attacked as a sign of unfair trade. That deficit is also a major source of China's wealth, which now totals $1.2 trillion of U.S. treasuries.

Trump's National Security Strategy

Like Xi, Trump articulated his own tough vision of U.S. and China ties as he unveiled his national security strategy Dec. 18. It boldly reasserts U.S. global leadership, particularly in the economic realm.

Not mincing words, Trump portrayed China as a "challenge (to) American power, influence, and interests, attempting to erode American security and prosperity."

"Whether we like it or not, we are engaged in a new era of competition," he said.

Because of this, Trump said his new strategy "calls for trade based on the principles of fairness and reciprocity ... for firm action against unfair trade practices and intellectual property theft ... (and) for new steps to protect our national security industrial and innovation base."

U.S. investors have reason to be wary of the new Chinese model.

"Japanese and Korean firms have already felt the pinch, as rising nationalism has sometimes gotten out of control and led to protests against their brands and even some destruction of their property in China," said Salvatore Babones, a sociologist and China specialist at the University of Sydney and author of " American Tianxia: Chinese Money, American Power and the End of History."

How Chinese Exports To U.S. Affect Politics

In 2016, China sold some $463 billion in goods and services to the U.S., a sore spot with Trump but a huge boost to the Chinese economy. The silver lining: Xi can't afford to rile the U.S. too much.


IBD'S TAKE: Many factors influence whether the stock market is in an upturn or correction, but smart investors stay in sync with the overall trend. Bookmark IBD's The Big Picture and read the column each day to stay on top of the market's direction, which can tell you when to be aggressive and when to move to the sidelines.


"The Chinese government won't let anti-U. S. feeling get out of hand in a way that would lead to real U.S. retaliation," Babones told IBD. "So the main impact on investors is likely to be low-key regulatory interference of the kind that makes it difficult for U.S. internet companies to succeed in China."

Already, the Chinese government competes directly with big tech businesses from abroad, including the so-called FANG companies, through its recently acquired investments in some of the most successful Chinese tech companies, including Alibaba ( BABA), Tencent ( TCEHY) and Weibo ( WB).

U.S. companies that compete with those fast-growing Chinese internet giants may find a less-welcoming attitude from the government in the future, particularly as it steers away from its reliance on foreign investment and exports toward a more domestic-growth orientation.

Does China Treat U.S. Companies Fairly?

The same day Trump spoke on national security, Chinese regulators at a Geneva technology conference said companies like Alphabet ( GOOGL) unit Google, Facebook and Twitter ( TWTR) that don't operate now in China would be welcomed back — but only if they accept censorship and strict laws governing online use.

"The condition is that they have to abide by Chinese law and regulations," said Qi Xiaoxia, a top official at the Cyberspace Administration of China. "That is the bottom line. And also that they would not do any harm to Chinese national security and national consumers' interests."

Given China's 750 million-plus web users, big U.S. internet companies will be tempted to accept such limits to operate within China's so-called Great Firewall.

Alphabet has dipped a toe in the water, with the announcement in mid-December that Google will open an artificial intelligence center in China.

But Google's signature search engine, YouTube and Gmail services will continue to be blocked.

Meanwhile, Apple already operates in China but does so under heavy censorship — for which it has been sharply criticized in the U.S.

In the future, the price of admission to China may be too steep for some.

Increasingly, U.S. companies are required to give up their trade secrets or patents as the price of admission.

Are U.S. Tech Companies' Data Secure In China?

China's new cybersecurity law, passed just last June, requires that foreign tech firms store their data inside China and allow the government to keep tabs on how they use it.

China is also encouraging U.S. companies to set up research and development operations there.

Apple, Amazon ( AMZN) and Microsoft already have cloud-computing operations in China. And of course, there's Google's new AI center.

But it isn't only technology, strictly speaking, that gets this treatment.

Current Chinese rules require foreign companies that want to enter industries such as energy, autos and telecom to do so through joint ventures.

These ventures often lead to Chinese companies gaining U.S. technology and manufacturing know-how on the cheap.

In addition, the CSIS' Kennedy said, "The Chinese are using their advantages in their home market to compete head to head with the U.S. in third markets."

Impact Of China Protectionism

Kennedy believes this has established an even more damaging dynamic, one in which Chinese protectionist policies and subsidies in coveted high-tech markets will cripple U.S. competitors' business models, which are based on heavy R&D and intensely competitive markets.

"Although consumers in these sectors benefit from lower prices now, productivity in these sectors will decline and the benefits ... for the rest of the global economy will fall as well," Kennedy said.

With $75 billion in direct investment in China as of 2015, the stakes for U.S. companies and investors in China's recent political changes are enormous.

Then there's the elephant in the room: The so-called Silk Road Initiative, one of the biggest infrastructure projects ever, and the linchpin in Xi's plan to leapfrog the American economy to make the Chinese economy No. 1 in the world.

That trillion-dollar road-and-sea port project will eventually tie China's heartland to a wide swath of countries and regions, ranging from Southeast Asia to the Middle East and into Russia and Europe.

McKinsey & Co. estimates that the project will eventually span 68 countries. It could include 65% of the global population and as much as a third of global GDP. While China will itself spend $1 trillion or so, it expects to finance anywhere from $2 trillion to $8 trillion in new infrastructure in dozens of countries, helping to fund everything from roads and warehouses to ports and freight-loading facilities.

