Economy - Investor's Business Daily13:30 Текст источника в новой вкладке

 
 
1. Dow Jones Jumps On Tame Core CPI Inflation; Wall Street Doubts Fed Rate Hike PlanСр., 14 нояб.[−]

Core consumer prices, excluding food and energy, rose a moderate 0.2% in October, while the CPI core annual inflation rate undershot expectations, dipping to 2.1%, the Labor Department reported on Wednesday. The data may increase Wall Street doubts about intentions for three Fed rate hikes in 2019. The Dow Jones jumped rallied on the report.

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Wall Street expected the core CPI to rise 0.2% on the month and a steady 2.2% from a year ago.

The overall consumer price index rose 0.3% on the month and 2.5% from a year ago, matching expectations. Higher costs for gasoline, housing and used cars and trucks contributed to the rise.

The CPI data comes after the producer price index showed a surprise spike in wholesale costs, raising concerns about higher inflation at the consumer level.

After the CPI data, futures for the S&P 500 index, Dow Jones industrial average and Nasdaq 100 moved significantly higher before the open on the stock market. Dow Jones futures rose 0.8% soon after the open, the S&P 500 index 0.8% while the Nasdaq advanced 0.9%.

The 10-year Treasury yield, which slipped to 3.14% on week stock action earlier this week, ticked up to 3.15% on the CPI data.

Core inflation is close to the Fed's 2% goal and central bankers see a slim chance of a substantial acceleration from here. Sliding oil prices and a stronger dollar amid a downshift in global growth should both help keep a lid on inflation going forward. While Fed policymakers seem dead-set on keeping up their steady campaign of Fed rate hikes, Wall Street isn't buying Fed projections for three Fed rate hikes in 2019, following one more next month. Ahead of the CPI data, financial markets saw just 53% odds of even two quarter-point hikes next year.

Wage Growth Spurs Fed Rate Hikes

Faster wage growth amid falling unemployment is one reason the Fed sees the need to tighten. Average hourly wages grew at a 3.1% annualized pace in October, the first reading of 3% or more since 2009. Effective Nov. 1, Amazon ( AMZN) boosted its minimum wage to $15 an hour, from as little as $10 to $11 an hour in some parts of the country.

Amazon's wage hike comes amid antitrust scrutiny and follows its increase in Prime membership fees earlier this year. Yet even as Amazon bids up wages for regular and seasonal workers, its competitors are hard-pressed to push through price increases.

Apple ( AAPL) is among the companies with pricing power. Its average selling price per iPhone recently jumped close to 10% to $793. Yet, to the extent that users got better tech and not just outright price increases, CPI inflation data don't treat higher iPhone prices as inflationary.

The Fed remains worried that financial excesses will result from interest rates that are too low, even if those excesses don't show up in higher inflation.

President Trump lashed out at the Fed for "going wild" and "loco" in raising interest rates.

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2. Strong Dollar Pressures Dow Jones, Apple, S&P 500 EarningsВт., 13 нояб.[−]

The U.S. Dollar Index hit a 17-month high on Monday, a negative for global growth and corporate profits that helped get the Dow Jones industrial average, S&P 500 and Nasdaq off to a bad start for the week. Underscoring the dollar's importance for U.S. multinational earnings, JPMorgan trimmed its forecast of Apple ( AAPL) iPhone shipments, citing the strong dollar and softer growth in emerging markets.

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Apple stock, a Dow Jones component tumbled 5% to a three-month low, though primarily on warnings from Apple suppliers including Lumentum Holdings ( LITE). The Dow Jones fell 2.3% and the S&P 500 index 2 on the stock market today. The Nasdaq composite tumbled 2.8%.

U.S. Dollar Index Strength

The U.S. Dollar Index, which measures the greenback against a basket of advanced economy currencies, surged against the euro and British pound amid worries over Italy's budget and Brexit. The U.S. Dollar Index is now up 6% year to date. The dollar has been even stronger against emerging market currencies, notably China's yuan, which has been holding near a 10-year low vs. the dollar.

Trump Tariffs, Fed Rate Hikes Lift U.S. Dollar Index

President Trump, via Trump tariffs and the China trade war, and the hawkish Fed have buoyed the dollar and dampened growth in emerging markets. The dollar strength comes as the Fed looks set to hike its key interest rate again in December. Fed rate hike put upward pressure on the dollar, while making it costlier for emerging-market borrowers to repay dollar-based loans.

Trump wants to see a weaker dollar, which is among the reasons he's unhappy with the Fed. But Trump's own trade policies are having a similar effect. A central question facing markets is whether Trump will double down on his China trade war in coming months or will reach a deal with Chinese President Xi Jinping. Pivotal talks between the leaders are set for Dec. 1.

China Slowdown

Slowing growth in China, as it deals with the escalating Trump trade war, also has weighed on emerging markets via moderating demand for industrial commodities. JPMorgan analyst Samik Chatterjee, in trimming his 2019 Apple iPhone shipment forecast by 10 million to 208 million, noted a softening in consumer confidence in emerging markets. At the same time, a stronger dollar makes the iPhone more expensive in local currencies, he noted.

Separately, Oppenheimer analyst Jason Helfstein highlighted slowing growth for the Alibaba Singles' Day event as being indicative of weaker economic growth in China. Alibaba ( BABA) stock fell 1.4% Monday.

S&P 500 Earnings Slowdown

Escalating tariffs, a stronger dollar, slower global growth and higher interest rates could cut S&P 500 company earnings growth to 5%-6% in 2019 vs. Wall Street expectations of about 10%, David Bianco, chief investment officer in the Americas for DWS, wrote two weeks ago.

"The tariffs will have a small effect on U.S. gross domestic product, but a more significant effect on S&P earnings per share," Bianco wrote.

The effect of a strong dollar on global growth and S&P 500 earnings is a key reason why Wall Street is becoming wary of the divergence between the U.S., with its best spurt of growth in several years, and tame or slowing growth in much of the world.

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3. Why The Fed's Silence On Stocks Matters; Dow Jones Closes FlatПт., 09 нояб.[−]

The Fed surprised no one by leaving its key interest rate unchanged on Thursday. Today's status-quo Fed meeting should have had few implications for the Dow Jones industrial average and S&P 500, with no press conference and no new economic projections. But the lack of any mention of the recent stock-market correction in the post-meeting statement indicated the Fed is fine with lower stock prices.

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"In a way, the most interesting thing is the absence of any reference to October's stock market volatility, which implies the Fed is not concerned that there's been any material tightening of financial conditions.," wrote Fitch Ratings Chief Economist Brian Coulton.

Dow Jones Flat

After a huge day on Wednesday, following the midterm elections, the Dow Jones, S&P 500 index and Nasdaq composite lost ground after Thursday's Fed meeting statement. The Dow Jones was back and forth, closing just above break-even. The S&P 500 and Nasdaq closed modestly lower, about where they were before Fed announcement. It was probably better characterized as a pause, than as a reaction to the Fed. IBD's The Big Picture column said that Wednesday's big gains confirmed a renewed uptrend for the stock market.

With the stock market recovery, the 10-year Treasury yield has recovered near a seven-year high. Meanwhile, the 2-year Treasury yield hit a new post-crisis high of 2.97% after Thursday's Fed meeting, the highest level since 2007. The rise in short-term Treasuries has come as financial markets have priced in a December rate hike as a near sure thing. The upside surprise of 3.1% annual wage growth in the October jobs report, along with 250,000 new jobs, sealed the deal.

If there was any other reason for markets to react to the Fed, Jefferies economists Ward McCarthy and Thomas Simons highlighted confirmation that "the pace of balance sheet roll-offs will be maintained at $30 bln per month for Treasuries and $20 bln per month for MBS (mortgage-backed securities)."

"This is contrary to the growing speculation that the Fed would curtail balance sheet normalization because of an upward drift in the fed funds rate toward the top of the target range," they noted.

The next consequential Fed news will be the release of this week's Fed meeting minutes on Nov. 29. While the meeting discussion likely didn't augur any policy shifts it will give financial markets up-to-date indications of how policymakers are on raising interest rates to restrictive territory to slow robust economic growth. That kind of talk puts Wall Street on edge, fearing Fed rate hikes will go too far. Stock-market volatility escalated after the September Fed meeting minutes came out on Oct. 17, the first of six straight down days for the S&P 500.

China Trade War

A more pivotal development will come when President Donald Trump sits down with Chinese President Xi Jinping on Dec. 1 to discuss a trade deal that would avert a dramatic escalation of Trump tariffs on Chinese imports. Tariffs of 10% on $200 billion worth of imports are set to jump to 25% on Jan. 1. If the meeting doesn't indicate potential for a breakthrough deal, the Trump administration has signaled that it's ready to move ahead with tariffs on another $250 billion or so of imports that have yet to be targeted.

Fed, Trump Too Bullish On Economy?

The biggest risk to markets is that Trump and the Fed will charge ahead at the same time because both are so confident in the strength of the economy. As the economic boost from tax cuts and spending hikes fades by the middle of 2019, Trump tariffs and an overly tight Fed could exacerbate the slowdown.

Even in the stronger-than-expected third-quarter GDP report, business investment in equipment grew a tepid 0.4%. Trump tariffs, by raising costs and creating uncertainty, are beginning to hurt the outlook for investment and, in turn, employment.

Fed Rate Hike Plans Not Fully Priced In

There's always the possibility that Trump will opt for a suboptimal China trade deal to avoid escalating tariffs. Yet a China trade deal would move Fed rate hike fears front and center.

Right now, financial markets aren't buying into policymakers' hawkish projection of three Fed rate hikes in 2019, with just 30% odds given for the third rate hike. But Wall Street may reprice Treasury yields to factor in more tightening if trade war fears fade. A Wall Street celebration of a China trade deal could soon shift to concerns about economic overheating and Fed rate hikes.

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4. IBD/TIPP Poll: Economic Optimism Dips As Dow Jones Drops, Wage Growth PopsПн., 05 нояб.[−]

The IBD/TIPP Economic Optimism Index dipped from lofty levels at the start of November thanks to a lousy October for the Dow Jones and S&P 500 index, despite more good news about jobs and wage growth. Yet support for federal economic policies ticked up to a new 13-year high ahead of Tuesday's election, lifted by the highest approval the IBD/TIPP Poll has seen among Republicans.

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The IBD/TIPP Economic Optimism Index registered a healthy 56.4 in November, but eased 1.4 points from October's reading of 57.8, which was just two-tenths of a point off a 14-year high. Readings above 50 reflect optimism.

The IBD/TIPP Poll reflects 900 responses collected from Oct. 25 to Nov. 3. The interval since the prior month's polling saw the Dow Jones slide 6% from its Oct. 3 record as the stock market suffered its worst month since 2011. That dampened economic optimism among self-described investors from a joyous 61.5 in October to 57.8 in November. Meanwhile, optimism rose among noninvestors to 54.4 from 53.1, buoyed by wage growth hitting a nine-year high of 3.1%. On Oct. 2, Amazon ( AMZN) said it would hike its minimum wage to $15 an hour from as low as $10-$11 an hour in some parts of the country. Amazon said its pay hike would apply to 250,000 employees and 100,000 seasonal hires.

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.

The six-month personal financial outlook index was the big mover in November, sliding 4.4 points to 62.3. The October reading was a lifetime high for the IBD/TIPP Poll, which dates back to 2001.

The six-month economic outlook gauge eased one-tenth of a point to 53.2. The subindex hit a 13-year high of 57.5 in February on the heels of tax cuts.

Meanwhile, the measure of confidence in federal economic policies edged up 0.3 point to 53.7, clearing October's 13-year high.

Politics And Race Color Economy Views

Economic optimism rose 1.2 points to a euphoric 81.2 among Republicans, while slipping 2.6 points to a moderate 53.6 among political independents. Pessimism deepened among Democrats, with the index slipping 1.9 points to 36.1.

GOP optimism ebbed about the economic and personal financial outlooks. Yet they grew more ebullient about President Trump's economic policies, with the satisfaction gauge jumping 3.7 points among Republicans to 85.4, a record high. Independents are slightly downbeat about Trump economic policies (48.0), while Democrats are severely depressed (29.5). In the past few weeks, Trump tariffs and trade wars have taken a backseat to his election rallying cry against illegal immigration and the caravan of Central American migrants trudging their way to the U.S. border.

Views of Trumponomics also diverge based on educational attainment. Views are ever-so-slightly negative among college graduates (49.8) and solidly positive among those without a college degree (58+).

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5. IBD/TIPP Poll: Economic Optimism IndexПн., 05 нояб.[−]

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 49.6, 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

Yes, We Are Better Off After 2 Years Of Trump, Even If Dems Won't Admit It: IBD/TIPP PollMidterm Elections: If you follow the mainstream news, you'd never know it, but the country is much better off today than it was two years ago, when voters elected Donald Trump as... Read More

IBD/TIPP Economic Optimism Index: Overall

The IBD/TIPP Economic Optimism Index fell 2.4% in November to 56.4 after rising 3.8% in October to 57.8. The index in recent months has backed off of August's 58.0 level, which was the second-highest reading since January 2004. November marks the 26th straight month that Economic Optimism Index has been over 50 — which signals overall optimism about the economy — a record for this index. It is also well above its long-term average of 49.6. 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 edged down in November by 0.2% to 53.2 from 53.3 in October. 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 46.6. 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 fell 6.6% to 62.3 from to 66.7 in October. November's drop erased October's 6.5% gain. 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 as 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 57.3.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component rose 0.6% in November to 53.7 from 53.4 in October. The gauge, which in October stood at its highest level since January of 2007, remains well above its 17-year average of 45.0. 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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6. As Dow Jones Rides China Trade War Roller Coaster, Here's What Trump Is ThinkingСб., 03 нояб.[−]

President Donald Trump's hopeful signals about a thaw in the China trade war weren't just fake news to boost the stock market ahead of the election, as some commentators speculated. Ramping up China trade talks to avert a major escalation of Trump tariffs makes perfect sense now.

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The president has played his last big Trump tariffs card and will never have more leverage for a China trade deal. Yet Trump also may be realizing that his coming decision could be one of the most fateful of his presidency.

The thought that Trump was mainly toying with Wall Street seemed to go out the window Friday morning. The Dow Jones, S&P 500 index and Nasdaq all took a tumble as top White House economic advisor Larry Kudlow denied a report that Trump had tasked Cabinet officials to draw up terms of a trade deal ahead of a Trump-Xi meeting scheduled for late this month. The indexes firmed after Trump reiterated his hopes for a deal. The Dow Jones closed down, the S&P 500 0.6% and the Nasdaq 1%. Apple ( AAPL) earnings and a jump in Treasury yields as wage growth hit a nine-year high also were in focus.

There are two possible outcomes of the push to reach a China trade deal with Chinese President Xi Jinping. Let's first address the outcome that seems impossible: addressing the underlying tensions that threaten the world's most important economic relationship.

Strategic U.S. China Trade Deal Unlikely

Beijing has made clear that it won't give up its state-funded Made in China 2025 ambitions to overtake U.S. global technological leadership. Given the track record of Chinese companies wresting, or stealing, intellectual property from U.S. and other international companies, and Beijing's foot-dragging on opening markets and rising tensions over the South China Sea, trust is in very short supply. The superpower rivalry likely runs too deep to forge a new economic pact that meets each side's strategic goals.

China Trade War Seen

JPMorgan analysts and others on Wall Street expect Trump tariffs to escalate until they cover all half-trillion dollars worth of Chinese imports. Trump administration sources told Bloomberg early this week that Trump will choose the full-fledged China trade war option if the coming Xi talks don't bear fruit.

Yet Trump always has been reluctant to drive an irreparable break in the economic relationship with China. He didn't think he would have to go as far as he has. Even after Trump stepped in to save Chinese telecom gear giant ZTE from a death at the hands of American sanctions, Xi wasn't willing to meet his demands.

Now Trump has unloaded tariffs on $250 billion in Chinese imports, with tariffs set to escalate to 25% from 10% on a $200 billion tranche on Jan. 1. With his last card — Trump tariffs on all Chinese imports — now credibly played, the question is what will Xi offer.

What China Trade Deal Will Trump Accept?

Trump might take a China trade deal that does little for America's longer-term strategic interests but avoids the economic fallout of a U.S.-China divorce. He almost settled for stepped-up Chinese purchases of U.S. agricultural and other goods. That would have chipped away at the massive U.S. trade deficit with China. Yet that trade gap has kept rising under Trump. The Commerce Department reported on Friday that the goods trade deficit with China jumped to a record high of $40.2 billion in September, reaching $301.4 billion year to date.

While big trade deficits don't trouble Wall Street and the economics profession, Trump has accused China of plundering U.S. wealth.

Trump's initial demand was for Xi to cut the bilateral trade deficit by $200 billion a year. That was a nonstarter. In May, China offered to buy $70 billion in additional U.S. goods over a number of years. Trump seemed on the verge of accepting but backed away, then went on offense.

What China Trade Deal Will Xi Offer?

It's not clear the extent to which subsequent Trump tariffs and threats have loosened Xi's purse strings. Beijing has chafed at Trump's bullying and signaled that capitulation would wound its national honor. Yet Xi probably underestimated how far Trump was willing to go. He's probably willing to stretch somewhat more for a deal, though not too far.

Trump has a huge decision. Does he accept a China trade deal that delivers a short-term win but leaves the trade deficit stubbornly high and does little to restrain Beijing's global ambitions? Or does he opt for escalating Trump tariffs in the China trade war, which risks taking a bite out of the Trump economic boom and keeping the Dow Jones under pressure?

There's a good chance that not even Trump knows what he will do.

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7. Wage Growth Hits 3.1%, Cinching Fed Rate Hike In DecemberПт., 02 нояб.[−]

The U.S. economy added 250,000 jobs in October as the unemployment rate held at 3.7%, the Labor Department reported on Friday. Wage growth, the key number for investors worried about Fed rate hikes, accelerated more than expected to 3.1%, the fastest since early 2009. The momentum for wage growth virtually locks in another Fed rate hike in December.

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Wall Street economists expected 190,000 jobs, 3.7% unemployment and 3% average hourly wage growth.