China's Standing In The World

It's not altruism. It's all about geopolitical clout.

As the British magazine The Economist noted, "Its ultimate aim is to make Eurasia (dominated by China) an economic and trading area to rival the transatlantic one (dominated by America)."

When it's done, China, which insulated itself from foreign contact for much of its nearly 5,000 years of existence, will for the first time ever be intimately connected with its Asian neighbors and Europe. It would tower as an economic superpower with direct links to some of its biggest markets.

But here's the rub: To build this massive project, Xi will need to run massive fiscal deficits for years, if not decades. One estimate from Hayman Capital Management LP already shows total deficit spending both on-budget and off-budget of 14% — greater than the spending "stimulus" China applied during the financial crisis.

Even if it's half that, it will be hard to sustain.

That means China will have to continue exporting to the U.S. to finance its big plans — or squeeze more from its domestic economy. And all this comes as the U.S., under Trump, slashes corporate tax rates, another challenge to China as it seeks to finance its future growth.

What Trump Says About China Trade

None of this seems to be lost on the Trump administration.

During his 2017 trip to Asia, President Trump went out of his way to show a friendly face toward China and its leader. But he has since shown he's willing to challenge Xi Jinping, particularly on economic and trade matters.

In late November, Trump's administration surprised some by arguing before the World Trade Organization that China's bid to be declared a "market economy" should be rejected.

China had maintained that it had an implied deal when it joined the WTO in 2001 to automatically gain long-sought "market economy" status 15 years later. But the Trump administration cites Xi's backsliding on democracy and free markets in opposing changing China from "non-free market" to "free market" status.

There might be a strategic reason for Trump's move.

Once China gains status as a market economy, it would legally be much more difficult to bring a WTO case against it for dumping and other trade violations. Trump wants to keep that as negotiating leverage in the new era of "Xi Jinping Thought."

Can Trump Keep China Markets Open?

Trump's move to keep China from being declared a free-market nation, the New York Times said, could "shape the global trading system for decades to come."

More likely, Trump will use it as a crowbar to keep Chinese markets open to U.S. goods and investment. That could be seen in China's recent cuts in tariffs on U.S. goods.

China's economy has had an incredible run, growing at an official rate of close to 10% per year since the early 1980s, after China's capitalist experiment began.

But even China says that growth is over. The question is, what will China become: A protectionist hegemon, or an open, market-oriented economy with increasing political freedom?

"Now with omnipotent power firmly in his hands, Xi Jinping wants to do something neither Mao nor Deng has done — he wants the combination of Mao's totalitarianism and Deng's crony capitalism," Helen H. Wang, a Chinese-born, U.S.-based business consultant, noted.

If so, this could herald a new era of government control, with the Chinese regime more involved in directing the business sector and cracking down on those that conflict with Xi's desire to push China to the center stage in the world economy. Entrepreneurs and foreign businesses beware.

Editor's note: This story originally was published Dec. 22, 2017. It was updated to include the Feb. 25 news that China's Communist Party plans to eliminate constitutional limits on presidential terms and the March 1 steel tariffs announcement by President Trump.

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92. Trump Steel Tariffs Will Miss China And Hit Canada, Wall Street And YouПт., 02 марта[−]

The first big shot in the trade war that President Trump promises to launch next week by imposing a 25% tariff on steel imports would be aimed at China but score a direct hit on Canada.

X Canada is the biggest steel exporter to the U.S., shipping 5.8 million metric tons in 2017, or about 16% of total steel imports. Yet Canada is also, far and away, the largest export market for U.S. steelmakers. Through the first three quarters of 2017, the U.S. ran a relatively minor trade deficit with Canada of about a half-million metric tons, according to Department of Commerce data.

Mexico, although it's the No. 4 source of U.S. imports of steel, actually imported more steel from the U.S. than it sent here through the first three quarters of 2017.

On the other hand, China, which the Commerce Department characterizes as by far the worst offender, accounting for about half of global steel overcapacity, only provides about 2% of U.S. imports, so it won't feel much direct impact from a 25% tariff.

In other words, it's hard to imagine a clumsier, more ham-handed way of seeking to redress unfair trade practices than a 25% tariff on global steel imports. The collateral damage may include workers from Ford ( F) and General Motors ( GM), along with American car buyers and — if the Dow Jones industrial average's 420-point dive on Thursday is any indication — U.S. stock investors.

By the time foreign trade partners hit back with reprisals, the tariffs may boomerang on Harley-Davidson ( HOG), Jack Daniels and soybean farmers, and the list may get a lot longer.

All of that could mean lost jobs in other industries and higher costs for consumers on a wide range of goods.

"You'll have protection for a long time," President Trump on Thursday told executives of U.S. Steel ( X) and Nucor ( NUE), among others, saying he'll make 25% steel tariffs and 10% aluminum tariffs official next week.

Shares of U.S. Steel rose nearly 6%, Steel Dynamics ( STLD) 4%, Nucor 3% and AK Steel ( AKS) 10% in Thursday trading on the stock market today.


IBD'S TAKE: The sell-off triggered by President Trump's tariff plan has changed the outlook for the stock market, The Big Picture column explained on Thursday. Now that stock market volatility has returned, it's more important than ever to read IBD's The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


Despite reported divisions in the White House over the wisdom of major tariffs, Trump appeared determined to stick to his guns. The import tariffs — easily his most far-reaching protectionist trade measures — were recommended by the Commerce Department, which cited national security concerns to justify support of U.S. steel and aluminum producers with high tariffs on imports.

National security concerns haven't been used to justify the imposition of tariffs for decades. There's little reason to think that the action would comply with World Trade Organization rules, though that doesn't appear to worry Trump. President George W. Bush backed down about 18 months after imposing steel tariffs in 2002, just as European nations were getting ready to launch trade reprisals. This time, foreign trade partners are unlikely to hesitate for long because they've been preparing for Trump to follow through on his America First rhetoric.

Commerce recommended global tariffs of 24% on steel imports and 7.7% on aluminum, along with a range of other options aimed at bringing capacity utilization in the two domestic industries up to 80%.

Trump apparently bumped up the recommendation to a 25% steel tariff because he liked the round number. At least for now, Trump appears to be insisting on no exceptions to the tariffs, which threatens to create a crisis situation with Canada and Mexico, and likely other nations as well.

Other top steel exporters to the U.S. include Brazil, South Korea, Russia, Turkey, Japan, Germany and Taiwan.

The Commerce Department had provided Trump with an alternative approach that would have shielded both Canada and Mexico. That option would have levied a 53% tariff on a select group of countries, including Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia and Costa Rica. Those countries, the Commerce Department notes, account for just 4% of steel exports from the U.S.

Defense Secretary James Mattis in February raised concern about the "negative impact on our key allies," advising that " target tariffs are more preferable than a global quota or global tariff."

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93. Trump's Steel Tariff Vow Sends S&P 500, Dow Jones Tumbling On Trade War RiskПт., 02 марта[−]

President Trump said on Thursday that he'll sign a measure next week imposing tariffs of 25% on steel imports and 10% on aluminum imports. That gave steel and aluminum stocks a boost, but the S&P 500 index and other major averages retreated.

X Despite reported divisions in the White House over the wisdom of major tariffs, which could spark retaliation by trading partners, Trump appeared determined to stick to his guns. The import tariffs — easily his most far-reaching protectionist trade measures were recommended by the Commerce Department, which cited national security concerns to justify support of U.S. steel and aluminum producers with high tariffs on imports.

The Dow Jones industrial average fell 1.7% on Trump comments, with the S&P 500 index and Nasdaq composite off 1.3%. While steel and aluminum buyers, such as Ford ( F) and General Motors ( GM), stand to lose from such tariffs, the bigger risk to markets is that Trump's actions will bring retaliation from foreign trade partners.

Ford and GM reported February U.S. auto sales Thursday morning that fell more than expected. Auto stocks accelerated losses on the Trump tariff news.


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Shares of U.S. Steel ( X), Steel Dynamics ( STLD), Nucor ( NUE) and AK Steel ( AKS) had surged in early action on the stock market today, but gave up some of their gains as expectations waned that Trump was set to follow-through on Commerce Department recommendations.

Trumps comments did light a fire under the industrial metals producers again. U.S. Steel was up 5.76%, Steel Dynamics 4%, Nucor 3.3% and AK Steel 9.5%. They were off their session highs though. Alcoa ( AA) edged up 0.2%.

Trump tweeted early Thursday morning that "our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy."


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


Commerce recommended global tariffs of 24% on steel imports and 10% on aluminum, along with a range of other options aimed at bringing capacity utilization in the two domestic industries up to 80%.

National security concerns haven't been used to justify the imposition of tariffs for decades. There's little reason to think that the action would comply with World Trade Organization rules, though that doesn't appear worry Trump.

President George W. Bush backed down after imposing steel tariffs in 2002, just as European nations were getting ready to launch trade reprisals.

Harley-Davidson ( HOG) motorcycles, Jack Daniels whiskey, and soybeans are seen as potentially facing collateral damage in a trade war, but that may not be all. There's also a risk that a pullback from globalization could add to upward pressure on inflation.

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94. Fed Chief Powell Assures On Inflation, But Here's 6 Reasons Why Investors Are NervousПт., 02 марта[−]

Federal Reserve Chair Jerome Powell told the Senate Banking Committee on Thursday that he still sees evidence of modest slack in the labor market, meaning the economy still has room to grow without rising inflation pressures.

X "Nothing (in the data) suggests to me that wage inflation is at a point of acceleration," Powell said.

Powell's remarks were at least somewhat soothing to Wall Street, coming after the main takeaway from his Tuesday appearance before a House panel was that the economy will grow at a faster pace this year than Fed policymakers had anticipated when they penciled in three rate hikes by the end of 2018.

Meanwhile, the Commerce Department reported early Thursday that the Fed's preferred gauge of inflation, the core personal consumption expenditures price index, rose a tame 1.5% from a year ago in January, as expected.