While there's one more jobs report before the Fed meeting on Dec. 18 and 19, the big wage hike announced by Amazon ( AMZN) last month should ensure that wage growth doesn't relapse in the next report.

After the jobs data, the Dow Jones and S&P 500 futures built on mixed reports raising hopes of a U.S.-China trade deal, which offset Apple ( AAPL) weakness. But by mid-morning trading in the stock market today, the Dow turned down 0.1% and the S&P 500 0.3%, while the Nasdaq fell 1% in reaction to Apple earnings and its controversial iPhone announcement. The 10-year Treasury yield, which perked up to 3.17% ahead of the data, ticked up to 3.18%.

The economy added 32,000 manufacturing jobs, even as the sector deals with uncertainty and higher prices stemming from Trump tariffs and a possible escalation of the China trade war.

Amazon Wage Hike Kicked In Nov. 1

On Oct. 2, Amazon embraced a $15 minimum wage, responding to political pressure. Then, facing pressure from blowback from moderate-earning employees, Amazon bumped up pay for those making close to $15. Wage hikes were set to take effect on Nov. 1.

The acceleration in wage growth will keep pressure for more Fed rate hikes. The Fed generally subscribes to the theory that falling unemployment leads to faster wage growth, which feeds through to higher inflation.

While October's 250,000 payroll gain may have partly reflected a rebound from hurricane-related weakness in September, payroll gains have averaged a robust 218,000 per month over the past three months.

Ahead of the data, financial markets were pricing in 74% odds of a December rate hike. That rose to 77.5% after the data.

Restaurants, Retailers, Microsoft Increase Pay

This week's earnings reports offered more evidence that wage pressures are finally bubbling up. Texas Roadhouse ( TXRH) reporting wage inflation of 5.3%. President Scott Colosi noted on an earnings call that "the competition for employees and wage rate pressure is more intense than they (managing partners) can remember and it seems likely to continue in 2019."

Other evidence of broad wage pressures emerging in recent months included Microsoft ( MSFT) reportedly handing out six-figure bonuses amid competition over cloud-computing employees. Costco ( COST) hiked its starting pay by $1 an hour in June. Cheesecake Factory ( CAKE) has said its wage growth has jumped to a range of 6% to 7% vs. prior expectations of 5%. Walt Disney ( DIS) theme park workers in Florida recently approved a contract that will hike their starting wage by 50% to $15 over three years.

One of the concerns behind recent stock market weakness is that the Fed will go too far in hiking rates amid slowing global economic growth, an escalating trade conflict with China and the fading of fiscal stimulus from tax cuts in the U.S. The big question is whether the wage growth will keep the economy powering forward or whether employers facing margin pressures will cut back on hiring given higher rate outlook, trade uncertainties, softer global growth, strong dollar pressures on emerging markets, late-cycle worries and, potentially, financial market weakness.

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8. Trump Touts China Trade Talks Progress As Tariffs Hit Manufacturing; Dow Jones RisesЧт., 01 нояб.[−]

President Donald Trump on Thursday sounded upbeat about China trade talks after a phone call with Chinese President Xi Jinping. Trump's tweet helped boost the Dow Jones, S&P 500 index and Nasdaq composite, which had lost steam after a key manufacturing report pointed to a growing risk that tariffs will hit economic growth.

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Trump tweeted that his "long and very good conversation" with Xi had a "heavy emphasis on Trade" and that "discussions are moving along nicely."

Trump's tweet hit the wires right around the time that the Dow and S&P 500 had turned slightly negative on the stock market today following a positive open. Shortly after, the Dow was 200 points higher. The Dow Jones and S&P 500 index closed up 1.05% while the Nasdaq composite jumped 1.75%.

ISM Manufacturing Index Falls

Before Trump's tweet, a weaker-than-expected national manufacturing report from the Institute for Supply Management drove home the significance of the Trump-Xi talks scheduled later this month in Buenos Aires, Argentina.

The ISM manufacturing survey index slipped to a 6-month low of 57.7, down from September's 59.8 level. The data still signal solid growth, but it was notable deceleration, with Trump tariffs the prime suspect.

China Trade War Impact

"Tariffs Starting to Weigh on Activity" was the headline Jefferies economists slapped on the ISM report. One survey respondent commented, "Mounting pressure due to pending tariffs. Bracing for delays in material from China — a rush of orders trying to race tariff implementation is flooding shipping and customs."

Slowing factory-sector growth comes as the third-quarter GDP report shows that business investment slowed markedly. Business are feeling more cautious due to a potential China trade war escalation. Price hikes related to Trump tariffs already are squeezing profit margins.

The positive vibes Trump offered about China trade talks on Thursday offered Wall Street a welcome change from escalating threats. Bloomberg reported that Trump plans to order new tariffs on the remaining roughly $267 billion in Chinese imports that have yet to be targeted. Up until then, Wall Street had eyed the meeting as the last chance to avoid the automatic increase of Trump tariffs on $200 billion in Chinese imports. Tariffs on those goods are set to jump from 10% to 25% on Jan. 1.

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9. ISM Manufacturing Index Hits 6-Month Low As Orders, Exports, Hiring CoolЧт., 01 нояб.[−]

A gauge of U.S. manufacturing fell by more than forecast to a six-month low, as orders and hiring cooled amid escalating trade tensions with China, data from the Institute for Supply Management showed Thursday.

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ISM Manufacturing Index Highlights

The ISM manufacturing index dropped 2.1 points to 57.7, below estimates for 59. Readings above 50 indicate expansion. The new orders subindex fell to 57.4 from 61.8. The two-month decline of 7.7 points is the steepest since January 2015. The export orders gauge decreased 3.8 points to 52.2, the lowest since November 2016. The employment index declined to 56.8 from 58.8.

ISM Index Takeaways

The ISM manufacturing report may add to concerns that President Donald Trump's trade war with China is starting to inflict more pain on manufacturing even as the industry continues to expand. The export-orders gauge fell for the third time in four months, while new orders decelerated for the fourth month in five.

Elevated price pressures and a pickup in measures of backlogs and supplier deliveries show lingering supply-chain bottlenecks. Disruptions and data volatility related to major storms in September and October also may have played a role.

Some of the results may reflect an unwinding of gains from previous months when manufacturers were rushing to purchase materials and export their products ahead of U.S. tariffs and counter-levies by China. Trump has threatened to raise the tariffs further and on more products.

Analysts are also monitoring factory reports to assess whether the tax-cut-driven boost to business investment may be fading. Figures last week showed corporate spending on equipment cooled in the third quarter to the slowest pace of gains since 2016. Meanwhile, the job market remains solid, and the October jobs report due Friday is projected to show manufacturing payrolls climbed.

Other ISM Manufacturing Index Details

The production index decreased four points to 59.9, its biggest decline since March 2017. The prices paid index jumped 4.7 points to 71.6, the first gain in five months. The supplier deliveries gauge climbed 2.7 points to 63.8, showing lead times lengthening. The backlog index rose 0.1 point to 55.8. The inventories index sank 2.6 points to 50.7.

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10. Surging Dollar Is A Warning Sign For Dow Jones RallyСр., 31 окт.[−]

The U.S. dollar index raced ahead to a 16-month high on Tuesday and kept right on chugging ahead on Wednesday. That comes as eurozone growth falters, the U.S. economy has accelerated and President Donald Trump threatens to escalate China tariffs. While dollar strength hasn't kept the Dow Jones industrial average, S&P 500 index or Nasdaq composite from staging a big rally the past two days, it is a warning signal.

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Dollar Soars Amid Fed Rate Hikes

The dollar's strength depresses the profits of U.S. multinationals, since it reduces the dollar-based value of sales booked in foreign currencies by U.S. multinationals. Dollar strength also is a negative for global growth, since it makes it harder for emerging markets to pay back dollar-based loans.

A hawkish Fed, which is expected to hike its key interest rate for the eighth time in two years in December, has contributed to dollar strength. The dollar's key global role effectively makes the Fed the world's central bank. Other major central banks have not raised rates, with monetary stimulus continuing.

The dollar's latest surge came as third-quarter eurozone GDP growth slipped to just 0.2% (not annualized) vs. Q2.

Stock Market Rallies

The U.S. dollar index, which measures the greenback vs. a basket of advanced economy currencies, rose as high as 97.19. That's up nearly 5.5% since the start of the year and the highest since June 2017. So far investors jumping into the stock market rally are shrugging off the dollar's strength. The Dow Jones, S&P 500 index and Nasdaq rebounded 1.6%-1.8% on Tuesday. Wall Street pushed higher in Wednesday's stock market trading, with the Dow Jones up 1%, the S&P 500 1.1% and the Nasdaq 2%.

Slower S&P 500 Earnings Growth In 2019

The impact of escalating tariffs, a stronger dollar, slower global growth and higher interest rates could cut S&P 500 company earnings growth to 5%-6% in 2019 vs. Wall Street expectations of about 10%, David Bianco, chief investment officer in the Americas for DWS, wrote in a Monday note.

"The tariffs will have a small effect on U.S. gross domestic product, but a more significant effect on S&P earnings per share," Bianco wrote.

The effect of a strong dollar on global growth and S&P 500 earnings is a key reason why Wall Street is becoming wary of the divergence between the U.S., with its best spurt of growth in several years, and tame or slowing growth in much of the world.

But the Fed doesn't bear all the responsibility for the dollar's strength. Escalating Trump tariffs have slowed China's economy, which is a big driver of global growth.

On Monday, Bloomberg reported that Trump is upping the ante for his big meeting in late November with Chinese President Xi Jinping.

Wall Street has eyed the meeting as the last chance to avoid a big escalation of the China trade war. Trump tariffs on $200 billion in Chinese imports are set to jump from 10% to 25% on Jan. 1. Yet the stakes just got a lot bigger. If the Trump-Xi meeting doesn't produce results, Trump will order tariffs on the remaining roughly $267 billion in Chinese imports that have yet to be targeted.

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11. Dow Jones Reverses Lower As Trump Tariffs Threatened On All Chinese ImportsПн., 29 окт.[−]

President Donald Trump just upped the ante for his big meeting next month with Chinese President Xi Jinping. Wall Street has eyed the meeting as the last chance to avoid a big escalation of the China trade war, with Trump tariffs on $200 billion in Chinese imports set to jump from 10% to 25% on Jan. 1.

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Yet the stakes just got a lot bigger. Trump is reportedly sending a message that the late November meeting with Xi during the G-20 summit in Buenos Aires better produce results. If not, Trump will proceed to order tariffs on the remaining roughly $267 billion in Chinese imports that have yet to be targeted, with an announcement coming in December.

Separately, the Trump administration added Chinese chipmaker Fujian Jinhua Integrated Circuit to its export-restriction list for national security reasons.

The news helped undercut a stock market rally that had already lost steam on Monday and sent the Dow Jones industrial average, S&P 500 and Nasdaq composite reversing sharply lower. The Dow Jones closed down 1%, the S&P 500 0.7% and the Nasdaq 1.6%. And those were well off the worst levels of the afternoon.

Shares of Apple ( AAPL) retreated 1.9%, though that was tame compared to many names. That last big tranche of imports presumably includes the Apple iPhone. While Trump exempted the Apple Watch and Air Pods from tariffs, it remains to be seen whether he will give a reprieve to the iPhone if the China trade war escalates.

Apple stock is the biggest weight in the Dow Jones, S&P 500 index and Nasdaq composite.

Trump Trade War Threats Step Up

This isn't the first time Trump has threatened to impose tariffs on every last dollar of imports from China. On Sept. 17, when the Trump administration said it was going ahead with tariffs on $200 billion in Chinese imports, Trump warned Beijing not to retaliate. "If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports," Trump said in a statement announcing tariffs.

Trump's action at the time was more severe than Wall Street had anticipated. Instead of the 10% tariffs expected, Trump also announced the escalation to 25% on the $200 billion in imports effective Jan. 1. Yet Beijing, if anything, responded less aggressively than expected. Its retaliatory tariffs on $60 billion in U.S. imports ranged from 5% to 25%.

The Trump administration didn't follow up with the immediate escalation that had been threatened, which may have raised hopes for an eventual deal. But there hasn't been a hint of progress since then, and now Trump seems to have run out of patience.

Could this just be a winning strategy by Trump to finally force Beijing to make big concessions at the November meeting? That seems unlikely given that Beijing has said the trade conflict is a matter of national honor. China has refused to negotiate under threat and has demanded to be treated as an equal.

While JPMorgan, UBS and other Wall Street firms have said they expect Trump will eventually hit the full half-trillion in Chinese imports with tariffs, the timetable just moved up. If the Trump administration proposes tariffs on the remaining $267 billion or so in Chinese imports in December, the policy could be in place before spring, after a 60-day comment period.

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12. The Trump Economy's Lousy Week: Dow Dives, Tariffs Bite, CapEx SlowsСб., 27 окт.[−]

Trumponomics just had its worst week. The sinking Dow Jones, S&P 500 and Nasdaq composite were hardly the only red flags. While GDP is growing briskly and wage growth has accelerated — damage from Trump tariffs and slowing business investment are beginning to raise a few doubts about the sustainability of the Trump boom.

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Central to Trumponomics is the notion that the U.S. can have its cake and eat it too, that there aren't trade-offs in economic policy. In other words, it's possible to put the fiscal pedal to the metal without worrying about higher interest rates and a higher dollar. Trade wars are good, easy to win and won't impede a U.S. investment boom and a roaring bull market.

The news this week offers some reason to wonder whether the heyday of Trumponomics might be winding down and a string of negative economic surprises are around the corner.

Winning The Trade War?

Goods exports slid 7% in the third quarter, the biggest drop since early 2015, Commerce Data show. That probably reflects at least some payback from strong export growth in the second quarter, when U.S. exporters sought to get ahead of the China trade war and its tit-for-tat tariffs that started hitting in July.

Yet it also may reflect lost business. The USDA reported that U.S. soybean exports to China over the past seven weeks tumbled 97% vs. a year ago. China's retaliatory tariffs on soybeans help explain the steep drop, though higher inventories in China also are a factor.

Meanwhile, motor vehicle exports to China plunged 56% from a year ago in August, and Beijing's tariff hike on U.S. vehicle imports likely bear some of the blame. BMW has reportedly moved some China-bound SUV manufacturing from South Carolina to avoid Chinese tariffs. This week, Daimler ( DDAIF) said it's looking at moving some SUV manufacturing from Alabama for the same reason, though no decisions have been made.

Conversely, goods imports surged 10.3% in Q3, likely related to getting ahead of the Trump tariffs on $200 billion in Chinese imports that took effect in late September. Those China tariffs are set to escalate to 25% on Jan. 1 if there's no deal before then.

Trump Investment Boom?

Trumponomics offers both carrots and sticks to boost manufacturing and business investment in the U.S. The tariffs are supposedly the big stick, while Trump tax cuts were the big carrot.

Trump tweeted early last month that "Apple prices may increase because of the massive Tariffs we may be imposing on China — but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now." For now, though, Apple is one of the companies whose products are exempted from Trump tariffs.

Remember the trillions in cash parked overseas that Trump said companies would bring home to the U.S.? While there was a brief surge in investment after the tax cuts took effect, the latest GDP report shows that investment in equipment grew just 0.4% in Q3, the slowest in two years. The first batch of Q3 earnings reports showed a similar, though not so negative, trend for S&P 500 corporate capital spending. "Capex for early reporters is up 11.6% (year over year), which is a significant deceleration to the 17.9% in Q2 but still 5% higher than the same quarter last year," UBS chief U.S. equity strategist Keith Parker noted in a report.

Trump tariffs that are raising costs for U.S. producers — and threatening to raise them higher — can't be helping the investment outlook.

This week, 3M ( MMM) said tariffs would boost costs by about $100 million in 2019, while Tesla ( TSLA) warned of $50 million in higher costs in Q4 and Harley Davidson ( HOG) said it's facing a roughly $45 million tariff bill this year. Previously, Ford ( F) said Trump tariffs on steel and aluminum are boosting costs by $1 billion.

Fortress America?

For months, Trump has crowed about China's lousy stock market and boasted about the U.S. economy and financial markets.

America's economy "is booming like never before," having added $10 trillion in wealth since his election with the stock market at record highs, Trump told the UN General Assembly last month.

The acceleration of the U.S. economy has come as growth in China and Europe has slowed. Trump loves a weak dollar and complains about other countries rigging their currencies. But the breakout of the U.S. economy has coincided with the dollar surging about 7% since March against advanced-economy currencies. Meanwhile, China's yuan is flirting with a decade low, adding to nerves in global financial markets.

The recent declines on Wall Street are a reminder that global financial markets are tightly integrated. The stronger dollar is increasing headwinds to growth in emerging markets by making dollar-based loans harder to repay. It's also hurting the profits of U.S. multinationals that get much of their revenue overseas via exports and foreign operations.

Disappointing profit guidance at construction-equipment giant Caterpillar ( CAT) helped sink the Dow this week as its stock tumbled to levels last seen more than a year ago.

Some market analysts are noting that Wall Street is awarding the S&P 500 lower valuations than at any time since right before Trump's election. Of course, Trump's tax cuts provided an earnings boost, so the Trump effect on stocks is still positive. Still, lower valuations are a sign that investors sense a rising risk that the economic cycle is nearing an end.

Still, it's too early to know how all this will play out. Perhaps President Trump's China trade war won't escalate further. Perhaps the Fed will pause rate hikes, easing pressure on the dollar.

The big question may be whether faster wage growth keeps the economy powering forward or whether employers facing margin pressures will cut back on hiring — given the Fed rate hike outlook, trade war uncertainties, softer global growth, strong dollar pressures on emerging markets and financial market weakness.

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13. GDP Grew 3.5% In Third Quarter As U.S. Economy Stayed HotПт., 26 окт.[−]

The U.S. economy grew at a 3.5% annual rate in the third quarter, the Commerce Department said Friday, easing from the second quarter's blistering 4.2% pace. Wall Street economists had expected 3.3% GDP growth.

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After the report, the Dow Jones industrial average, S&P 500 index and Nasdaq composite modestly pared sharp pre-open losses on the stock market today, coming on the heels of disappointing fourth-quarter guidance from Amazon and others late Thursday. Meanwhile, the 10-year Treasury yield slipped to 3.09%, firming slightly on the GDP data.

The deceleration comes as rising interest rates are beginning to have an impact on the housing market and demand for big purchases like autos. The economy also is getting a more moderate boost from the Trump tax cuts that took effect in January.

The Commerce Department said that the moderation in GDP growth reflected a downturn in exports and a deceleration in nonresidential fixed investment.

Consumer spending surprisingly accelerated to 4% growth from 3.8% in Q2, even as durable goods purchases grew at a slower 6.9% rate vs. 8.6% in Q2. The acceleration was due to nondurable purchases and services spending. Residential investment slipped 4.0%, after easing 1.3% the prior quarter.

Exports fell 7% in the quarter, with Trump tariffs and the escalating China trade war playing a role.

Overall, GDP grew 3% from a year ago, the fastest annual growth since the second quarter of 2015.

The Fed's favored inflation gauge, the core personal consumption expenditures price index, rose a tame 1.6% in the quarter.

GDP figures are often subject to significant revisions and don't generally move financial markets in a significant way. But these data will be watched more closely at this stage of the economic cycle. When the economy starts decelerating this late into an expansion, a recession is typically about a year away. However, this cycle is unusual because of the major stimulus from Trump tax cuts coming as the unemployment rate had already fallen close to 4%. Still, the pace of the deceleration will be important to watch in coming quarters.

One potential red flag for the outlook came from fixed investment, which slipped 0.3% in the quarter. Investment in equipment rose a paltry 0.4%.

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14. The Next Stock Market Pitfall Is In Your PaycheckЧт., 25 окт.[−]

Thursday's snapback stock market rally in the Dow Jones industrial average, S&P 500 and Nasdaq led by Microsoft ( MSFT), Tesla ( TSLA) and Twitter ( TWTR) has Wall Street wondering whether the bottom is in. Investors will closely watch Amazon ( AMZN) earnings after the close. But the next big test could come Nov. 2 when the Labor Department may report knockout wage growth that puts Fed rate hike fears back front and center.

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Wage growth was softer than expected in September, slipping to 2.8% from August's cycle-high 2.9%. But, as IBD noted, that downside surprise obscured wage growth which sizzled relative to recent history. The six-month pace of wage growth accelerated to an annualized 3.3% rate, easily the fastest since January 2009.

Get Ready For 3%-Plus Wage Growth

September wage growth looked weak on a year-over-year basis only because of an illusory surge in wages in September 2017, when hurricanes Harvey and Irma sidelined many low-wage hourly workers. Average hourly wages shot up 12 cents that month — the most in more than a decade — only to see a very unusual 4-cent drop the next month.

Now we're about to find what annual wage growth really looks like, and Wall Street, which has gotten accustomed to sub-3% gains, may be taken aback. UBS economists predict that next week's data will show annual wage growth jumped to 3.2% in October.

Don't expect a relapse in November either. The recent Amazon wage hike, which embraced a $15 minimum wage and, under pressure, bumped up pay for those making close to $15, will take effect on Nov. 1.

Wage Gains Spur Fed Rate Hikes

The acceleration in wage growth will keep pressure for more Fed rate hikes. The Fed generally subscribes to the theory that falling unemployment leads to faster wage growth, which feeds through to higher inflation.

Indeed wage pressures are finally bubbling up as the unemployment rate has sunk to 3.7%, a 49-year low. Microsoft reportedly handed out six-figure bonuses recently amid competition over cloud-computing employees. Costco ( COST) hiked its starting pay by $1 an hour in June. Cheesecake Factory ( CAKE) has said its wage growth has jumped to a range of 6% to 7% vs. prior expectations of 5%. Walt Disney ( DIS) theme park workers in Florida recently approved a contract that will hike their starting wage by 50% to $15 over three years.

Inflation Set To Pick Up

Meanwhile, recent soft inflation readings are likely to reverse, UBS says. While the consumer price index showed slowing core inflation in September, UBS attributed that to a seasonal technical issue relating to used car prices. UBS sees the Fed's favorite inflation gauge, the core personal consumption expenditures price index, picking up to 2% this year, then to 2.1% in 2019. Trump tariffs are likely to raise inflation at the margins.

One of the concerns behind recent stock market weakness is that the Fed will go too far in hiking rates amid slowing global economic growth, an escalating trade conflict with China and the fading of fiscal stimulus from tax cuts in the U.S. The big question is whether the wage growth will keep the economy powering forward or whether employers facing margin pressures will cut back on hiring given higher rate outlook, trade uncertainties, softer global growth, strong dollar pressures on emerging markets, late-cycle worries and, potentially, financial market weakness.

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15. Here's When The Fed Will Yield To Trump's BullyingСр., 24 окт.[−]

For the no-drama Fed, a stock market correction, flattening yield curve, China trade war, even criticism from President Donald Trump all are treated as no big deal. But the Fed's hawkish consensus may be more vulnerable than it seems. If the market correction intensifies and the Treasury yield curve keeps on flattening, Trump's taunts may well help force a policy shift sooner than Fed Chair Jerome Powell expects.

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While Fed policymakers have no intention of bowing to the White House's will, Trump has a powerful ally in the yield curve. Centrists like Atlanta Fed President Raphael Bostic, a voting member in 2018, have stressed the importance of the Fed preventing an inversion of the yield curve. A yield-curve inversion, when long-term Treasury yields fall below nearer-term yields, has been about the best recession predictor around.

Stock Market Correction Flattens Treasury Yield Spread

As the Dow dived more than 600 points and the S&P 500 index lost 3.1% on the stock market today, the 10-year Treasury yield slid 6.2 basis points to 3.11%. Meanwhile, the two-year Treasury yield, which moves more closely with Fed rate-hike expectations, eased a more moderate 4.8 basis points to 2.85%.

Since the 10-year Treasury yield hit a seven-year high of 3.23% on Oct. 5, the gap between two-year and 10-year Treasury yields has narrowed by nearly nine basis points amid stock-market declines.

The 26-basis-point differential is still modestly above the 18-basis-point low seen in late August. Since then, an acceleration in wage growth helped widen the gap amid optimism that the economy could keep chugging along in high gear. Fed policymakers have led the cheerleading, bumping up their median forecast of 2019 GDP growth to 2.5% from 2.4%.

No Powell Put For Stock Market, Really?

If you listen to Powell, it would seem that any weakness in financial markets that falls short of a bear market in stocks, typically defined as a 20% drop, wouldn't prompt the Fed to reconsider its policy stance. There would have to be a "significant correction and lasting correction," Powell said at the Sept. 26 press conference following the most recent Fed rate hike.

The implication is that it would take something bigger than the 13% correction following January's interim stock-market peak, followed by all-time record highs just eight months later.

But Powell's requirement of a significant and lasting correction doesn't seem to gibe with the Treasury yield curve flattening as the stock market correction has taken hold over the past few weeks. If the stock market rout continues and the Treasury yield curve keeps flattening at a similar pace, the spread between the two-year and 10-year Treasury would fall to new post-crisis lows before the S&P 500 sank to 2500.

Would the Fed really hike interest rates in December if the gap between the two-year and 10-year Treasury is close to 10 basis points or even lower? In this scenario, the stock market correction would still be in force, with the housing market slowing sharply. Meanwhile a major China trade war escalation is likely to happen on Jan. 1, with the tax-cut stimulus boost about to start fading. On top of that, Trump Fed rhetoric would likely reach a fever pitch.

Treasury Yield Spread Could Unite Trump, Fed Majority

Would the Fed bet on a heretofore reliable indicator being wrong this time, when policymakers have for years been saying that they need to err on the side of keeping the economic expansion intact because low interest rates leave less ammunition to fight a downturn?

A nearly flat yield curve could unite doves and centrists in a way that leads the consensus-driven Fed to pause hiking rates, if only briefly. It would be the Fed bowing to the yield curve, but Trump might get credited with an assist.

On the other hand, financial markets could be the deciding factor, with neither the yield curve nor Trump getting credit for a Fed pause. Odds of a December rate hike sank to 71% on Wednesday from as much as 87% on Monday. If there are more days on Wall Street like this one, investors are going to start demanding a Powell put.

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16. Fed Beige Book: Economic Growth Steady; Wage Gains, Trade Fears RiseСр., 24 окт.[−]

A majority of Federal Reserve districts reported modest to moderate economic growth, though uncertainties over trade and labor shortages put pressure on firms, a survey from the U.S. central bank showed.

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"Several districts indicated that firms faced rising materials and shipping costs, uncertainties over the trade environment and/or difficulties finding qualified workers," according to the report, released Wednesday in Washington.

The central bank's Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through Oct. 15, continued to show that companies are generally not responding to the tightening labor market with significantly higher wages.

While some firms offered signing bonuses, flexible hours and more vacation time in order to woo and retain workers, the report characterized wage growth as "modest to moderate." Most businesses also expected wage gains to remain "modest to moderate" over the coming six months.

Economy On Track

Prepared by the Richmond Fed, the report will be reviewed by policy makers as they prepare for their Nov. 7-8 meeting. Officials have penciled in one more interest-rate hike for this year.

The U.S. economy is on track to post its best back-to-back quarters of growth since 2014 when third-quarter data is released on Friday. Economists surveyed by Bloomberg expect a 3.3% annualized pace of expansion in the July-September period after a 4.2% gain in the prior quarter.

The Beige Book continued to point to anxiety among U.S. firms over the ongoing trade dispute with China. Manufacturers reported they were raising prices out of necessity as tariffs drove up the cost of raw materials, including metals.

"New car prices are also expected to increase significantly to cover the burden of recently implemented tariffs," the Boston Fed reported in one of many anecdotes included in the survey.

Labor Shortages

The report also pointed to widespread labor shortages that were "linked to wage increases and/or constrained growth."

In the Philadelphia district, one firm noted difficulty launching a third shift because of a lack of workers while another was planning to add robots.

Unemployment fell to 3.7% in September, though wages and overall inflation have remained muted. Average hourly earnings for the year through September rose 2.8%, in line with a slow upward trend over the past several years.

Anecdotes on housing were mixed with homebuilders in Cleveland reporting a modest fall in demand because of decrease in affordability.

The Dallas district, which includes many areas benefiting from higher energy prices, continued to be a particularly bright spot with "solid" growth in manufacturing, retail and nonfinancial services.

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17. Dow Jones Average Recovers From Rout, But Global Economic Boom Keeps FadingВт., 23 окт.[−]

The Dow Jones industrial average pared steep, early losses Tuesday, but construction equipment giant Caterpillar ( CAT) heaped more piles of dirt on the global economic boom story with disappointing earnings guidance, margin pressures and trade-war concerns.

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Caterpillar stock sank 7.6% and is back at the levels seen in September 2017. That was when Wall Street had just started to talk about a rare surge of synchronized global growth and the Trump tax cuts were just beginning to look feasible.

Now the global growth outlook is riddled with question marks.

China Cools Off

Start in China, where official GDP figures last week showed growth cooling to 6.5% in the third quarter from a year ago. That's the slowest pace since the financial crisis. While Beijing is rolling out stimulative policies to help, the likely escalation of Trump tariffs could counteract those efforts. China's stock market woes added to the grim mood on Wall Street early Tuesday.

President Trump imposed 10% tariffs on $200 billion worth of Chinese imports on Sept. 24. Those tariffs are set to automatically increase to 25% on Jan. 1.

Higher Rates

Growth in the euro area fell to a two-year low in Q2, and now the region is being tested by higher borrowing costs, diminishing monetary policy support from the European Central Bank and a spike in Italian bond yields as the new government threatens to break deficit rules.

Emerging markets are facing tighter financial conditions thanks to interest-rate hikes by the Fed, the de facto global central bank, that have contributed to a stronger dollar. That raises the cost of dollar-based borrowing in emerging markets.

Fading Stimulus

While U.S. GDP growth exploded to 4.2% in the second quarter, that's expected to drop to 3.3% when Q3 figures come out on Friday. As the stimulus from federal tax cuts and spending hikes fades, the Fed keeps hiking and the China trade war escalates, growth could slip below 2% by the second half of 2019. The housing market already is feeling the effects of higher interest rates.

The broad-based slowdown is clear from Caterpillar's monthly retail sales data. The top line is still solid, but the rate of growth keeps sliding — from 35% growth in machines sales vs. a year ago in the three months through January to 25% in Q2 to 21% in Q3.

Sales growth has been boosted in recent months by a surge in resource industry orders, but it's not clear if rapid growth can be sustained. Copper prices, a key gauge of industrial demand and predictor of future mining activity, have slumped about 12% over the past year, falling from about $3.20 to $2.80 a pound.

Meanwhile, sales growth for Caterpillar energy and transportation equipment has slowed to 7% from 16% at the start of the year.

Capital Spending Slows

The first batch of Q3 earnings reports don't exactly point to a new catalyst for growth from corporate capital spending. "Capex for early reporters is up 11.6% (year over year), which is a significant deceleration to the 17.9% in Q2 but still 5% higher than the same quarter last year," UBS chief U.S. equity strategist Keith Parker noted in a report.

Caterpillar, for its part, said it will put extra cash into Caterpillar stock buybacks as it faces margin pressures from "higher material and freight costs, including tariffs."

Looking back on 2018, it's striking how the investment backdrop has evolved. Bullishness reigned supreme to start the year as there were few worries on the radar. Then a wall of worry emerged over Fed rate hikes, the China trade war and growing pressure on profit margins, but the stock market managed to climb that wall of worry to hit new heights in September.

Now growth is slowing and that wall of worry may be translating into slower revenue growth and more moderate earnings outlooks.

Parker noted that the initial batch of companies to report earnings have edged past revenue targets by just 0.4%. Meanwhile, they have revised Q4 earnings expectations down by 1.1%, on average.

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18. Trump Vs. Fed: Why Stalled Trump Picks Could Spur Dovish Policy Shift, Dow RallyПн., 22 окт.[−]

President Donald Trump's feud against Fed rate hikes is growing. Trump sees the too-fast Fed rate hikes as the biggest threat to his presidency. While current Fed policymakers may not be moved by Trump tweets, he does have another recourse that's looking increasingly likely. Two dovish Trump Fed nominations might shift the hawkish consensus and boost the Dow Jones and broader markets.

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Axios reported Sunday that Trump nominee to the Federal Reserve Board of Governors Nellie Liang, who faces serious resistance among GOP senators, may not even get a vote. Meanwhile, internal GOP opposition has stalled the nomination of Marvin Goodfriend to another Fed governor seat since he barely made it out of the Senate Banking Committee in February.

Trump Fed Appointments

Trump has steadily escalated his criticism of the Fed and its chairman, Jerome Powell, who Trump tapped to succeed Janet Yellen. Last week, Trump broadened his criticism in a Fox Business interview, adding, "I put a couple of other people there (on the Fed) I'm not so happy with too."

Indeed, two other Trump Fed nominees, Randal Quarles and Richard Clarida, appear to have gone along with the Fed's hawkish consensus.

Now, as Trump intensifies his focus on the workings of the Fed — and keeps hearing that the Fed is determined to ignore him — it's only logical for him to make sure his appointees better represent his priorities.

The Fed's monetary policy-setting committee, the Federal Open Market Committee, has just nine voting members at present, instead of the usual 12. That's because three of seven Fed governor seats are vacant. The FOMC also includes five of the 12 regional Fed bank presidents. The New York Fed president always has a vote. The other four votes rotate among the other 11 districts each year.

Separately, Trump also tapped Kansas Bank Commissioner Michelle Bowman as Fed governor, following a 2014 law that sets aside one seat for a community banker.

Bowman's nomination is expected to get a November vote. There's no indication how her monetary policy views fall on the dove-hawk spectrum.

Fed Rate Hike Surprise In 2019?

Still, Trump could seek to add two dovish Fed voices as replacements for the stalled Liang and Goodfriend nominations. Minneapolis Fed President Neel Kashkari and his predecessor, Narayana Kocherlakota, are two possibilities. Kashkari's role managing the Troubled Asset Relief Program might complicate his nomination.

St. Louis Fed President James Bullard, who has argued against further Fed rate hikes, already will be a voting member of the FOMC in 2019. That means his appointment wouldn't move the needle.

New Trump Fed nominations wouldn't come in time to avert a December rate hike, but they could influence policy in 2019 and market expectations even sooner. Depending on Bowman's policy views, the addition of two Trump doves to the FOMC, plus Bullard, could create a dovish voting bloc that shifts the Fed consensus.

If Trump moves in this direction, financial markets could react. Higher Fed rates have gone hand in hand with a stronger dollar, but the dollar could soften if Trump takes a notably dovish tack with his nominations. There's growing sentiment on Wall Street that a Fed policy mistake will bring about a recession in 2020. A double dose of dovishness might ease those concerns and propel the Dow higher.

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The post Trump Vs. Fed: Why Stalled Trump Picks Could Spur Dovish Policy Shift, Dow Rally appeared first on Investor's Business Daily.


19. China Economic Growth Slows More Than ExpectedПт., 19 окт.[−]
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China's gross domestic product increased 6.5% in the third quarter from a year earlier, compared to 6.6% in a Bloomberg survey and down from the 6.7% pace in the previous quarter.

Separately, industrial output rose 5.8% last month from a year earlier, versus the forecast of 6%, the statistics office said. Retail sales increased 9.2% in September, compared with the forecast 9%. Fixed-asset investment climbed 5.4% in the first nine months, versus a forecast of 5.3% The urban monthly surveyed unemployment rate stood at 4.9% at end-September.

China's economy faced increasing headwinds in the third quarter, with worsening trade tensions and a slumping stock market hurting confidence in the outlook. Those problems prompted officials to step up stimulus, but the impact of those measures has yet to kick in and more may be needed.

China's Factory Heartland Braces for Trump's Big Tariff Hit

The downward pressure on growth is increasing, the statistics bureau said in the statement, with the "extremely complex and severe international situation" and heavy domestic development tasks. The government will work to stabilize employment, finances, exports and foreign investment, the statement said.

"The readings are not looking strong. The full year GDP could be 6.5% to 6.6%, based on the trend," said Zhou Hao, senior emerging markets economist at Commerzbank AG in Singapore. "It will still fulfill the target. But what Guo Shuqing and Yi Gang have said today have undermined the significance of the GDP numbers. Rather it indicated the leadership is worried about the unstable financial market and the low market confidence."