Although the Institute of Supply Management reported that national factory activity in February grew at its fastest pace since 2004 and jobless claims hit a 48-year low, Powell's less-hawkish testimony left Treasury yields little changed in early afternoon trading. Treasury yields dipped by the close as the Dow Jones industrial average, S&P 500 index and Nasdaq composite sold off on the stock market today as President Trump vowed to impose a 25% steel tariff, raising trade war fears.

Inflation has been undershooting expectations for years, so it may seem odd that markets are so focused on the threat now. Yet there's good reason to think that 2018 will be the year when price pressures begin to surface, at least to a moderate extent.

That's not to say inflation is about to spike. The war for retail dominance between Amazon.com ( AMZN) and Walmart ( WMT), the transparency in pricing afforded by the internet and disruptive business models like Airbnb are a legitimate game-changer. A push by the FDA to expedite generic drug approvals is likely to continue to help keep a lid on prescription prices.

While such disinflationary fundamentals aren't going away, a host of forces are lining up this year that have potential to finally push inflation up to the Fed's 2% goal.

Double Dose of Fiscal Stimulus

The combination of the $1.5 trillion tax cut and $300 billion spending package is expected to shift an economy that had already picked up speed into still-higher gear.


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Stepping on the fiscal accelerator in the ninth year of an economic expansion amid solid growth is an experiment that's never been tried, and it's likely to add to upward cyclical pressure to inflation that tends to emerge when demand for labor and resources rises.

With economic optimism on the rise and more dollars in their pocket, consumers may be, on the margins, more receptive to price hikes. Companies that have recently announced price increases include Amazon, which hiked fees for monthly Prime members; Disney ( DIS), which raised theme park ticket prices for single-day guests; and Wendy's ( WEN), which said on its latest earnings call that it raised prices by 1% in January to offset higher wages and commodity costs.

4.1% Unemployment And Falling

Whether or not the tax cuts really deserve the credit, companies such as Walmart, CVS Health ( CVS), Starbucks ( SBUX) and Wells Fargo ( WFC) gave a nod to the tax legislation when they subsequently announced pay hikes.

Wage growth looks like it will take another step up from the Goldilocks-like 2.5% gain in average hourly wages that prevailed for most of 2017.


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


Fed policymakers often talk about full employment, the lowest that unemployment can go before inflation starts to accelerate. No one knows exactly where it is and some economists, citing the experience of Japan, have doubts about the theory. Still, some economists expect unemployment to get as low as 3.5% this year, and new Fed chair Jerome Powell said Tuesday that 3.5%, in his view, is the lowest imaginable rate of full employment, though he think it might be quite a bit higher.

Some industries, such as trucking, are seeing above-average wage gains because the job market for hiring and retaining drivers is especially competitive. Those extra wages tend to get passed along. While transportation makes up a relatively small fraction of a retailer's costs, those extra costs, along with higher retail wages, could affect the end consumer — even if it only results in less discounting.

Most inflation tends to be services inflation, so even flat prices for goods would be inflationary.

Mobile Phone Services

Fed policymakers have said for much of the past year that transitory factors may have only temporarily lowered inflation. One such factor was Verizon ( VZ) changing its cell-phone service pricing to provide unlimited data. Because that change began to lower inflation data in March 2017, that temporary factor will drop out of the picture this coming March,

Higher Oil Prices

Crude oil prices, at about $61.50 per barrel, are about $7 higher than a year ago, boosting the price of gasoline. While the Fed's core gauge of inflation excludes energy prices, higher energy prices can get passed along to consumers. Delta Air Lines ( DAL) is among a number of airlines that have tried to pass along higher fuel costs to customers through price hikes recently. So far, those hikes haven't taken hold, but stayed tuned.

Cheaper Dollar

The U.S. dollar is more than 10% cheaper than it was a year ago, relative to a basket of other currencies from advanced economies. That raises the price of industrial commodities and a range of imported goods. At the least, a rising dollar is no longer working to hold down inflation in the U.S. by making foreign goods cheaper in dollar terms. A weakening dollar, at least at the margins, adds to inflation pressures. Import prices rose for German cars, French cheese and Italian wine, though it's not clear the extent to which end consumers will face higher prices, since consumers have the option of buying nonimports.

Trump Trade War?

President Trump has until mid-April to make up his mind over whether to impose tariffs on steel imports, as recommended the Commerce Department. Investors in U.S. Steel ( X) appear to be betting that Trump will pull the trigger. Higher steel prices would add costs to cars made in the U.S., though it's not clear how automakers will respond when it comes to auto prices.

Another question is how foreign governments will retaliate if the U.S. enacts punitive trade measures that they believe are unwarranted under World Trade Organization rules.

The possibility of a trade war that then forfeits some of the disinflationary effects of globalization is among the biggest wild cards in the inflation outlook.

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The post Fed Chief Powell Assures On Inflation, But Here's 6 Reasons Why Investors Are Nervous appeared first on Investor's Business Daily.


95. U.S. Manufacturing Expanding At Fastest Pace In 14 YearsЧт., 01 марта[−]

U.S. factories expanded in February at the fastest rate since May 2004, indicating sustained strength in manufacturing as demand remains solid, figures from the Institute for Supply Management showed Thursday.

ISM Manufacturing Index Highlights

X The factory index climbed 1.7 points to 60.8, defying forecasts for a dip to 58.7. Readings above 50 indicate expansion.