Shortly before the data release, China's top financial officials moved to shore up investor confidence in the country's tumbling stock market, a rare coordinated show of verbal support that failed to immediately put a floor under the deepest equity sell-off since 2015.

China Verbal Intervention Leaves Stock Investors Wanting More

The heads of the central bank, banking and insurance regulator and securities regulator all issued statements on Friday voicing their support for the market and promising measures to help ease financial pressures on companies, especially those with a high proportion of pledged shares. The officials stopped short of promising direct intervention.

Manufacturing investment growth in the nine months through September accelerated to 8.7% over the same period last year, the fastest pace since August 2015. Growth of infrastructure investment fell to 3.3%. It's decelerated in every month since November 2017. Growth of property development investment ticked down to 9.9%.

"China's economy is losing steam," said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. "While it's easy to blame the trade tussle with the U.S. for this, the deceleration so far is mostly domestic driven, with infrastructure spending contracting and car sales coming off the boil."

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The post China Economic Growth Slows More Than Expected appeared first on Investor's Business Daily.


20. Wall Street's New Fed Fear: There Is No 'Powell Put' For Stock MarketЧт., 18 окт.[−]

Since the aftermath of the Lehman Brothers collapse a decade ago, Wall Street has always been able to rest assured that the Fed had its back. A rising risk of a bear market in stocks would activate the Bernanke put or the Yellen put, provoking a prompt Fed policy shift to rally the bulls. The sudden slide in the stock market this month comes amid a realization that there probably is no Powell put — at least within shouting distance.

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A put option gives investors downside protection if a stock falls below a certain price. There's certainly some stock market level and some economic circumstances that would spur Fed Chairman Jerome Powell and other policymakers to ride to the rescue. But Powell and his colleagues are likely to be a whole lot less responsive than predecessors Ben Bernanke and Janet Yellen were over the past decade.

Fed Vs. Stock Market

For the first time since the financial crisis, the Fed would be just fine if financial markets cooled off. Minutes from the Sept. 25-26 Fed meeting published on Wednesday indicated that several policymakers see a risk of "significant financial imbalances." That's a concern that hasn't been on the radar since before the housing crash.

Stocks turned lower on Wednesday after release of the Fed meeting minutes and the selling continued with deep losses in Thursday's stock market trading. The S&P 500 index and Nasdaq composite undercut their 200-day moving averages after a rebound Tuesday. The S&P 500 fell 1.4%, the Dow Jones industrial average 1.3% and the Nasdaq composite 2.1%.

A number of factors — not just the Fed — are combining to wallop the bulls. China's yuan and stock market cut through recent lows, Italian bond yields broke through recent highs, Brexit fears intensified and the dollar's resurgence continued. Yet that's kind of the point. Softening global economic conditions and rising uncertainty are a bigger deal when the Fed is less responsive because the risk of overheating is front and center.

Fed Rate Hikes On Track Without 'Lasting' Stock Market Correction

For the Fed to react to financial market weakness, there would have to be a "significant correction and lasting correction," Powell said at the Sept. 26 press conference following the most recent Fed rate hike.

A sell-off like the one that followed the stock market peak at the end of January likely wouldn't grab the Fed's attention. That correction saw a 13% drop in the S&P 500, but stocks soon rebounded from lows and rallied to all-time highs within eight months.

Policymakers wouldn't want to take a break from Fed rate hikes due to a run-of-the-mill stock market correction, then get caught flat-footed as animal spirits revived. Before prompting the Fed to signal a pause in its campaign of rate hikes, the correction might have to approach a bear market decline of 20%. That would mean an S&P 500 level of about 2350, down from the 2941 record high on Sept. 21 and still about 15% below Thursday afternoon levels.

Bernanke, Yellen Fed Backed Stock Market

Bernanke and Yellen were anxious to avoid anything approaching a bear market. That's why Bernanke engineered multiple rounds of quantitative easing, Fed buying of government bonds to push more money into risk assets. Yellen essentially called for the Fed to act like the world's central bank in 2016, keeping policy loose to help a global recovery. Instead of four Fed rate hikes in 2016 as policymakers projected in December 2015, the Fed only hiked once, to a range of 0.5% to 0.75%.

On Thursday, markets were still pricing in 80% odds for a fourth Fed rate hike this year in December, lifting its key rate to a range of 2.25% to 2.5%. In September, policymakers indicated three more quarter-point Fed rate hikes are likely in 2019.

Evidence of an unexpectedly abrupt economic slowdown also could lead the Fed to shift gears. Yet for now the Fed expects the U.S. economy will continue to cruise ahead. That's despite rising interest rates, signs of global fragility, the waning boost from the Trump tax cuts and the potential escalation of Trump tariffs.

The risk is that growth will slow more than expected, but it won't become apparent until after a few more Fed rate hikes. If Wall Street has to depend upon a Powell put in 2019, it will probably be because the Fed made a policy mistake.

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The post Wall Street's New Fed Fear: There Is No 'Powell Put' For Stock Market appeared first on Investor's Business Daily.


21. What Is A Tariff, Who Pays, And What Is The Purpose Of A Tariff?Чт., 18 окт.[−]

What is a tariff, exactly? With President Donald Trump's tariffs and an escalating China trade war moving markets, the question is very relevant. A tariff is a tax on imports, often known as a duty or a trade barrier. The purpose of a tariff is to protect domestic production and jobs, though economists say other domestic sectors and customers ultimately pay for tariffs. The U.S. has applied tariffs on imports for centuries, but the global trend has been toward lower tariff rates, lower trade barriers and expanding global trade.

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What Is The Purpose Of A Tariff?

Countries generally impose tariffs to protect certain industries that are perceived as essential or which have strong political influence.

The purpose of a tariff, which a government imposes to raise the cost of a particular import, is to limit or reduce the amount of that good imported into the country. Making an import more expensive can improve the economics of producing that product domestically.

Countries also can impose tariffs or raise tariff rates on trading partners to try to get those nations to reduce tariff rates or other trade barriers.

Tariffs also provide some government revenue, though in modern times tariff or customs revenue is a tiny share of overall government takes.

Example Of A U.S. Tariff

For example, the U.S. tariff rate on light trucks, such as pickup trucks and SUVs, has been 25% since 1965. The Johnson administration applied that 25% "chicken" tax as punishment for Europe's tax on U.S. chicken imports. The protectionist measure has long outlived that trade spat.

That U.S. tariff has long protected domestic manufacturing from imports because it adds $5,000 to the cost of a $20,000 truck or SUV. To avoid that U.S. tariff, Germany's Mercedes-Benz decided in the 1990s to build its M-Class SUV assembly factory in America, as other foreign manufacturers have done.

Who Pays A Tariff?

When President Trump imposed tariffs of 10% on $200 billion worth of Chinese imports in September 2018, Walmart ( WMT) and other retailers announced that the tariffs would result in some combination of higher prices or lower profits.

Whoever imports a product must pay any related tariff. Bicycles built in China were among the products on the Trump tariff list of $200 billion in imports. A 10% tariff on a bike with a wholesale cost of $60 would add $6 to Walmart's cost of importing that bike.

Yet who ultimately pays the tariff cost is more complicated. Walmart could pay $3 of the $6 cost and pass half of it on to customers, whose price would rise by $3. In that case, Walmart profit shrinks and customers are left with a thinner wallet.

Furthermore, the company exporting the bike to the U.S. could share in the pain. Walmart could demand it lower its price or lose the massive retailer's business.

Are Tariffs Harmful?

While tariffs can help the industry receiving protection, their customers can suffer. An oft-cited example is the 2002 imposition of steel tariffs under President George W. Bush. Studies generally showed that the steel tariffs boosted U.S. steel employment but led to a net loss of jobs when including job losses by steel-consuming industries.

What Is The U.S. Tariff Rate?

Up through 1900, tariffs were the primary source of federal revenue and the average tariff rate generally topped 25%. But the government got a new primary funding source with the income tax in 1913 and later payroll taxes. Also, the average U.S. tariff gradually began to fall.

Then came a reversal in 1930 with the Smoot-Hawley Tariff Act that gave tariffs a bad name. The act raised tariffs on many thousands of products, hiking the average U.S. tariff rate by about 50%, and spurred retaliation. The average tariff rate remained below the level of a few decades earlier, but economists generally argue that Smoot-Hawley helped dry up global trade and exacerbated the Great Depression.

Since then, there's been a steady trend toward reducing trade barriers. About half of U.S. industrial imports now enter the country duty-free, with no tariff imposed. In 2016, the average U.S. tariff rate was 1.6% across all products, according to the World Bank. That was equal to the European Union's average tariff rate and slightly above the Japan tariff rate of 1.35%. China's tariff rate was 3.5% in 2016.

What Is The Difference Between A Tariff And Quota?

Understanding trade barriers isn't limited to what is a tariff and what is the tariff rate. Governments also can impose quotas or other non-tariff trade barriers to restrict foreign companies from competing in domestic markets. While a tariff raises the price of an import, a quota caps how much of a good can be imported.

For example, Canada has long protected its dairy market by imposing a quota on how much milk, cheese and butter other countries can export to Canada. In the new Nafta deal, called the U.S.-Canada-Mexico Agreement, or USCMA, Canada lifted its dairy quotas for the U.S. Canada can still apply tariffs of 200% on U.S. imports in excess of the new quotas.

Similarly, the USCMA deal set new quotas of 2.6 million passenger vehicle imports to the U.S. apiece for Canada and Mexico. Above those levels, vehicle imports couldn't qualify for duty-free treatment.

Limiting imports via tariffs and quotas lets domestic companies in the affected industry charge higher prices due to reduced competition. Some governments also restrict access to their markets in other ways, such as making it hard for foreign companies to get a license to do business.

Trump Tariffs And China Trade War

In 2018, Trump became the first president to systematically threaten and impose tariffs to try and reshape the flow of trade. Trump's stated purpose for new and higher tariffs? Shrink the 2017 U.S. trade deficit of $566 billion, boost U.S. production and increase manufacturing jobs.

Over the summer, Trump imposed 25% U.S. tariffs on $50 billion worth of Chinese imports, prompting China to retaliate. Then in September 2018, the China trade war escalated as the Trump administration imposed 10% tariffs on another $200 billion in Chinese imports. China retaliated again vs. Trump tariffs, but to a lesser extent because it only imports about $130 billion worth of U.S. goods.

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The post What Is A Tariff, Who Pays, And What Is The Purpose Of A Tariff? appeared first on Investor's Business Daily.


22. Fed Officials Debated 'Restrictive' Rates To Counter 'Significant Financial Imbalances'Ср., 17 окт.[−]

Federal Reserve officials stepped deeper into a debate over how high to push interest rates, with a majority appearing to favor an eventual and temporary move above the level they deem neutral for the economy in the long run, in part due to concerns of "significant financial imbalances."

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"A few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level," according to minutes of the Federal Open Market Committee's Sept. 25- 26 meeting released Wednesday in Washington.

In their most recent projections, officials estimated that long- run neutral level to be about 3%.

"A few participants expected that policy would need to become modestly restrictive for a time and a number judged that it would be necessary to temporarily raise the federal funds rate above their assessments of its longer-run level in order to reduce the risk of a sustained overshooting of the Committee's 2% inflation objective or the risk posed by significant financial imbalances."

That new phrase of "significant financial imbalances" appeared to hit U.S. stock markets, which admittedly have been volatile ahead of the Fed statement and over the past several sessions. The Dow Jones, S&P 500 index and Nasdaq composite, which had been roughly unchanged ahead of the 2 p.m. ET Fed minutes release, retreated solidly.

A "couple" of FOMC members argued against adopting a restrictive policy "in the absence of clear signs of an overheating economy and rising inflation," according to the minutes.

The committee was otherwise in broad agreement over continuing on the current, gradual path of rate increases. The record showed "all participants" backed the Sept. 26 quarter- percentage point hike to a range of 2% to 2.25%.

Fed Minutes Weigh Risks

The release of the Fed minutes comes three weeks after central bankers raised rates for the third time in 2018 and signaled their intention to hike again before year end. Chairman Jerome Powell has said he's trying to balance the risks of allowing the economy to overheat by moving too slowly, and smothering the second longest economic expansion on record by hiking too quickly.

The Fed's tightening has drawn criticism from President Donald Trump, who blamed it for the stock market decline last week.

The Fed minutes repeated an explanation offered by Powell at his post-meeting press conference for why their statement should drop the long-standing description of monetary policy as "accommodative."

"Waiting until the target range for the federal funds rate had been increased further to remove the characterization of the policy stance as 'accommodative' could convey a false sense of precision in light of the considerable uncertainty surrounding all estimates of the neutral federal funds rate," the minutes said.

The record showed Fed officials again held a lengthy discussion over the effects on the economy of ongoing trade disputes. A "number" of central bankers reported that business contacts had foregone production and investment opportunities because of uncertainty over trade policy. They also reported that some firms were attempting to diversify their import and export options for the same reasons.

Regarding issues of financial stability, some officials expressed concern about growth in and relaxed standards for leveraged loans as "reasons to remain mindful of vulnerabilities and possible risks to financial stability."

Powell and some of his colleagues have noted that the greater risk associated with overheating the economy may come through financial-market excesses rather than inflation.

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The post Fed Officials Debated 'Restrictive' Rates To Counter 'Significant Financial Imbalances' appeared first on Investor's Business Daily.


23. Here's Why September Retail Sales Are ShockingПн., 15 окт.[−]

Retail sales grew a slim 0.1% in September, the Commerce Department reported Monday. Outside of autos, retail sales slipped 0.1% despite elevated consumer economic optimism.

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Wall Street expected a 0.6% gain overall, with a 0.4% rise excluding autos.

Retail sales rose a solid 0.5% excluding automobiles, gasoline, building materials and food services.

July retail sales were revised to a gain of 0.1% overall and 0.2% excluding autos vs. initial reports of 0.1% and 0.3% respectively.

From a year ago, September sales rose a moderate 4.7% overall and 5.7% excluding autos.

After the report, the Dow Jones, S&P 500 index and Nasdaq 100 remained modestly in the red as the stock market tries to continue Friday's rally attempt. The 10-year Treasury yield, at 3.16% ahead of the retail data, ticked lower.

Strong consumer spending has helped give the economy a head of steam, helped by tax cuts and accelerating wage gains. Continued strength in retail sales could keep the Fed on track to raise interest rates again in December.

Yet retailers face intensifying wage pressures after Amazon ( AMZN) boosted its minimum wage to $15 an hour. Retailers also face a potential earnings hit from Trump tariffs.

Despite that tough combination of headwinds, retail industry groups held up better than the broad market during the latest bout of selling. In fact, three retail groups are among the top 10 of 197 IBD industry groups based on stock performance.

September sales at department stores fell 0.8% on the month and decreased 1.5% from a year ago. Nonstore retailers, including Amazon, saw robust sales growth of 11.4% from a year ago, with a 1.1% gain from August.

However, spending at restaurants and bars tumbled 1.8%, the biggest drop in nearly two years.

The list of market leading IBD 50 stocks from the retail sector expanded recently, with Dollar General ( DG), Sprout Farmers Market ( SFM) and Dave & Busters ( PLAY) joining Five Below ( FIVE), Lululemon Athletica ( LULU), Wingstop ( WING) and Ulta Beauty ( ULTA).

Sears Holdings ( SHLD), parent of Sears and Kmart stores, filed for bankruptcy protection, an expected move for the long-suffering discount retailer.

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The post Here's Why September Retail Sales Are Shocking appeared first on Investor's Business Daily.


24. CPI Inflation Tame In September, But Will 'Loco' Fed Care?Чт., 11 окт.[−]

Core consumer prices, excluding food and energy, rose a softer-than-expected 0.1% in September, while the CPI core inflation rate held at 2.2%, the Labor Department reported on Thursday. Still, expect Fed rate hikes to continue, even with President Donald Trump calling policymakers "loco."

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Wall Street expected the core CPI to rise 0.2% on the month and 2.3% from a year ago.

The overall consumer price index rose just 0.1% on the month and 2.3% from a year ago, vs. expectations of a 0.2% monthly and 2.4% annual gain. Higher costs for housing was the biggest contributor, while lower energy costs held down the overall CPI. Lower used-car prices helped curb core CPI.

After the CPI data, the S&P 500 index, Dow Jones industrial average and Nasdaq 100 futures pared signficant premarket losses on the stock market today, following Wednesday's wipe-out. The 10-year Treasury yield ticked lower to 3.17%.

Core inflation is close to the Fed's 2% goal and central bankers see a slim chance of a substantial acceleration from here. Yet Fed policymakers seem dead-set on keeping up their steady campaign of Fed rate hikes.

Wage Growth Spurs Fed Rate Hikes

Faster wage growth amid falling unemployment is one reason the Fed sees the need to tighten. Average hourly wages grew at a 3.3% annualized pace over the past six months. Last week Amazon boosted its minimum wage to $15 an hour, from as little as $10 to $11 an hour in some parts of the country. This week, Amazon said it would raise wages for others earning near $15 who didn't get a pay hike.

Yet there's a limit to how much of a price increase companies can pass to customers. JetBlue ( JBLU) and United Airlines ( UAL), which have struggled to raise air fares, recently raised fees for checked luggage. Amazon boosted Prime membership fees earlier this year.

The Fed remains worried that financial excesses will result from interest rates that are too low, even if those excesses don't show up in higher inflation.

After Wednesday's sell-off, President Trump lashed out at the Fed for "going wild" and "loco" in raising interest rates.

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The post CPI Inflation Tame In September, But Will 'Loco' Fed Care? appeared first on Investor's Business Daily.


25. IBD/TIPP Poll: Economic Optimism Index For October 2018Вт., 09 окт.[−]

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 49.6, 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 All Questions And Full Results

The IBD/TIPP Economic Optimism Index rose 3.8% in October to 57.8, after dropping 4% in September. The gain put the index just below August's 58.0 level, which was the second-highest reading since January 2004. It also marks the 25th 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 49.6. 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 remained unchanged in October at 53.3. 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 46.5. 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 6.5% to 66.7 in October, more than erasing September's 3.8% drop. 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 as 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 57.3.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component rose 4.1% in October to 53.4. It fell 1.5% in both August and September. But those two monthly declines were preceded by a 10% surge in July. The gauge, which in October stood at its highest level since January of 2007, remains well above its 17-year average of 44.9. 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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The post IBD/TIPP Poll: Economic Optimism Index For October 2018 appeared first on Investor's Business Daily.


26. Wow! Wage Growth Sizzles As Unemployment Hits 49-Year LowПт., 05 окт.[−]

Don't be fooled by the mixed headline data in the September jobs report. Average hourly wage growth over the past six months revved up to 3.3% on an annualized basis, easily the fastest pace since January 2009, Labor Department data show. The Fed is finally being proven right as low unemployment — the 3.7% rate was the lowest since 1969 — feeds through to faster wage gains. More Fed rate hikes are likely to follow.

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The Dow Jones industrial average, S&P 500 index and Nasdaq composite all moved steadily lower on the stock market today as investors digested the report. Meanwhile, the 10-year Treasury yield, which has surged to a seven-year high this week, moved up to 3.22%.

While the 134,000 jobs added in September was nearly 50,000 lower than expected, July and August job gains were revised up by a combined 87,000. That leaves a strong 190,000 jobs added per month over the past quarter.

Wage growth, the key number for stock market investors worried about more Fed rate hikes, actually cooled to 2.75% from a year ago. That looked like a miss relative to the annual 2.9% average hourly wage growth expected by Wall Street economists. But the year-over-year comparison was thrown off by an illusory surge in wages a year ago that resulted from low-wage workers being sidelined as a result of hurricanes Harvey and Irma.

It's not clear that Hurricane Florence had much of an impact on the jobs data. "We think that if the hurricane had an impact, one would have also seen a drop in average weekly hours," wrote Harm Bandholz, chief U.S. economist at UniCredit. "The fact that Hurricane Florence only made landfall on September 14, i.e. at the end of the survey week for the September employment report, further argues against a storm-related impact."

Fed Chair Jerome Powell has said that it will take evidence of a softening economy or a sustained sell-off in financial markets to get the Fed to alter its course. Ahead of the jobs report, markets were pricing in 86% odds of a December Fed rate hike and about 60% odds of a March hike, according to the CME Group FedWatch page.

This week's $15 minimum wage announcement by Amazon ( AMZN) won't show up until the November jobs report, but there has been ongoing evidence that wage pressures are finally bubbling up as the unemployment rate slips further below 4%. Microsoft ( MSFT) reportedly handed out six-figure bonuses recently amid competition over cloud-computing employees. Costco ( COST) hiked its starting pay by $1 an hour in June. Cheesecake Factory ( CAKE) has said its wage growth has jumped to a range of 6% to 7% vs. prior expectations of 5%. Walt Disney ( DIS) theme park workers in Florida recently approved a contract that will hike their starting wage by 50% to $15 over three years.

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27. Don't Worry, Treasury Yields Aren't Going Much HigherЧт., 04 окт.[−]

The sudden surge in Treasury yields in the past two days has sent a jolt of fear through the stock market. That's understandable, because higher government bond yields slow growth by raising borrowing costs for businesses and consumers. Higher returns on risk-free bonds can also translate into lower valuations for stocks.

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The good news, though perhaps not for bank stocks, is that history suggests investors likely don't need to worry about interest rates continuing to rise much beyond current levels.

As the accompanying chart shows, in prior cycles, the 10-year Treasury yield has essentially topped out at the cycle's maximum Fed policy rate. If the same holds true in this cycle, the Fed could ultimately hike its overnight lending rate another four times — to a 3%-3.25% range — without a further rise in the 10-year Treasury yield. The 10-year yield was at 3.19% Thursday afternoon, little changed from Wednesday.

Just where the Fed will stop hiking rates is, of course, a mystery. Yet if Fed policymakers are correct, the upside for Treasury yields looks limited. Projections made at last week's Fed meeting by 16 Fed governors and district presidents indicated that the median projection for the top policy rate through 2021 is 3.375%. That suggests modest potential increases in the 10-year Treasury yield from current levels.

Disruptive technology, limited pricing power and less worker bargaining power are all forces that have kept inflation and interest rates in check, and those things aren't going away.

However, many on Wall Street think the Fed will end up pausing its rate-hike procession before it goes as far as policymakers expect. If that's the case, Treasury yields may now be putting in their highs for the cycle. What could lead the Fed to pause earlier than a majority of members expect? Escalating Trump tariffs, fading tax-cut stimulus and higher oil prices could all combine to create an economic slowdown by mid-2019.

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28. The 5 Big Reasons Treasury Yields Are Jumping And Stocks Are SlidingЧт., 04 окт.[−]

The 10-year Treasury yield continued its sudden resurgence Thursday, jumping to a new seven-year high of 3.23% overnight, before settling back to little changed. The surprise breakout of Treasury yields triggered a bout of late-day selling on Wednesday that continued on the stock market today.

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Higher Treasury yields carry a host of negatives for the economy and stock market. They make it more expensive for businesses and consumers to borrow, weighing on auto purchases and home prices. Higher returns on risk-free bonds can also translate into lower valuations for stocks. The Nasdaq composite sold off 1.8%, while the Dow Jones and S&P 500 skidded 0.9%.

The same factors that drove the 10-year Treasury yield from 2.4% at the start of 2018 through 3% are propelling the latest rise. But now there's more of everything — more economic growth, more hawkish signals from the Fed, bigger deficits and faster quantitative tightening.

The Amazon $15 Wage Economy

Tuesday's Amazon ( AMZN) announcement that it will hike its minimum wage to $15 an hour, up from $10-$11 in some parts of the U.S., drove home with an exclamation point that the days of paltry wage gains are over. Then data on Wednesday underscored the job market's serious momentum. Payroll processor ADP estimated September private-sector payroll growth at 230,000 jobs, way above the expected 185,000. Meanwhile, the Institute for Supply Management nonmanufacturing survey index surged to 61.6, indicating the fastest service-sector growth since the survey began in 2008.

Hawkish Fed Talk

Outside the Oval Office, Fed Chair Jerome Powell has become the economy's biggest cheerleader. Since his press conference after last week's Fed meeting, Powell has been almost euphoric in his discussion of economic conditions and unusually frank in his assessment of Fed policy. On Wednesday, Powell said that Fed policy is "a long way from neutral," meaning that its key interest rate is still far below the neutral level that neither bolsters nor restrains economic growth.

Fed hawkishness is less likely to boost long-term Treasury yields than short-term Treasury yields, which are closely pegged to the federal funds rate. However, Powell's enthusiasm for the strength and potential length of sub-4% unemployment seems to be infectious.

Trillion-Dollar Deficits

Similar to any market, the price of U.S. government bonds is a matter of supply and demand. Unless demand rises in tandem with supply, bond prices must fall. Treasury yields rise as bond prices fall, meaning the government has to provide a higher rate of return to clear the market.

Having just wrapped up its 2018 with an estimated $850 billion deficit, the federal government is on track to run a $1 trillion deficit this year. CBO has indicated that deficits could hit $2 trillion a year within the decade if current tax and spending policies are extended.

Quantitative Tightening

Another reason for the growing Treasury issuance is the Fed's gradual reversal of trillions of dollars' worth of government bond purchases in the wake of the financial crisis. Begun in the fall of 2017, so-called quantitative tightening gradually reduces the central bank's bond holdings as they mature, rather than continuing to reinvest the principal.

The Fed has gradually ramped up the value of government bonds it allows to fall off its balance sheet. From up to $20 billion a month at the start of 2018, the Fed stepped that up to $40 billion a month in the third quarter and now, as of this week, up to $50 billion a month.

Global Bond Yields

To some extent, government bond yields around the world are interdependent. Ultra-low government bond yields in Germany and Japan have helped to restrain U.S. Treasury yields. It makes sense that some demand for German bond yields would shift to U.S. Treasuries as the yield gap between them grows. The extra demand for Treasuries, in this case, would limit the upside for yields.

Yet on Thursday, even as Treasury yields rose intraday, global bond yields were climbing even faster. The 10-year German government bond rose about 6 basis points to 0.54%. An easing of concern about Italy's fiscal predicament contributed to the rise in German yields. Meanwhile, the European Central Bank said last month that it would cut its bond-buying program in half starting this month and phase it out by year-end, as long as economic data remain firm.

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29. Fed Rate Hikes, Trump Tariffs And Stocks: Something's Got To GiveЧт., 04 окт.[−]

Surging Treasury yields undercut a push to record highs for the Dow Jones on Wednesday, a day after Fed Chair Jerome Powell wondered whether the economic outlook was "too good to be true." The answer likely hinges on how much further the Fed will hike rates before the tariffs, higher interest rates and fading fiscal stimulus hit stock prices and GDP growth.

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Wall Street has been singing the same upbeat tune as Powell. The Dow Jones hit a record intersession high on the stock market today, while the S&P 500 appeared headed for its highest-ever close before late-day selling that came as the 10-year Treasury yield vaulted to a seven-year high 3.17%. The latest catalysts for stocks and Treasuries were another batch of great economic data and mild relief over Italy's budget. Payroll processor ADP estimated that the private sector added a stronger-than-expected 235,000 jobs last month.

Fed Rate Hikes Will Continue

Until the stock market falls or evidence of an economic slowdown arises, Fed rate hikes will continue, Powell made clear at his post-meeting press conference last week.

Oddly, the sooner one of those negative triggers gets the Fed to pause, the better it may be for the intermediate-term health of the economy and financial markets.

Here's the worst scenario: The bull market and strong growth carry on into next spring or summer. That could set up several more Fed rate hikes amid an escalating China trade war and as tax-cut stimulus fades away. High oil prices in the wake of President Donald Trump's sanctions on Iranian oil exports also look like a good bet.

In that case, all the bad news could hit the economy in quick succession, with Fed policy significantly tighter. Multiple headwinds could add up to create stormy conditions.

Fed Policy Via The Rear-View Mirror

There are three potential problems. The first is an ordinary one: Fed policy operates with a lag, yet policymakers drive with their eyes fixed on the rearview mirror. By the time they recognize that the economy is headed for a slowdown, overly tight monetary policy could make the downturn sharper and more lasting.

Trump Tariffs, Waning Stimulus

The second problem has to do with escalating Trump tariffs and the GOP's unprecedented aggressive fiscal stimulus late into an economic expansion. It's a very good bet that tariffs will escalate on Jan. 1 and this year's fiscally fueled acceleration will lose its thrust by mid-2019. Higher oil prices due to renewed Iran sanctions are another probable headwind. Yet Powell & Co. aren't in the prediction business, even though no president has moved the growth needle like Trump outside of war and economic hard times.

Fed policymakers would rather just watch the data and act accordingly. That's understandable to an extent. Powell spoke last week about uncertain outcomes for both fiscal and trade policy. Yet as Fed policy tightens, the economy will become less resilient in the face of negative shocks that should probably have been predicted.

Economic Strength Will 'Embolden' Trump

The third problem is all about Trump. He thinks he has the Midas touch when it comes to the stock market and economy. JPMorgan analysts wrote last month that the strength of the economy and stock market may "embolden the president on all geopolitical fronts" and create risk of "a major miscalculation."

As long as the bull market is intact, Trump tariffs on Chinese imports could keep escalating. Tariffs of 10% on $200 billion in imports that took effect last week will reset to 25% on Jan. 1. At some point next year, JPMorgan expects to see 25% tariffs on the full half-trillion in imports from China.

China Trade War Impact

The new Trump Nafta deal announced this week has led some to conclude Trump is being more strategic and less disruptive on trade than feared. Yet the threat of global auto tariffs outside North America is still a possibility, and terms of the U.S.-Mexico-Canada Agreement arguably make higher global auto tariffs likely.

Powell said last week the data show no evidence that Trump tariffs are negatively affecting the economy. But each round of China tariffs will cover goods that are harder for U.S. companies to source elsewhere, producing a bigger economic impact, UBS explains.

UBS economists estimate that Trump tariffs of 25% on all Chinese imports and global auto tariffs could stall out U.S. growth in 2019. Yet Powell doesn't see reason for major concern. If all announced Trump tariffs were actually put into effect, "they're still relatively small" in aggregate terms, he said.

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30. Trump Nafta Is 'New Dawn' For Auto Industry, But Here's The CatchПн., 01 окт.[−]

President Trump's new Nafta deal, the U.S.-Mexico-Canada Agreement, fueled a Dow Jones stock market rally Monday as investors celebrated the renewal of vows for the $1.2 trillion trade zone. But don't confuse the Trump Nafta pact as an advance for global free trade, or a sign that threat of escalating Trump tariffs is over.

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"Without tariffs, we wouldn't be standing here," Trump said at a Rose Garden ceremony. His point is that the threat of tariffs had compelled Mexico and Canada to make concessions, which is true enough.

But his effusive claims about the impact of the new Trump Nafta pact — "This will be a new dawn for the American auto industry" and "We will be manufacturing many more cars" — suggest that global auto tariffs are still a real threat.

Trump's steel curtain of protectionism still appears to be rising, but Mexico and Canada are on the inside.

That's the view from inside Mexico, too. "You have a whole region that is becoming more protectionist," Jesus Seade Kuri, chief negotiator representing President-elect Andres Manuel L?pez Obrador, told The Globe and Mail. "Now we are inside the curtain."

Auto Industry Impact

That seems clearest when it comes to the auto industry. The deal is expected to put upward pressure on U.S. auto prices to comply with the USCMA deal terms. Now 75% of auto components must come from within the trade bloc, up from 62.5%. In addition, 40% of value added to vehicles will have to come from workers earning at least $16 an hour.

"The new regional value content requirements mean that automakers will not able to source parts as freely, so there will be added costs associated with vehicle manufacturing," said Ivan Drury, Edmunds' Senior Manager of Industry Analysis. "Given that new vehicle prices are already stretched to record highs, things could take an ugly turn for consumer wallets."

Shares of General Motors ( GM) and Ford ( F) rose 1.6% and 0.8%, respectively, amid relief that North America supply chains won't be severed.

Yet the prospect of higher U.S. auto prices under the Trump Nafta replacement raises the odds that the Trump administration will hike global auto tariffs. Currently, the U.S. has a 2.5% tariff on imports of autos. If complying with USCMA raises costs, it makes that 2.5% tariff even less of an advantage for domestic production.

While the U.S. is in trade talks with the European Union and Japan, Trump didn't sound very flexible. "They'll make the cars in the United States or they'll pay tariffs."

"The rest of the world is looking to take advantage of us as a region," Trump said. Under the new Trump Nafta deal, "We'll be able to compete with anybody."

Trump tariffs of as much as 25% on autos forced Canada and Mexico to the bargaining table. While both countries made concessions, they largely protected current auto production. A side agreement puts a 2.6 million quota on passenger vehicle imports from each country, above current levels, before elevated tariffs apply. The quota doesn't apply to light trucks and SUVs.

The biggest concession won by Trump from Canada relates to its dairy market. Trump administration officials touted expanded access to Canada's dairy market. It will exceed the 3.2% limit granted to Canada's partners in the Trans-Pacific Partnership pushed by President Obama.

Trump Nafta Deal Doesn't End Steel Tariffs

There is still some uncertainty about Trump tariffs on steel and aluminum. The new Trump Nafta deal doesn't prohibit such tariffs, though Trump and U.S. Trade Representative Robert Lighthizer said that talks about providing relief from those tariffs are ongoing.

Like the auto deal, Canada and Mexico may end up agreeing to limits that exempt current production. Mexican officials said Monday that they hope the fight over steel will be resolved before the new Nafta deal is signed in late November. That would come after the midterm elections in the U.S.

Lifting Trump tariffs of 25% on steel and 10% on aluminum would put downward pressure on U.S. prices. Imports of steel from those countries accounted for about one-fourth U.S. steel imports last year. Still, steel stocks were mixed on Monday. U.S. Steel ( X) slipped 0.75% while Nucor ( NUE) and Steel Dynamics ( STLD) rose 1.3% and 1.1%.

The U.S. also won stronger intellectual property protections. But the deal also showed the limits of U.S. bargaining power, even with countries for which America represents a huge share of overall trade. It's unclear whether the U.S. will be able to extract concessions from other key trading partners, including the European Union and Japan, that convince Trump to disarm when it comes to his national security tariffs on metals and autos.

No China Trade War Peace Deal

Meanwhile, there's nothing about the Trump Nafta deal that suggests Trump tariffs on China won't keep escalating. Trump tariffs of 10% on $200 billion in Chinese imports that kicked in last week are set to rise to 25% on Jan. 1. Trump also has threatened to impose tariffs on the full half-billion dollars in Chinese imports if China retaliates, as it already has.

The U.S., Mexico and Canada all decided they couldn't afford a divorce. But the U.S. and China increasingly appear headed to a costly one. That divorce weakens the ability of the U.S. to take a hard line with other trading partners. The Trump Nafta deal could be a recognition that the U.S. can't afford multiple trade wars when it has a raging trade conflict with China.

In fact, Trump Nafta terms preclude Canada or Mexico agreeing to a trade deal with a non-market economy such as China. Any such accord with China would allow the U.S. to back out of the agreement with little notice. Importantly, Lighthizer said such terms will serve as a future template for future trade agreements.

Yet eventually the U.S. may have to make a choice: Either build higher barriers to trade outside North America, as the new Trump Nafta deal does, or build a broad international alliance to support the U.S. in its trade war with China.

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31. Fed's Powell Says 'Some Asset Prices' High; Stocks Reverse Sharply LowerСр., 26 сент.[−]

The Fed raised rates another quarter-point to a 2%-2.25% range on Wednesday, as widely expected. Policymaker projections released at the Fed meeting pointed to still another hike in December and three more in 2019, same as in June. Stocks initially rallied, but then tumbled from session highs to trade lower as Federal Reserve Chairman Jerome Powell said "some asset prices" are high.

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Powell also said policymakers remain hawkish because Trump tariffs and the escalating China trade war isn't hurting the U.S. economy yet.