The employment gauge jumped to a four-month high of 59.7 from 54.2.

The new orders index eased to 64.2 from 65.4; order backlogs climbed to 59.8 from 56.2.

The prices-paid index rose to 74.2, the highest since May 2011, from 72.7.

Key Takeaways

The latest advance extends a series of healthy readings in the survey-based measure of manufacturing that's being fueled by improving global economies and firm business investment. It also comes on the heels of a late-year pickup in consumer spending, which advanced in the fourth quarter at the fastest pace in more than a year.

The purchasing managers group's gauge of export orders was the strongest since April 2011. While orders and production were a touch weaker in February than the prior month, the readings are nonetheless robust.

The report showed factories are having some difficulty keeping up with demand. The ISM's index of order backlogs climbed to a 13-year high. Delivery times also lengthened in February, with a measure reaching the second-highest level since 2010. That may help explain the rise in the group's gauge of manufacturing employment, which posted its largest month-over-month gain in more than two years.

In addition to firmer overseas and domestic sales, corporate optimism is getting a lift from the recent tax-cut law and reduced regulation.

Other Details

The production index dropped to 62 in February from 64.5.

A measure of export orders jumped to 62.8 from 59.8. It was the gauge's fourth straight advance, the longest such stretch in six years.

Index of customer inventories fell to 43.7 from 45.6, indicating stockpiles were being depleted at a faster rate. The factory inventories gauge rose to 56.7 from 52.3.

Gauges of supplier deliveries climbed to 61.1 from 59.1.

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96. Stocks Fall As Fed Chief Powell Sees Faster Growth, But Here's What Investors MissedСр., 28 февр.[−]

New Federal Reserve Chair Jerome Powell told Congress that he sees "at most modest risk" from high asset prices, despite the generally buoyant stock market. But investors sold shares on concerns that Powell and fellow policymakers will raise interest rates more than three times in 2018 due to stepped-up economic growth forecasts.

X

Asked whether low interest rates have fueled "dangerous risk-taking," Powell noted no real build-up of leverage among households or the emergence of other significant risks to financial stability.

Wall Street reacted somewhat negatively to Powell's first monetary policy testimony to Congress since taking the helm of the U.S. central bank, focusing on his outlook for stronger economic growth and what that might mean for the number of Fed rate hikes in 2018.

Yet the overall tenor of his testimony probably should be taken as positive, because it suggests a lack of urgency to raise interest rates. The Fed, in other words, remains data-dependent and won't move to tighten policy more quickly due to tax cuts and fiscal stimulus unless inflation gathers momentum.

On the stock market today, the Dow Jones industrial average, S&P 500 index and Nasdaq composite closed at session lows, down more than 1%.

Bank stocks fell somewhat amid the broad sell-off. Shares of Bank of America ( BAC) and Morgan Stanley ( MS) lost a fraction, though JPMorgan Chase ( JPM), Wells Fargo ( WFC) and PNC Financial Services ( PNC) were down 1% or more. Banks can reap higher net interest margins as interest rates rise, especially when the long-term yields rise more than short-term yields.


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The 10-year Treasury yield rose 3 basis points to 2.90%, off session peaks but not far off last week's four-year high of 2.95%.

"At the December meeting, the median participant called for three rate increases in 2018," Powell said in response to a question over what it would take for the Fed to hike rates more than three times this year. "Now since then — we will submit another projection, all of us, in three weeks — but since then, what we've seen is incoming data that suggests that strengthening in the economy. We've seen continuing strength in the labor market. We've seen some data that will, in my case, add some confidence to my view that inflation is moving up to target. We've also seen continued strength around the globe, and we've seen fiscal policy become more stimulative. So I think each of us is going to be taking the developments since the December meeting into account and writing down our new rate paths as we go into the March meeting."

Powell added that it was his "personal outlook" as well as the overall committee that "the economy has strengthened since December," when Fed policymakers last offered their economic and policy projections for 2018.

Powell's upgrading of the outlook is hardly a surprise, coming after Congress backed a $300-billion-plus increase in federal spending earlier in February. Even before that, some Fed policymakers had been marking up their economic projections, as noted in the minutes from their Jan. 30-31 meeting.

Asked about whether "profligate fiscal policy" might require higher interest rates than otherwise by a Democratic committee member, Powell said that the Fed will keep its on eye on the economy, not on the actions of Congress, but he allowed that "all things equal," the appropriate interest rate would be higher when fiscal policy becomes more stimulative.

The Q&A seemed to cancel out the seemingly positive reaction to his published testimony. In prepared remarks released before the market open, Powell said that the Fed policymaking committee sees the risks to the economy as balanced between upside and downside risks, even as "some of the headwinds the U.S. economy faced in previous years have turned into tailwinds," especially fiscal policy.

The takeaway from the Q&A is that the assessment of balanced risks might date back to the January meeting, before the latest fiscal stimulus.

Yet in discussing a possibility that the Fed might discuss adopting an inflation range, instead of its specific 2% target, as a guide for policy, Powell underscored that there's not much reason to worry about an upsurge in inflation.

"Generally speaking inflation has been low or stable for 15 years now," Powell said.