This Fed meeting didn't bring any surprises, but the next several months could be full of them. One big question seems to be when — not if — Fed concern about the economy overheating will give way to worries about potential for too rapid of a slowdown.

With peak Fed hawkishness already priced in, Wall Street initially rallied after the 2 p.m. ET announcement on the stock market today. As Powell spoke about high asset prices, the Dow Jones industrial average, S&P 500 index and Nasdaq composite erased post-Fed gains. The Dow Jones turned lower, closing down 0.4%. The S&P 500 index slid 0.3% and the Nasdaq composite lost 0.2%. The 10-year Treasury yield slipped to 3.07%.

Markets may have lost momentum as Powell talked about a moderate level of financial stability risks to the economy.

'Some Asset Prices' High

"Some asset prices are in the upper reach of their historic ranges," Powell said.

While the Fed statement deleted language that monetary policy remains accommodative, Powell said that "overall financial conditions remain accommodative." He later said that he thinks that Fed policy still remains accommodative, remaining below what policymakers see as a neutral level long-run level of interest rates.

Powell said Fed policymakers don't anticipate upward pressure on inflation, but he still said the Fed could keep on its trail of hiking rates until Fed policy gets slightly restrictive. The implication is that rate hikes could continue as long as financial markets — including the stock market — are on a roll.

While Powell has talked all year about economic headwinds turning to tailwinds, the prevailing wind is now reversing. That's because there are now multiple forces aligned to cool what has been a sizzling burst of growth. Fed policy is, of course, one of those. The Fed has steadily tightened policy to the point that it is no longer accommodative.

China Trade War Is Not A Headwind, Yet

Here's what is odd about the updated Fed economic projections: Policymakers now see faster GDP growth next year — 2.5% vs. June's 2.4% estimate — even as President Trump's China trade war is heating up. While the escalating battle is still a modest headwind, it its expected to stiffen. Trump tariffs of 10% went into effect on Monday on an extra $200 billion in Chinese imports. That rate will jump to 25% by Jan. 1 if the two sides can't come to terms, and right now they're not even talking.

Powell said that despite "a rising chorus of concerns about trade," the impact hasn't shown up in the data and he's not sure that it will. He suggested that signs of a loss of business confidence or "financial market reaction" could alter the Fed's calculus.

Powell also discussed uncertainty about the outcome of the trade tensions, saying it could be positive if it results in lower tariffs. Yet if the end outcome is a more protectionist world, "that's going to be bad for the United States economy and American workers."

Rising oil prices may be another growing headwind. Having pulled out of the Iran nuclear deal, Trump is ready to slap sanctions on Iran starting Nov. 5, forcing other countries to stop buying Iranian crude oil. Analysts are warning of a potential spike in oil prices.

Then there's federal fiscal policy. Tax cuts and spending hikes have propelled the economy this year, but their effect will fade away in the first half of 2019.

While the Fed knows that higher tariffs and an end to fiscal stimulus are coming, so far policymakers are keeping their eyes on the current, rock-solid economic data and continuing to sound hawkish. Few economists think the data will turn fast enough to keep the Fed from hiking in December, but it could happen. For 2019, it's fair to say that Wall Street isn't buying Fed rate-hike intentions. So far markets are pricing in a single rate hike in the first 10 months of the year, which is at odds with Fed policymaker expectations of three hikes.

Fed policymakers are increasingly talking about the need for slightly restrictive monetary policy even though they don't see inflation as problem. Policymaker projects now see the Fed's favored inflation gauge, the personal consumption expenditures price index, rising just 2.0% in 2019 vs. an earlier median forecast of 2.1%.

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The post Fed's Powell Says 'Some Asset Prices' High; Stocks Reverse Sharply Lower appeared first on Investor's Business Daily.


32. Trump's America First Speech Puts Wall Street SecondСр., 26 сент.[−]

President Trump still hasn't gotten his military parade, but he put America's economic arsenal on display for all the world to see on Tuesday. The Trump U.N. speech touted his tariffs on $250 billion in Chinese-made goods. And he flashed the power of U.S. economic sanctions that are set to hit Iran on Nov. 5, forcing other countries to shift their purchases of crude oil.

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Trump came to make demands, not friends, and it's a fair bet that CEOs of U.S. multinationals were cringing as he warned, "We will no longer allow our workers to be victimized, our companies to be cheated, and our wealth to be plundered and transferred."

Minutes earlier, Trump had boasted that America's economy "is booming like never before," having added $10 trillion in wealth since his election with the stock market at record highs.

The Trump U.N. speech seemed to throw a wet blanket on the rally attempt on the stock market today. The Dow Jones industrial average and S&P 500 index slipped into negative territory and finished near the day's lows, though the Nasdaq composite scratched out a slim gain.

Wall Street may have had its mind on Wednesday's virtually certain Fed rate-hike announcement and clues about future policy moves. Yet the sheer scope of the economic weapons Trump has threatened to deploy offer more than enough reason to give investors pause.

Trump tariffs have been threatened on about $900 billion in U.S. imports, and they've so far been applied on about one-third of that sum, according to a Goldman Sachs analysis. Goldman sees 60% odds that Trump tariffs will eventually apply to the full half-trillion in Chinese imports.

Trump's latest round of tariffs on $200 billion in Chinese imports is set to automatically rise from 10% to 25% on Jan. 1. Walmart ( WMT) has warned of higher prices, and major retailers could take a big earnings haircut if the Trump tariffs escalate.

After China backed out of further talks until the U.S. treats Beijing with respect and as an equal, a year-end escalation seems highly likely.

Goldman's chart of Trump's economic weapons doesn't even include the coming Iran sanctions. Having walked away from President Obama's nuclear deal, Trump told the U.N. General Assembly that he has "launched a campaign of economic pressure to deny the regime the funds it needs to advance its bloody agenda."

Trump has set a Nov. 5 deadline for other countries to stop buying Iranian crude oil, which analysts have warned could lead to a spike in prices. The Trump U.N. speech seemed to imply that full compliance isn't workable, at least by the deadline: "We're working with countries that import Iranian crude oil to cut their purchases substantially."

Trump tariffs on auto imports also may be coming soon. While the Trump administration has nailed down trade terms with Mexico, officials say that Canada is resisting U.S. demands. Trump has threatened Canada, Japan and the European Union with auto tariffs as high as 25%.

UBS economists figure that a full-scale trade war, including global auto tariffs and Trump tariffs on all Chinese imports, could cancel out U.S. growth in 2019. Higher oil prices would come on top of that risk.

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33. Risk Of Fed Rate Hike Mistake Grows As China Trade War EscalatesВт., 25 сент.[−]

The risk that the Fed will make a policy error was already high and just got even higher. The latest escalation of the China trade war, with Trump tariffs on an extra $200 billion in Chinese imports, may slow the economy — but maybe not until after the Fed rate hikes this week and again in December.

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Markets see a Fed rate hike on Wednesday as a lock and give more than 80% odds of another quarter-point increase in December. That would bring its key policy rate to a range of 2.25% to 2.50%.

The potential problem is that Fed rate hikes will kick in ahead of an economic slowdown. That slowdown is already baked in the cake as federal tax cut and spending stimulus ebb. By the second half of next year, the economy could be growing at less than 2%. The escalating China trade war creates downside risk.

Policymakers expect more Fed rate hikes in 2019. Their updated economic projections released with the Fed policy announcement on Wednesday likely will pencil in three more Fed rate hikes next year.

Fed Rate Hikes Data Dependent

So why is the central bank marching ahead with a Fed rate hike every quarter this year? The Fed is data dependent. Even if the surge in growth from tax cuts is likely to be short-lived, the economy is on fire now.

Given the long period of below-target inflation, the Fed could have chosen to exercise more patience, knowing the economic boost would be temporary.

So far, Fed signals indicate a similar, data-dependent approach to the impact of Trump tariffs. Once the slowdown is clear, the Fed will react, but probably not until.

China Trade War Slowdown Coming, Slowly

The big question is when the China trade war-fueled slowdown will come. UBS economists project just 1.2% GDP growth in the fourth quarter, but they acknowledge being way out on a limb. Wall Street, in general, expects a minimal economic hit from the imposition of 10% Trump tariffs on $200 billion in Chinese imports, effective Monday. UBS thinks the tariffs will hit manufacturing jobs, showing up initially via higher first-time jobless claims.

"In our forecast, the tariffs take a heavy toll on the economy," wrote UBS economist Seth Carpenter. "The newly resurgent manufacturing sector and the retail sector are most likely to experience disruption. While the average firm in the U.S. can likely withstand a rise in costs, new, vulnerable firms will not.

Oddly, a quick hit to the economy would probably be for the best, limiting Fed rate hikes and sending a message to the White House that trade wars aren't "fun and easy to win" as Trump has claimed.

Yet the real economic hit may not be felt until after Jan. 1, when the latest Trump tariffs are set to rise to 25%. That's partly because some economic activity may be moved up to beat the year-end tariff deadline.

Fed Not That Worried About Trump Tariffs

Fed decision-makers have expressed concern about Trump tariffs curbing investment and slowing growth. Yet their latest comments, which came just ahead of last week's well-telegraphed news of Trump's expansion of the China trade war, have emphasized concern about a potential economic overheating.

"Financial vulnerabilities are building, which might be expected after a long period of economic expansion and very low interest rates," Fed dove Lael Brainerd said in a Sept. 12 speech.

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34. U.S.-Canada Nafta Deal Unlikely This Week, Raising Tariff FearsСр., 19 сент.[−]

U.S.-Canada Nafta talks are picking up again but a deal is unlikely to be reached this week, four people familiar with talks said — increasing the odds the latest deadline will be missed amid President Donald Trump's threat to freeze Canada out.

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U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland will meet Wednesday in Washington, their first in-person session in eight days. The two countries remain at odds on core issues, including dairy and dispute panels.

A deal is unlikely this week without major movement, the people said, speaking on condition of anonymity as negotiations continue. The talks could extend into next week, and several deadlines have been missed so far. A Canadian official had said Thursday was the likely deadline to reach a deal in order to convert it to legal text by the end of the month.

The countries have been pressuring each other on the eve of the meeting. Representative Steve Scalise of Louisiana, a key Republican lawmaker, warned in a statement Tuesday that congressional patience with Canada was wearing thin. Prime Minister Justin Trudeau, at the same time, continues to say he would rather see no deal reached than be forced to accept a bad one.

A preliminary trade deal was reached with Mexico in August. Barring an accord with Canada, Trump has threatened to proceed with only Mexico, though Scalise stopped short of saying Congress would go along with that.

"It is growing increasingly unlikely that you can get text to the Congress by Sept. 30," said Jennifer Hillman, a professor of law at Georgetown University and former general counsel to the Office of the U.S. Trade Representative. It's even more unlikely to proceed quickly with only Mexico, she said. "Canada does still have some leverage."

Scalise, the House majority whip, said if Canada does not "cooperate" then Congress would "consider options about how best to move forward," though he didn't specify how.

"There is a growing frustration with many in Congress regarding Canada's negotiating tactics," Scalise said in the statement. "While we would all like to see Canada remain part of this three-country coalition, there is not an unlimited amount of time for it to be part of this new agreement."

No Nafta Deal 'Better Than A Bad Deal'

There have also been numerous calls in the U.S. to include Canada. In a joint letter dated Monday, three major U.S. business groups — the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers — said it would be "unacceptable to sideline Canada," the top buyer of U.S. goods. Prominent members of Congress have also said that Canada should be part of any new North American trade agreement.

"I think that if all three countries are in and all signed up, there's a much higher likelihood this gets passed," Bruce Heyman, a former U.S. ambassador to Canada under Barack Obama, said Tuesday on BNN Bloomberg television. There's no sign a Mexico-only deal can be passed by Congress, he said, while shrugging off the significance of Scalise's statement. "I think Steve Scalise is carrying water for USTR," he said.

Lower-level officials have negotiated in recent days, Freeland told reporters Tuesday in Ottawa. She underscored Canada's insistence that it won't bow to all demands. "Any negotiator who goes into a negotiation believing that he or she must get a deal at any price — that is a negotiator who will be forced to pay the maximum price for that deal," she said. "No deal is better than a bad deal."

Dairy, National Security Probes Are U.S.-Canada Sticking points

Canadian officials are warning that they're prepared to see the next deadline pass if they don't get a Nafta deal that they can live with, according to two sources. The Canadians need effective dispute settlement provisions in anti-dumping cases, and certainty to avoid misuse of national security investigations, under which Trump has applied tariffs, one of the people said.

Sticking points in talks include dairy, where the U.S., facing a supply glut, is seeking a bigger cut of Canada's protected market. In exchange, Canada is hoping to preserve some form of anti-dumping panels contained in Chapter 19 of the North American Free Trade Agreement, and an exemption for Canadian cultural industries.

Other American demands include longer intellectual property and pharmaceutical patent protection and a higher threshold for duty-free shipments across the U.S.-Canada border, none of which the Canadians have signaled are deal-breakers.

It's unclear what will happen if it becomes impossible to publish text of a deal by Sept. 30. The countries could extend talks, but that means Mexico's president-elect, Andres Manuel Lopez Obrador — who takes office Dec. 1 — will have to be the one to sign the new agreement.

Final Trade Talks 'Always Tough'

Trump could try to proceed with Mexico only, but will face blowback from Congress, and the actual U.S.-Mexico agreement would probably require further changes, Hillman said, because it's written in a way that appears to presume Canadian involvement. For example, there is a requirement that 75% of auto content be sourced within the trade pact's member nations. "You wouldn't want to leave that number at 75% if Canada is not included," because automakers couldn't meet it, she added.

Trump, meanwhile, took aim at the Canadians again on Tuesday. "Canada has taken advantage of our country for a long time," he said. "They are in a position that is not a good position for Canada."

The president has threatened auto tariffs on the Trudeau government if it balks at a deal. Finally, Trump could use another pressure tactic: give six months' notice of quitting the existing Nafta. Heyman said he was concerned that could happen.

Doing so "could then scramble a lot of things up," he said. In that case, and others, Congress will be roped in. "These last few days are always tough."

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35. How Wall Street Can Stop China Trade War From Snowballing (You Won't Like It)Вт., 18 сент.[−]

Beijing said Tuesday that it will fire back after being hit with Trump tariffs on close to $200 billion in U.S. imports in a major escalation of the China trade war. While the 10% tariffs announced by the White House weren't as high as Wall Street feared, Trump tariffs are set to automatically increase to 25% on Jan. 1.

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Further, Trump vowed to impose tariffs on the rest of Chinese imports — roughly $267 billion worth — if Beijing retaliates, as it has now promised to do.

The automatic escalation to 25% Trump tariffs, which will allow a small window for companies to adjust their supply chains, and the additional $267 billion tariff warning seem likely to kill any chance of constructive negotiations. Trade talks, if they continue, will reportedly only include low-level Chinese officials.

Meanwhile, Beijing said it would hit back with tariffs of 5%-10% on $60 billion in American goods. Previously, China had threatened tariffs of 5%-25%.

Bottom line: The China trade war has become a war of wills that is quickly snowballing into a full-scale economic conflict. At this point, there's only one thing that may be able to stop it in its tracks: a sharp sell-off of the U.S. stock market.

So far, that's not happening. Despite the overnight escalation of the China trade war, markets surged as the latest salvos were lighter than feared. The Dow Jones industrial average closed up 0.7%, the S&P 500 index rose 0.5% and the Nasdaq composite gained 0.8% on the stock market today.

Trump Tariffs Add To Other Headwinds

Likewise, as long as further tariff escalation remains just around the corner, the Fed may keep hiking interest rates. As of Tuesday morning, investors were pricing in 80% odds of a rate hike in December. That's after next week's Fed hike, a virtual lock.

That means there will likely be three significant forces all combining to slow the U.S. economy in the first half of 2019: the China trade war, tighter monetary policy and a fading of federal tax-cut and spending stimulus.

That's especially the case because each successive round of Trump tariffs on Chinese imports will be harder for U.S. companies to avoid, UBS economists noted.

"With each tranche of tariffs, the average share of imports coming from China (in each product category) increases, boosting the cost of finding alternative sources."

President Trump warned in his statement issued Monday evening, "If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports" — covering the rest of Chinese imports.

Trump doubled down on that threat via Twitter on Tuesday morning, accusing Beijing of "actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me."

Trump added: "There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!"

U.S. trade officials did cull some product lines, including the Apple ( AAPL) Watch and Air Pods from the initial list of $200 billion targets. Once the new tariffs take effect on Sept. 24, Trump tariffs will apply to roughly half of all Chinese imports. Yet it's still possible that the Apple iPhone could be hit if Trump follows through on all of his threats. Apple stock rose 0.6% in morning trade.

China Can Target U.S. Factories, Tech

While China's latest retaliatory tariffs don't match Trump's dollar for dollar and aren't as high as previously threatened, there's concern that China could go further to undercut U.S. businesses.

UBS says China is now "threatening to restrict sales of materials and equipment to the U.S., increasing the harm to U.S. manufacturing firms."

Reuters reported that a former Chinese finance minister discussed blocking the sale to U.S. companies of metals and rare-earth minerals that are key components of consumer technologies.

The U.S., in turn, could take aim at Beijing's "Made in China 2025" program by blocking key semiconductor equipment sales to Chinese companies or even non-Chinese companies operating in China.

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36. China Trade War: Trump Slaps Tariffs On $200 Billion In Chinese Goods, With This Big TwistВт., 18 сент.[−]

The Trump administration announced new tariffs on an additional $200 billion in Chinese imports Monday evening in a major escalation of the China trade war. While the 10% tariff rate isn't as high as Wall Street feared, Trump tariffs are set to automatically increase to 25% by year-end. The planned escalation, like a big bomb set on a timer, could jolt the stock market on Tuesday.

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Further, Trump vowed to impose tariffs on the rest of Chinese imports if Beijing retaliates, as it's promised to do.

"If China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports," Trump said in a statement announcing tariffs.

"We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly," Trump said. "So far, China has been unwilling to change its practices."

Beijing already had threatened to cut off talks and go on offense if President Donald Trump imposed new tariffs. The automatic escalation clause and the $267 billion tariff threat seem designed to kill any chance of further talks.

While China trade-war worries have so far taken a modest toll on the U.S. stock market, the realization may start to hit investors that the world's most important economic relationship increasingly appears headed for a nasty divorce.

While some product lines, including the Apple ( AAPL) Watch and Air Pods, were culled from the initial list, Trump tariffs will apply to roughly half of all Chinese imports. The new tariffs are set to take effect on Sept. 24.

Stock Market Sold Off On Trump Tariff Fears

The major averages hit session lows on the stock market today after Trump said China tariff news was coming tonight. That followed an earlier leg down as White House economic advisor Larry Kudlow confirmed that Trump tariffs were imminent. Kudlow, however, also said that Treasury Secretary Steven Mnuchin is talking to and negotiating with his Beijing counterparts.

The damage to stocks on Monday was limited. The Nasdaq composite fell 1.4%. The S&P 500 index was off 0.6%, and the Dow Jones industrial average dipped 0.35%.

Apple stock slipped 2.7% despite the surprise that the Trump administration granted it some relief from tariffs. Apple stock — part of the Dow Jones, S&P 500 index and Nasdaq composite — is also falling on reports that Apple iPhone XS preorders are below initial iPhone X preorders last year.

Cisco Systems ( CSCO), which has said it will have to hike prices on core networking products to offset Trump tariffs, eased 0.6%. Cisco stock is also a triple threat, part of the Dow Jones, S&P 500 index and Nasdaq.

UBS economist Robert Martin wrote in a Monday note that the imminent announcement of Trump tariffs on $200 billion in imports has thrown scheduled negotiations into doubt. Chinese officials "have been clear that the meeting is dependent on the U.S. NOT announcing tariffs this week," he wrote.

China Won't Sit 'Passively' To Trump Tariffs

China's willingness to rebuff proposed U.S. trade talks has two possible explanations. Drawing a line could have been an attempt to get Trump to rethink his strategy of using tariffs as a cudgel to extract concessions. The more troubling explanation is that Beijing now sees a full-scale trade war as likely and is shifting its attention to a counterstrike against Trump's " 'make America great again' ambition." That was hinted at by a new editorial in the Global Times, published by the ruling Communist Party's People's Daily.

"The U.S. still wants to shape Sino-U.S. relations with its strength and consolidate its hegemony," the Global Times wrote. "However, today's world will not be easily manipulated by hegemony. China will not passively be subject to the U.S. maneuverings, nor will it allow any superpower to achieve its end by peremptory means."

Trump Touts 'Very Strong Bargaining Position'

Trump, for his part, tweeted that he has no intention of backing down, without specifically mentioning China. " Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country — and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be 'Tariffed!' "

There may still be a narrow path to de-escalation, but "neither side seems especially eager to take that path," UBS wrote. "If that path is eschewed, we see a multilane expressway to further escalation and substantive negative economic effects to both countries."

China Response

China has said it will hit an additional $60 billion of U.S. imports with tariffs of 10% to 25%, but it could go further to undercut U.S. businesses.

Trump has threatened to expand tariffs to the full $500 billion worth of Chinese imports. Meanwhile, UBS says, China is now "threatening to restrict sales of materials and equipment to the U.S., increasing the harm to U.S. manufacturing firms."

Reuters reported that a former Chinese finance minister discussed blocking the sale to U.S. companies of metals and rare-earth minerals that are key components of consumer technologies.

The U.S. has the potential to hurt Beijing and its "Made in China 2025" program by blocking key semiconductor equipment sales to Chinese companies or even non-Chinese companies operating in China.

The Global Times editorial said that China will work overtime to strengthen trade relations with countries other than the U.S. The Trump administration also may look to get support for its hard line against China on trade from other key trading partners. If that's the case, Trump's global auto tariffs likely won't happen.

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37. Trump Tariffs Clips Stock Market Rally As Mueller Probe Gets SeriousПт., 14 сент.[−]

President Donald Trump has reportedly told his top trade officials to move forward on imposing tariffs on $200 billion worth of Chinese imports. A major escalation of the China trade war could come any day, but there's no word yet on whether the Trump tariffs will be 10% or closer to 25%.

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The news, which hit just after reports that Trump's former campaign manager Paul Manafort struck a deal cooperating with Special Counsel Robert Mueller, turned a modest morning rally upside down on the stock market today. The Dow Jones industrial average, S&P 500 index and Nasdaq composite all retreated in the afternoon below they all closed little changed.

The Trump administration will reportedly make some adjustments to its initial list of $200 billion in Chinese imports. A wide range of businesses have filed public comments saying the tariffs would hurt them. Apple stock traded down 1.3% after the report, extending early losses. Apple ( AAPL) said on Sept. 7 that the coming round of Trump tariffs would hit products such as the Apple Watch and Air Pods. Trump responded via tweet that Apple should move its production to the U.S. to avoid tariffs, though that would entail additional costs.

The stock market didn't initially react to word of the Manafort plea deal, falling only after the Trump tariff trade news hit the wires. That suggests a belief on Wall Street that the Mueller probe won't hurt stocks as long as no one in the first family is directly implicated.

News that Trump has given the go-ahead for escalating the China trade war follows a Tuesday report that Treasury Secretary Steven Mnuchin had been trying to arrange an 11th-hour negotiating blitz before additional Trump tariffs took effect.

The scale of the new Trump tariffs could lead to a range of economic outcomes, UBS economists believe. They've predicted GDP growth could fall to 1.6% in the fourth quarter with 10% tariffs, but bounce back to 3% in the first quarter. Tariffs of 25% could slow growth to less than 1% in Q4 and lead to a more persistent slowdown.

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38. Retail Sales Cool In August After Sizzling Amazon Prime DayПт., 14 сент.[−]

Retail sales rose a tepid 0.1% in August, though July figures were revised higher, the Commerce Department reported Friday. Outside of autos, retail sales grew 0.3% during back-to-school season.

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Wall Street expected a 0.4% gain overall, with a 0.5% rise excluding autos.

July retail sales were revised higher to a gain of 0.7% overall and 0.9% excluding autos.

From a year ago, August sales rose 6.6% overall and 7.3% excluding autos.

After the report, the Dow Jones, S&P 500 index and Nasdaq 100 held onto modest pre-open gains on the stock market today. The 10-year Treasury yield, which rose near 2.99% ahead of the retail data, stayed firm.

Strong consumer spending has helped give the economy a head of steam, helped by tax cuts and accelerating wage gains. Continued strength in retail sales could keep the Fed on track to raise interest rates in September and again in December.

Retail industry groups have been strong performers lately, though long-suffering department stores like Macy's ( M), which had been among the market leaders in the first half of the year, have fallen back.

August sales at department stores fell 1.0% on the month and decreased 0.7% from a year ago. Nonstore retailers, including Amazon ( AMZN), saw sales growth pick up to 10.4% from a year ago, with a 0.7% gain from July. That followed an upwardly revised 1.5% gain, fueled by Amazon Prime Day.

Market leading IBD 50 stocks from the retail sector include Five Below ( FIVE), Lululemon Athletica ( LULU), Wingstop ( WING) and Ulta Beauty ( ULTA).

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39. Trump Says He Didn't Blink In China Trade War, Cools Hope For A ThawЧт., 13 сент.[−]

Wall Street hopes dimmed on Thursday that coming talks with Beijing could avert a major escalation of Trump tariffs. President Donald Trump declared via tweet that China, not the U.S., is under pressure to strike a trade deal. A China trade war, he insisted, would be good for the U.S. economy.

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After a strong early move to the upside on the stock market today, the Dow Jones industrial average, S&P 500 index and Nasdaq composite pared gains after Trump's tweet, though they firmed somewhat and closed with solid gains. Trump seemed to cast doubt on whether high-level U.S.-China negotiations would even take place.

" We are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet?"

Wall Street had been bracing for an expansion of 10% to 25% Trump tariffs on an additional $200 billion in Chinese imports as soon as this week. Wednesday's news that Treasury Secretary Steven Mnuchin would lead a new round of talks before more Trump tariffs are imposed created hope that the rapid escalation of U.S.-China trade tensions might be stemmed.

There was speculation that furious lobbying by business groups and fading GOP hopes for the midterm elections might have given Trump second thoughts about escalating the China trade war and slowing the booming economy. But Trump's tweet suggests he isn't putting much stock in the Mnuchin talks and won't stop tweeting to create a more hospitable diplomatic climate.

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40. CPI Inflation Comes In Soft; Will The Fed Care?Чт., 13 сент.[−]

Core consumer prices, excluding food and energy, rose 0.1% in August, while the CPI core inflation rate dipped to 2.2%, the Labor Department reported on Friday.

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Wall Street expected the core CPI to rise 0.2% on the month and 2.3% from a year ago.

The overall consumer price index rose 0.2% on the month and 2.7% from a year ago vs. expectations of a 0.3% monthly and 2.8% annual gain. Higher costs for shelter and energy were the main contributors.

After the CPI data, the S&P 500 index, Dow Jones industrial average and Nasdaq 100 futures extended moderate pre-open gains on the stock market today. The 10-year Treasury yield eased to 2.96%.

With wage growth accelerating to a 2.9% annual rate in August, companies are facing some cost pressures. But there's a limit to how much of a price increase they can pass to customers. JetBlue ( JBLU) and United Airlines ( UAL), which have struggled to raise air fares, just raised fees for checked luggage. Amazon ( AMZN) boosted Amazon Prime membership fees earlier this year.

Don't expect big market reactions to incoming inflation data, now that core inflation is close to the Fed's 2% goal and central bankers see a slim chance of a substantial acceleration from here. Yet that begs a question: If inflation isn't a worry and wage growth is stuck under 3%, why are Federal Reserve policymakers so dead-set on keeping up their steady campaign of Fed rate hikes? Yes, growth picked up notably in the second quarter, but that will fade by the second half of 2019 as the boost from federal tax-cut and spending stimulus levels off.

Nevertheless, the Fed remains worried that financial excesses will result from interest rates that are too low, even if those excesses don't show up in higher inflation.

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41. Did Trump Just Blink? U.S. Wants Talks Before China Trade War EscalatesСр., 12 сент.[−]

With Wall Street bracing for an imminent and major escalation of Trump tariffs on China, President Trump may be having second thoughts. The Trump administration has reportedly reached out to Beijing to restart trade talks before imposing a new round of tariffs.

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That news gave a boost to the Dow Jones industrial average and S&P 500 index on the stock market today, while the Nasdaq composite slashed losses.

Companies such as Apple ( AAPL) and Cisco Systems ( CSCO) have said in recent days that they would be hit with the next round of tariffs and prices might have to rise to compensate. Big business lobbying or perhaps the worsening GOP outlook in the midterm elections could have Trump thinking twice about an escalation that could cost jobs and slow the surging economy.

Trump also may be hoping to score a big deal that validates his get-tough trade policy. So far there's no indication that China is prepared to offer major concessions to avert Trump tariffs. Trump touted a new trade deal with Mexico last month, but that revision of Nafta still hinges on addressing Canada's concerns.

China Trade War Dove Mnuchin

The new round of trade talks, expected in the next couple of weeks, will be led by Treasury Secretary Steven Mnuchin. That's hardly a surprise. Mnuchin has sought to avoid tariffs and went so far as to declare that the China trade war was "on hold" in May after China had agreed to buy more U.S. agricultural goods. Trump initially was on board but eventually rejected a deal that may have only made a small dent in the $375 billion goods trade gap with China.

Since then, the China trade war has continued to escalate, with both sides slapping 25% tariffs on $50 billion in imports in July and August and Trump threatening much more. On Friday, he said tariffs on an additional $200 billion in imports could come "very soon." After that, tariffs on another $267 billion in Chinese goods would be "ready to go on short notice."

The Trump administration has closed the comment period over proposed 25% tariffs on an additional $200 billion in Chinese imports. UBS economists have said they expect 10% Trump tariffs initially. The full 25% Trump tariffs could cut GDP growth to less than 1% in the fourth quarter, they estimate. After Trump's comments on Friday, UBS was expecting the worst this week.

The news that the Trump administration is reaching out to China for new talks, not vice versa, makes the future of the China trade war much less clear. This could be just a timing change influenced by the political calendar. Yet it's possible that the Trump administration is legitimately concerned that a full-scale China trade war could cause serious economic damage without bringing Beijing to its knees.

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42. Trump Tariffs: U.S. Readies Full-Scale China Trade War; Apple Tariff Warning Hits StockПт., 07 сент.[−]

President Donald Trump signaled Friday he's preparing to impose tariffs on all $500 billion-plus imports from China. Trump tariffs on the next $200 billion in Chinese imports are coming "very soon depending on what happens" in a major escalation of the China trade war, he told reporters.

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After that, Trump said tariffs on another $267 billion in Chinese goods — covering all imports — will be "ready to go on short notice."

Apple ( AAPL) said in a letter to the U.S. Trade Representative's office that Trump's threat to impose tariffs on virtually all Chinese imports would hit a wide range of its products. Those products include the Apple Watch, AirPods, Mac Mini and more. Apple stock, which had been fractionally higher, fell 0.8% at the close.

With the U.S. and China seemingly far apart from striking a deal, the immediate question is how abruptly Trump tariffs will strike. Even as the U.S. readied tariffs on an initial $50 billion in Chinese imports in June, Trump called for 10% tariffs on additional $200 billion in goods. Then, on Aug. 1, Trump escalated the threat to 25% tariffs.

Stock Market Impact

The Dow Jones, S&P 500 index and Nasdaq composite all hit session lows on Trump's latest threats, stirring fears that the world's most important economic relationship is headed for divorce. The major stock market averages sold off again on the Apple report. Apple stock is a member of the Dow Jones, S&P 500 index and Nasdaq composite.

UBS strategists have said that Wall Street would be surprised if Trump strikes right away with the full 25%. They say that could trigger a 5% market correction. A 10% tariff would be more likely to keep the door open for negotiations.

China Trade War: Will Beijing Blink?

Beijing, which had a $376 billion trade in goods surplus with the U.S. last year, has much narrower options. Chinese officials have threatened to impose tariffs of 10% to 25% on an additional $60 billion in imports from the U.S., beyond the initial $50 billion already targeted.

Trump seems determined to force Beijing to blink. But China sees his threats as a challenge to national honor. Beijing already has braced for an economic hit by slowing down efforts to rein in financial excess. Most analysts seems to think it can muddle through a trade war.

Beijing could strike back with non-tariff measures designed to hurt U.S. companies, like encouraging boycotts or erecting regulatory hurdles. That poses a risk for U.S. multinationals like Apple, Boeing ( BA), Nike ( NKE) and Caterpillar ( CAT) with hefty China exposure.

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43. Wage Growth Finally Picks Up, But The Timing Is AwfulПт., 07 сент.[−]

The U.S. economy added 201,000 jobs in August as the jobless rate held at 3.9%, the Labor Department reported on Friday. Wage growth, the key number for stock market investors worried about more Fed rate hikes, came in at a 2.9% annual rate, the highest in nine years.

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For workers, it's about time that wage growth accelerated, but the timing couldn't be worse for Wall Street.

The acceleration in wage growth comes just as President Donald Trump seems ready to escalate his China trade war by slapping tariffs on an additional $200 billion in imports. Despite that, odds of two more rate hikes this year jumped to 75% after the August jobs data.

Even without a trade war, there would be plenty of reason to question why Fed policymakers are so worried about letting down their guard despite a generation with quiescent inflation. On top of that, the current surge in economic growth looks set to tail off quickly once the boost from tax cuts and extra federal spending fade in the second half of 2019.

The bottom line: The odds of a Fed mistake just went up. The combination of an escalating Trump trade war and Fed rate hikes, which will put upward pressure on the dollar, would be a downer for the U.S. and global economies. The risk is that it will take the Fed too long to shift course.

Dow futures, S&P 500 futures and Nasdaq 100 futures, down modestly on the stock market today ahead of the report, initially added to losses on the jobs data. But the Dow Jones and S&P pared losses, while the Nasdaq composite turned positive even as the 10-year Treasury yield jumped to 2.94%.

Although recent jobs reports hadn't showed any momentum for hourly pay, there were other signs that wage pressures are building as unemployment falls. The broader Employment Cost Index, which reflects one-time bonuses and benefits, shows that private industry compensation accelerated to 2.9% in the June quarter vs. 2.4% a year earlier.

Microsoft ( MSFT) reportedly handed out six-figure bonuses recently amid competition over cloud-computing employees. Costco ( COST) hiked its starting pay by $1 an hour in June. Cheesecake Factory ( CAKE) has said its wage growth has jumped to a range of 6% to 7% vs. prior expectations of 5%. Walt Disney ( DIS) theme park workers in Florida just approved a contract that will hike their starting wage by 50% to $15 over three years.

Including a downward revision to June and July payroll gains of 50,000, the economy has added 185,000 jobs a month over the past quarter.

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44. U.S. Trade Gap Widens By Most Since 2015; China Deficit Hits RecordСр., 05 сент.[−]

The U.S. trade deficit widened in July by the most in three years and the gap with China hit a record as the Trump administration imposed tariffs on a range of Chinese goods, prompting retaliatory levies from Beijing.

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The gap increased 9.5% to $50.1 billion, the biggest since February, from a revised $45.7 billion in the prior month, Commerce Department data showed Wednesday. Exports fell 1%, driven by steep drops in shipments of aircraft and soybeans, while imports rose 0.9% in a broad-based gain.

A widening trade deficit would drag on growth in the third quarter after a narrower gap -- partly on higher soybean exports ahead of Chinese levies -- helped boost the pace of expansion in the prior period to the fastest since 2014. While other indicators suggest gross domestic product is on track for solid gains in the second half, the latest figures show how President Donald Trump's tariffs may start to weigh on the economy.

The goods-trade gap with China widened to a record $36.8 billion on an unadjusted basis, up from $33.5 billion in the prior month, according to the report. The deficit with the European Union jumped to a record $17.6 billion from $11.7 billion, while the gap with Mexico narrowed to $5.5 billion from $7.4 billion.

The increase in the overall trade gap was the biggest since March 2015, the Commerce Department said. The median estimate of economists surveyed by Bloomberg called for a deficit of $50.2 billion.