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


Indeed, core inflation, as measured by the Fed's favored personal consumption expenditures price index, hasn't touched 2.5% since 1995. The past two economic expansions weren't tripped up by the Fed having to tamp down an inflation outbreak, but by the bursting of the dot-com and housing bubbles.

So when Powell expresses confidence that few troubling signs of excess have emerged, as well as confidence about a stable inflation outlook, investors should see the potential for this economic expansion running for several more years.

In prepared testimony, Powell said, "In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis."

Powell's testimony comes as firms including Goldman Sachs and JPMorgan are predicting one more rate hike this year than the Fed's own policymakers projected in December. Passage of a $310 billion budget deal in early February, after the Fed's last meeting, also has led economists to mark up their GDP growth estimates and added to concerns that inflation could make a comeback.

Inflation and the risk of a hawkish Fed has come back on the radar of investors after the January jobs report showed average hourly wages growing 2.9% from a year ago, up from the Goldilocks readings near 2.5% that persisted in 2017.

Walmart ( WMT) announced in January that it was hiking base pay to $11 an hour, three years after it last announced a boost in starting pay to $9 an hour. On Thursday, CVS Health ( CVS) said it will adopt an $11 minimum wage in April. Both companies tied their wage hikes to their tax cuts, saying they would spend part of their tax windfall on higher compensation, but that's only part of the story. Competition for quality workers led Target ( TGT) to boost its wage to $11 starting last October, when tax reform was still up in the air. At the time, Target made a commitment to raise its base wage to $15 an hour by the end of 2020. Starbucks ( SBUX), JPMorgan Chase and Wells Fargo also are among the dozens of big employers who have hiked wages in the wake of tax cuts.

While details of the January employment report suggested that the reported acceleration in wage gains was misleading, it does appear that faster wage growth is on the way.

Although a faster pace of rate hikes can't be ruled out if wage gains and inflation exhibit momentum, Powell's remarks suggest that the Fed isn't predisposed to a faster pace of rate hikes and will continue to give the economy some running room.

Arguably, financial markets are leading the Fed and not the other way around. The 10-year Treasury yield touched a four-year high last week after the Fed minutes from the January meeting noted that "a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate."

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The post Stocks Fall As Fed Chief Powell Sees Faster Growth, But Here's What Investors Missed appeared first on Investor's Business Daily.


97. What Is Inflation, And Why Does It Matter To The Fed — And You?Вт., 27 февр.[−]

What is inflation? Consumers hate it. The Fed fears it. But what exactly is inflation?

X

You've probably noticed that prices for some things, like college tuition, prescription drugs and the rent for an apartment, reliably go up virtually every year. Prices of other things, like basic laptop computers, televisions and not-so-fashionable apparel have tended to fall over time.

The Labor Department's consumer price index measures the overall change in the price of goods and services based on an average person's budget, with roughly 30% spent on housing; 13% on food; 10% on health care; 8% on energy — electricity, gas and fuel for your car; and so forth.

Inflation is a general rise in the price of goods and services that erodes the value, or purchasing power, of the dollars in your wallet and bank account. The inflation rate is the percentage increase in prices over 12 months. The 2.1% rise in the consumer price index in 2017 essentially meant that $1 at the start of 2017 was only worth 97.9 cents at the start of 2018.

What Is Inflation, And What Are Inflation Causes?

Sometimes prices rise because demand exceeds supply, allowing the seller to raise prices — and profits.

Producers also may increase prices when they're faced with cost increases of their own. In a current inflation example, Wendy's ( WEN) raised menu prices 1% in early 2018, partly to offset higher commodity costs for the food items it buys in bulk.


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Wendy's also said the price increase was made to offset higher hourly wages. Wages are a major business cost and can contribute to inflation when they are increasing. Wages recently have risen both because of state and local minimum wage hikes, and because employers have to pay more to retain and attract quality workers at a time of low unemployment.

Wendy's price hike is an example of cost-push inflation, though companies often try to limit the cost increases they pass on to customers by finding ways to make their operations more efficient and their workers more productive. Among the ways that Wendy's and its franchisees have been doing that is by deploying self-order kiosks.

A price increase will generally dampen demand somewhat, but when a price hike nevertheless provides a lift to revenue, companies are said to have pricing power.

In robust economic times, when wages are rising nicely and people have more cash at their disposal, more companies are likely to have pricing power. That's why the inflation rate tends to be cyclical, rising when the economy is zipping along, and slackening when consumers become less optimistic and more tightfisted.


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


How Does Inflation Affect Interest Rates?

The job of the Federal Reserve, the central bank of the U.S., is to balance low inflation and maximum sustainable employment. In other words, the Fed is to supposed to keep the jobless rate as low as it can be without setting off an upsurge in inflation. The Fed has officially adopted a 2% annual inflation target, and it primarily uses interest rates to achieve its goal.

When the Fed's key interest rate — the rate it charges on overnight loans to banks — is low, banks can offer cheaper loans to businesses and consumers, helping the economy grow. By raising its key interest rate, the Fed restrains growth by making it costlier for individuals and firms to borrow.

Why would the Fed want to slow growth? After all, inflation has been pretty tame for the past couple of decades, and most people expect it to remain that way. Mainly, policymakers worry about the economy overheating. Inflation rising above 2% is more of a symptom that excesses are building up in the economy that could turn a boom into a recession, like happened with the Dot-Com and housing bubbles.

A little inflation is seen as healthy, but its costs begin to mount as inflation heads higher. When the value of money erodes at a faster pace, lenders are stuck getting paid back in cheaper dollars, and therefore have to charge higher interest rates to compensate their risk. Retirees and those nearing retirement who have much of their savings in bonds that aren't protected for inflation are at risk of seeing the value of their savings shrink when inflation gathers steam.

How Is Inflation Measured By The Fed

The consumer price index is the best-known inflation measure. But the Fed prefers a somewhat different measure of prices, the Commerce Department's personal consumption expenditures price index. The Fed's inflation target also focuses on core prices, excluding food and energy costs, which can be susceptible to big price swings. In addition to prices paid directly by consumers, the PCE price index also factors in bills that are paid on behalf of consumers, such as government reimbursement of hospital bills.

The CPI and PCE both measure prices on the consumer level. The Labor Department's Producer Price Index tracks wholesale inflation based on prices paid by one business to another.

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98. New-Home Sales Tumble To Slowest Pace Since AugustПн., 26 февр.[−]

U.S. sales of new homes unexpectedly fell in January to the lowest level since August as borrowing costs rose and winter weather depressed demand, according to government data released Monday.

Highlights of New-Home Sales

X Single-family home sales dropped 7.8% vs. January to an annualized 593,000, well below estimates for 647,000. December sales were revised higher. Median sales price increased 2.5% vs. a year earlier to $323,000 Supply of homes at current sales rate climbed to 6.1 months from 5.5 months; 301,000 new houses were on market at end of January, the most since March 2009.

Key Takeaways

The results, which are volatile on a month-to-month basis, showed a 14.2% slump in the South, the largest decrease since March 2015 and a 33.3% decline in the Northeast. The two areas experienced inclement weather.

Mortgage costs are picking up and property price appreciation continues to outpace wage growth. That's crimping affordability, especially for younger Americans and first-time buyers. Borrowing costs have sharply accelerated this month.

Nonetheless, steady hiring and elevated consumer confidence are expected to help underpin housing.

New-home sales, tabulated when contracts get signed, account for about 10 percent of the market. They're considered a timelier barometer than purchases of previously owned homes, which are calculated when contracts close and are reported by the National Association of Realtors.

The post New-Home Sales Tumble To Slowest Pace Since August appeared first on Investor's Business Daily.


99. Inflation And The Fed Rate-Hike Outlook: What You Need To KnowЧт., 22 февр.[−]

The Phillips curve theory at the heart of the Federal Reserve's approach to raising interest rates as the economic expansion marches ahead is that lower unemployment gives rise to faster wage growth.

X Fed policymakers figure that inflation pressures won't follow too far behind wage pressures, as businesses pass along a portion of their higher wage bills.

Yet those assumptions central to proactive monetary policy — the steady diet of Fed rate hikes even when inflation remains below the Fed's 2% target — have taken some knocks lately.

With the jobless rate expected to sink below 4% this year and fall to 3.5% or lower in 2019, one of the biggest questions for financial markets is how much the link between unemployment, wages and inflation will finally assert itself?

Soon after tax reform passed in December, dozens of major companies — including Walmart ( WMT), CVS Health ( CVS), Bank of America ( BAC) and Starbucks ( SBUX) — announced wage hikes, a reflection of a tightening labor market. It's a good bet that wage growth is heading higher, but how much pricing power will companies really have?

Here are five keys to understanding the outlook for inflation and Fed rate-hike policy:

1) The Wage-Inflation Relationship In The Amazon Era

To understand why the link between wages and inflation isn't as clear as it once was, Target ( TGT) is a good place to start. In September 2017, the discount retailer announced a big wage hike and broad-based price cuts just three weeks apart.

The price cuts on thousands of items came shortly after Amazon.com ( AMZN) celebrated the close of its Whole Foods acquisition by cutting the upscale natural foods grocer's prices as much as 43% on select items like avocados and kale.

Then, in a bid to limit employee turnover and attract 100,000 seasonal workers in a tight labor market, Target hiked its minimum wage from $10 to $11 an hour and committed to a $15 hourly wage by the end of 2020.

Higher wages may not feed through to higher prices in the near term when a few huge companies have significant market power and incentives to put market share over profit. Amazon has been rewarded with a massive valuation because of sales growth and the growing reach of its Prime membership, even when its profits disappointed.

Internet-enabled transparency also keeps a lid on prices, and that's not just true of retail. Marriott International ( MAR) CEO Arne Sorenson has explained that the hotel group doesn't have as much ability to raise prices as it had in past cycles. While home-sharing via Airbnb has some impact on leisure travelers, he sees the bigger issue as "radical transparency in pricing."


IBD'S TAKE: Stock market volatility has returned, so it's more important than ever to read The Big Picture column each day to stay on top of the market direction, a key indicator that lets you know when you can be aggressive and when you should move to the sidelines.


2) Inflation And Rate-Hike Trends Since 1980

With just a few relatively modest trend reversals, inflation has been moving in only one direction since 1980: lower.

After sinking from more than 10% in 1980, core consumer price inflation, which excludes the sometimes-volatile food and energy categories, hasn't touched 3% since 1995. Aggressive Fed rate hikes under Paul Volcker pushed back inflation in the early 1980s, while pre-emptive Fed rate increases in the mid-1990s under Alan Greenspan ushered in the current low-inflation environment.

Amid technological advances that empower the consumer and the globalization of manufacturing supply chains, in part to capitalize on lower-wage labor, the Fed's preferred inflation gauge, the core personal consumption expenditures price index hasn't even touched 2.5% in decades and sat at 1.5% at the end of 2017.

Even if tight labor markets and near-3% GDP growth foster a bit more inflation, perspective is in order: Neither investors nor Fed policymakers are likely to get overly concerned.

3) The $1,000 Apple iPhone's Inflation Impact

You might guess that the Apple ( AAPL) iPhone X, which raised eyebrows with its near-$1,000 starting price when it was released in November 2017, sent the price index for phone equipment surging after its release, and you'd be right — to a point. The Labor Department, which adjusts price changes to account for technological advances, said that phone equipment costs fell 2.6% in January 2018 vs. a year earlier, which was the smallest decline since 2011.

The combination of quality improvements, productivity gains in manufacturing and global competition goes a long way to explaining why most inflation is in services. In the year through January, services inflation was running at 2.6%, while goods inflation was just 1.2%. Excluding food and energy, goods inflation was -0.7%.

4) How Health Care, Housing Costs Influence Inflation

An exception in the goods category is prescription drugs, whose prices always rise, bringing political scrutiny. But prescription-drug prices rose just 2.4% in January vs. a year earlier, roughly half the increase seen in the prior three years. Prescription benefit manager Express Scripts ( ESRX) said average per-member prescription costs of the employer plans it serves rose 1.5%, the lowest since 1993. One key: Generic fill rates rose 86% over the prior year. That likely reflects, in part, the FDA's new expedited generics approval approach, so the gains may be sustained.

Likewise, health care services prices rose a historically tame 2% in January. In regulated industries like health care, where prices are rarely transparent and government plays an especially large role, the power to raise prices is limited by the regulator.

The Fed's favored PCE price index, unlike the CPI, reflects prices that individuals pay, both directly and indirectly, such as for health care that is subsidized by government and employers. Health care accounts for just over 20% of the PCE index vs. about 9% of the CPI's weight. Meanwhile, housing accounts for a similar 20% of the PCE index, but more than 30% of the CPI. With shelter costs rising 3.2% from a year ago in January, that difference goes a long way to explaining why core CPI inflation typically exceeds core PCE inflation.

5) Productivity Boost Could Keep Inflation Tame

As labor markets tighten and workers have more opportunity to quit and find greener pastures, companies pressured to raise wages have three possibilities for dealing with their higher compensation costs: increase prices, accept lower profits or offset the higher wage bill by increasing worker output or finding other efficiencies.

To some extent, the earnings boost from the Trump tax cuts, which slashed the corporate tax rate to 21%, could make companies more willing to swallow higher wages without passing those costs on to customers. Incentives in the tax bill allowing for immediate expensing of equipment purchases could increase investment to make workers more productive.

A key question will be whether heightened wage pressures and bigger investment incentives can combine to get the U.S. out of the productivity rut it's been in for much of the past decade. If so, that could raise the growth ceiling on the economy without stoking inflation.

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The post Inflation And The Fed Rate-Hike Outlook: What You Need To Know appeared first on Investor's Business Daily.


100. Fed Minutes: Policymakers See Faster Growth; S&P 500, Dow Turn Negative, Bond Yields PopЧт., 22 февр.[−]

Federal Reserve policymakers saw "substantial underlying economic momentum," but continued to back gradual interest rate hikes, according to newly released minutes from the Federal Open Market Committee policy meeting on Jan. 30-31.

Fed officials raised their economic forecasts from December predictions, with the Trump tax cuts and the stock market soaring to record highs last month buoying short-term growth prospects. But policymakers said "gradual policy firming would be appropriate." Policymakers predicted "labor market conditions would strengthen further" but saw few signs of heavy wage pressures.

X That initially eased fears that the Fed might be more aggressive in 2018, but not for long.

The S&P 500 index, Dow Jones industrial average and Nasdaq composite initially added to already-solid gains following the Fed minutes release, with all three rising more than 1%. But the Nasdaq reversed to close down 0.2%. The S&P 500 sank 0.55% and the Dow Jones fell 0.7%, after both had retaken their 50-day moving averages intraday.

The 10-year Treasury yield, which edged lower soon after the report, rose 4 basis points to 2.94%, hitting fresh four-year highs.

Treasury yields have risen sharply in 2018 on strong global economic growth, accelerating wage gains and the U.S. getting a one-two punch of fiscal stimulus from tax cuts and higher government spending. That helped trigger the recent, short stock market correction.

The markets have largely priced in three rate hikes in 2018, starting with a quarter-point move at the March meeting, but a fourth hike has been less likely.

The odds of four hikes this year has risen to about 29%, according to CME Group's FedWatch tool. That's up from 24% soon after the release and from 27% before the release.

January's meeting was the last with Janet Yellen as chairman. Jerome Powell, already a Fed governor, is now the central bank chief.

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