Exports fell to $211.1 billion, led by a $1.57 billion drop in shipments of civilian aircraft and a $682 million decline in soybeans. Imports increased to $261.2 billion, boosted by computers, oil and vehicles.

Farm Export Drop Hits Trade Deficit

The 16% decline in soybean exports brought the total to $3.53 billion, though shipments year-to-date are still up 43 percent from a year earlier. Corn exports in July fell by about 11% to $1.28 billion.

The Trump administration imposed duties on $34 billion of Chinese goods in early July, prompting immediate retaliation from Beijing, and another $16 billion in levies on Aug. 23. Negotiations with Canada to modernize the North American Free Trade Agreement ended without a deal by Friday's deadline, though talks were scheduled to resume Wednesday.

The China tensions are poised to deepen, which could affect trade even more starting this month. Trump -- who characterizes the deficit as showing how past administrations' policies have hurt the U.S. -- wants to move ahead with tariffs on $200 billion of Chinese imports as soon as a public-comment period concludes Thursday, Bloomberg News reported last week.

The trade conflict between the U.S. and China has disrupted traditional trading patterns for soybeans, the second-biggest American crop. Mexico is taking over as the top buyer of U.S. soybeans as China shuns the oilseed after imposing tariffs on American supplies in July.

The U.S. farm-trade surplus probably will drop 7.7% in the 12 months starting Oct. 1 amid the standoff with China, U.S. Department of Agriculture data showed last week. On Aug. 31, U.S. cash soybean prices fell to the lowest since the last recession ended.

Net exports added 1.17 percentage point to GDP growth in the April-June period, the most since 2013. That helped GDP grow at a 4.2% annualized pace, the best in almost four years, which Trump credited to his policies.

Other Trade Deficit Details

Petroleum exports were a record $15.8 billion; petroleum imports of $20.3 billion were most since December 2014.

Adjusted for inflation, goods-trade deficit widened to $82.5 billion from $79.3 billion; real petroleum deficit little changed at $11.9 billion.

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45. ISM Manufacturing Index Soars To 14-Year High On Booming Orders, HiringВт., 04 сент.[−]

The ISM manufacturing index unexpectedly jumped to the highest since May 2004 as orders, production and employment all picked up, offering a positive sign for the economy even as trade tensions weigh on the outlook.

ISM Manufacturing Highlights

Institute for Supply Management's factory index jumped 3.2 points to 61.3, topping the consensus for 57.6 and exceeding all estimates. ISM manufacturing readings above 50 indicate expansion. The new orders measure leapt 4.9 points to 65.1; the production index increased to 63.3 from 58.5. The export orders gauge fell to a 10-month low of 55.2 from 55.3 while the imports index dipped 0.8 point to 53.9, lowest since last September.

Key Takeaways

The report shows factories remained solid in the third quarter and adds to signals that the nearly decade-old expansion will hold up well in the second half of 2018. The rise in the employment gauge also suggests manufacturers may record another month of strong payroll gains in Labor Department figures due Friday.

The gauges of exports and imports also may indicate that months of intensifying tensions are taking a toll on trade. Negotiations with Canada to modernize the North American Free Trade Agreement ended without a deal by Friday's deadline, though talks are scheduled to resume Wednesday.

President Donald Trump wants to move ahead with tariffs on $200 billion of Chinese imports as soon as a public-comment period concludes Sept. 6, Bloomberg News reported last week, citing six people familiar with the matter.

Other ISM Manufacturing Details

The employment gauge climbed to six-month high of 58.5 from 56.5.

The supplier deliveries index rebounded to 64.5, near the highest since 2004, from 62.1; figure shows longer lead times as producers have more difficulty meeting deman

Order backlogs rose to 57.5 from 54.7.

The gauge of prices paid for materials fell to 72.1, lowest since December, from 73.2.

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46. IBD/TIPP Poll: Economic Optimism Slips From 14-Year HighВт., 04 сент.[−]

The IBD/TIPP Economic Optimism Index registered a healthy 55.7 in September but slipped 2.3 points from August's 14-year high of 58. Readings above 50 reflect optimism.

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Optimism backtracked among low- and modest-income Americans. Economic sentiment sagged into pessimistic territory among those earning less than $30,000 (to 48.8 from 51.4). Optimism faded to 50.3 from 58.8 among $30,000-$50,000 earners.

It's too soon to know whether this is just a blip in what had been a trend of solidifying confidence, or whether doubts may be creeping in about President Donald Trump's combative trade policies. Economic optimism shed recent gains among rural residents (59.7 from 65.4) and independents (53.8 from 57.2).

Somewhat tempered economic optimism came as the IBD/TIPP Poll found that Trump's job approval rating fell 5 points to 36%.

Economic Optimism Subindexes Decline

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 subindexes lost ground in September, with a softening of the six-month economic outlook leading the downside.

The six-month economic outlook gauge fell 3.5 points to 53.3. The subindex hit a 13-year high of 57.5 in February on the heels of tax cuts.

The six-month personal financial outlook index dipped 2.5 points to 62.6 after touching a 14-year high in August. That drop came despite the S&P 500 and Nasdaq composite pushing to record highs late in August.

Meanwhile, the measure of confidence in federal economic policies slipped eight-tenths of a point to 51.3, but remained in optimistic territory, a rarity since the financial crisis.

The IBD/TIPP Poll reflects 902 responses collected from Aug. 23 to Aug. 30.

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47. Nafta Talks Stall; Get Ready For Auto Tariffs, Trump Tariffs, China TariffsСб., 01 сент.[−]

The positive news that the U.S. and Mexico had a struck a new Trump Nafta deal started the week on a high note for Wall Street. Yet things weren't looking so promising at week's end as Canada and the U.S. put negotiations on hold Friday afternoon with no deal.

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U.S.-Canada trade talks are expected to resume next week, so all isn't lost. Yet instead of a big step in defusing global trade tensions, everything appears lined up for an escalation of Trump trade wars. President Donald Trump is reportedly ready to unleash Trump tariffs on another $200 billion worth of Chinese imports as soon as Sept. 6, the official end of the public comment period.

The main question isn't whether more Trump tariffs on China are coming, but whether the tariffs will initially be set at 10%, as Trump first suggested, or 25%, as he later threatened. Beijing has vowed to respond with tariffs as high as 25% on $60 billion worth of imports from the U.S.

Wall Street also is bracing for a Trump decision on whether to impose tariffs on auto imports. The Commerce Department's national security investigation ordered by Trump is expected to wrap up in coming weeks.

"The administration seems ready and willing to move forward on auto tariffs," wrote Seth Carpenter, chief U.S. economist at UBS, in a note titled, "Buckle Up: Tariffs, tariffs, and more tariffs."

Auto Tariffs Probe Due

UBS expects an announcement on the autos probe in the first two weeks of September. Trump has threatened auto tariffs as high as 25%. Despite a seeming breakthrough in relations with the European Union last month, there's a big question over whether Trump will allow an EU exemption. This week, he rejected an EU offer to cut industrial tariffs, including on autos, to zero.

Despite the struggle to complete talks with Canada, the Trump administration planned to give Congress notice that a Nafta deal could be coming within 30 days. That timing would allow Trump to sign a deal within 90 days, letting Mexico's current president sign the agreement before leaving office.

The deal hashed out between Trump and Mexico seems to imply that auto tariffs are coming. Mexico would face a 2.5% tariff if it doesn't meet new rules requiring 75% North American auto content and $16 wages for 40% to 45% of workers. But there's a 2.4 million cap on the number of vehicles that Mexico can ship to the U.S. before a higher tariff determined by the Commerce Department applies.

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48. Consumer Spending, Inflation Rose in JulyЧт., 30 авг.[−]

U.S. consumer spending extended gains into July and inflation rose to a six-year high, reflecting economic strength that should keep Federal Reserve policymakers on track to keep gradually raising interest rates.

Purchases, which account for about 70% of the economy, rose 0.4% from the prior month for the second straight time, matching economists' estimates, Commerce Department figures showed Thursday. Incomes advanced 0.3%, less than projected. The Federal Reserve's preferred measure of inflation ticked up, as forecast, to a 2.3% annual gain, the most since 2012.

The first third-quarter readings for some of the broadest gauges of the world's largest economy show consumers are continuing to drive growth while reinforcing that inflation is about where Fed policy makers want it. A key measure of underlying inflation hit 2%, matching the Fed's goal for overall price gains, as central bankers pencil in boosting borrowing costs two more times this year, with one of those quarter-point hikes expected in September.

The spending gain reflected increases in outlays on prescription drugs as well as food services and accommodations, according to the report. Previously-released figures on retail sales had showed large advances in restaurant receipts.

A separate Labor Department report Thursday showed filings for unemployment benefits last week remained near the lowest level in almost five decades, indicating employers are still reluctant to fire workers. Initial jobless claims rose 3,000 to 213,000, compared with the median estimate of analysts for 212,000.

Inflation Gauges

Price measures were in line with analyst estimates. The Fed's preferred inflation gauge — tied to consumption — rose 0.1% from the previous month. Some Fed officials have indicated that they're comfortable with annual inflation exceeding their target a bit, given that price gains were below their goal for most of the past six years.

Excluding food and energy, so-called core prices rose 0.2% from the prior month. The core index, seen as a more reliable gauge of underlying inflation, was up 2 percent from July 2017, after a 1.9% increase in June.

Highlighting the effects of rising prices, inflation-adjusted spending rose 0.2% from the prior month, the slowest pace since a decline in February.

Wages and salaries rose 0.4% for a second month, the July report showed. Disposable income, or earnings adjusted for taxes and inflation, advanced 0.2 percent after a 0.3 percent gain.

Paychecks have been slow to show sustained progress even with robust hiring and an unemployment rate hovering near the lowest since 1969. While lower taxes are helping consumers, the pickup in inflation is acting as a hurdle.

In the second quarter, the economy expanded at a 4.2% annualized rate, the fastest since 2014, with consumption rebounding to a 3.8% pace, according to revised data released Wednesday. President Donald Trump has claimed credit for the pickup in growth, with his administration targeting 3% annual expansion.

Thursday's report also showed the saving rate fell to 6.7%, the lowest since December, from 6.8% the prior month. Comprehensive revisions issued in July revealed Americans putting away more money in recent years than had been earlier thought.

Other Details

Durable-goods spending, adjusted for inflation, fell 0.5% — the first decline since February — after a 0.2% increase in the prior month. Nondurable goods rose 0.6% after a 0.2% drop Household outlays on services, adjusted for inflation, rose 0.2% after a 0.4% increase in prior month.

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49. Trump Nafta Deal Makes China Trade War More Likely, Seeks To Rig EconomyСр., 29 авг.[−]

Wall Street celebrated on Monday as news of the Trump North American Free Trade Agreement deal left an impression that President Trump would back away from his trade wars, perhaps the biggest threat to the long bull market. Yet the emerging details of the agreement paint a much different picture.

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Trump isn't getting out of the way of the economy but attempting to rig it. Even worse, the Trump Nafta deal makes it more likely that the China trade war will escalate.

The Trump Nafta deal with Mexico would create a cap on exports to the U.S. of 2.4 million vehicles and $90 billion worth of auto parts, Reuters reported. Above that, vehicles and parts would face a tariff of 25%.

For U.S. imports from Mexico under the tariff-penalized limit, 75% of auto content would have to come from within the North American Free Trade Agreement bloc or else face a smaller tariff of at least 2.5%, though possibly higher. Similarly, 40%-45% of auto components would have to be produced by workers earning at least $16 an hour.

So what do these Trump trade prescriptions have to do with the U.S.-China trade relationship? Most importantly, China is a prime target of the new auto part restrictions aiming to curb the use of components produced outside North America. The Trump administration has already threatened to impose tariffs on $9 billion worth of Chinese auto parts. The Trump Nafta deal would effectively extend punitive treatment to Mexico.

Trump Nafta Pact Was Made In China

Beyond that, the Trump Nafta deal arguably mimics the Chinese model of state-engineered economic outcomes.

The Trump administration has criticized Beijing's Made in China 2025 plan to close the technological gap, dominate domestic markets and establish global leadership in advanced sectors such as semiconductors, robotics and artificial intelligence. China's official aim is to steadily displace foreign components, achieving 40% self-sufficiency by 2020 and 70% by 2025.

Yet as the Trump administration threatens a China trade war and pressures Beijing to open up more markets to competition, the U.S. is doing the opposite.

Trump has threatened tariffs of 25% on $200 billion worth of Chinese imports, with trade officials set to close the public comment period on Sept. 5. UBS economists expect an announcement to come a week or so later that the U.S. will impose 10% tariffs on the full $200 billion in imports, holding an even harsher trade action in abeyance to pressure China to reach a deal.

The apparent lack of any progress in last week's China trade talks hosted by Trump's Treasury officials undercut hopes for a thawing ahead of the coming tariff decision.

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50. U.S. Q2 GDP Growth Revised Up To 4.2% On Software, TradeСр., 29 авг.[−]

The U.S. economy expanded in the second quarter at a slightly faster pace than previously estimated on revisions to imports and software spending, bolstering the strongest period of growth since 2014, according to Commerce Department data released Wednesday.

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Highlights Of Q2 GDP (Second Estimate)

  • Gross domestic product grew at a 4.2% annualized rate (est. 4%), revised from 4.1%; still fastest since third quarter of 2014
  • Consumer spending, the biggest part of the economy, grew 3.8% (est. 3.9%), revised from 4%; reflects downward revisions in motor vehicles, nondurable goods, health care
  • Intellectual-property investment rose at 11% pace, revised from 8.2%; imports fell 0.4%, boosting GDP calculation, after previously reported 0.5% rise, reflecting petroleum
  • Corporate pretax profits rose 7.7% y/y and 3.3% q/q, both the most since 2014, in the first estimate issued for last quarter; follows 5.9% y/y rise in first quarter and marks seventh straight y/y gain

Key Takeaways

The revisions to Q2 GDP, the value of all goods and services produced in the U.S., offer President Donald Trump another chance to stake his claim to the pickup in growth, as he did following the initial GDP report a month earlier. Trump had called the numbers "amazing" and "very sustainable," declaring his policies, including the biggest tax overhaul since the Reagan era, a success.

Even so, the pace of expansion is expected to cool from the second quarter as the tax-cut boost fades, a trade war threatens business demand and the Federal Reserve raises interest rates further. Economists surveyed by Bloomberg project a 2.9% expansion for the full year.

Household purchases, which account for about 70% of the economy, have been supported by a strong job market and lower taxes. In addition, a rise in gasoline costs earlier this year has eased, reducing a risk to spending.

The continuing acceleration in profit growth suggests corporate America is benefiting from strength in consumer and business demand. That, together with lower taxes, could bode well for further gains in investment this year.

Price data in the Q2 GDP report showed inflation was in line with the Fed's 2% goal. Excluding food and energy, the central bank's preferred price index that's tied to personal spending rose at a 2% annualized rate, the same as in the initial report.

Other Q2 GDP Details

  • Net exports added 1.17 percentage point to Q2 GDP growth, revised from a 1.06-point boost; inventories subtracted 0.97 point, compared with the previously reported 1-point drag
  • Gross domestic income, adjusted for inflation, advanced 1.8% following 3.9% gain
  • Nonresidential fixed investment -- which includes spending on equipment, structures and intellectual property -- increased 8.5%, revised from 7.3%; spending on business equipment rose 4.4%, revised from 3.9%
  • Residential investment fell at a 1.6% rate, revised from a 1.1$ decline
  • Final sales to domestic purchasers, which strip out trade and inventories -- the two most volatile components of the GDP calculation -- advanced at 3.9rate, same as initial reading
  • Government spending increased at a 2.3% rate, revised from 2.1%; the figures reflected higher spending on defense and by state and local governments; defense spending rose by most since 2009
  • Real disposable personal income rose at 2.5% pace, revised from 2.6% gain

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51. Here's Why The Trump Nafta Deal May Blow Up Over Steel, Auto TariffsВт., 28 авг.[−]

Canada jumped into President Trump's new Nafta deal negotiations on Tuesday, raising hopes that a final three-nation deal could come quickly. While that's possible, keep the Champagne on ice. The odds of the Trump Nafta deal blowing up may be a lot higher than Wall Street thinks.

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First of all, there's no real Trump Nafta deal. Mexico has confirmed that new auto-production rules would need reworking if Canada isn't a party to it. But there are also other hurdles to a bilateral trade deal with Mexico if Canada doesn't come on board. Since a bilateral trade agreement with Mexico would conflict with Nafta, Trump likely would need congressional approval to withdraw from the trade bloc. Congress may not be willing to go along — especially if Democrats win back the House in November — since that would create a crisis in the U.S.-Canada trade relationship.

Canada Has Leverage

So the fate of the trade deal would seem to hinge on Canada's cooperation. Canada may have more leverage — and more reason to resist a quick surrender — than Trump realizes.

Trump has already done his best to poison diplomatic relations with Canada, hitting the close U.S. ally with steel tariffs of 25% and aluminum tariffs of 10% — even though Canada is the biggest importer of American steel. Mexico didn't let steel and aluminum tariffs stand in the way of a Trump pact. But that was at least partly because Mexico expected the Trump tariffs on steel and aluminum to be hashed out once Canada joined the negotiations.

There also are other contentious issues that Trump wants to push with Canada, including market protections for dairy, a Canadian sacred cow.

Further, Canada might not be thrilled with the U.S.-Mexico framework on auto rules of origin agreed to by the U.S. and Mexico. Of special concern may be a provision that expansions of auto manufacturing capacity in Mexico will face Trump auto tariffs that could be as high as 25%.

So there's plenty of doubt about whether the Trump administration and Canada will be able to reach an agreement to revise Nafta. If the two sides can't reach agreement, Trump has threatened to lash out with big auto tariffs of up to 25% on imports from Canada, as well as on other auto-producing countries that won't agree to his terms.

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52. Enjoy Trump Nafta Gain; Here Comes China Trade-War PainВт., 28 авг.[−]

News that President Donald Trump had a reached a new trade deal with Mexico sent the Nasdaq composite and S&P 500 surging to new highs on Monday and again Tuesday. But those gains from the Trump Nafta deal could reverse — and then some — if the trade war with China escalates next month, UBS equity strategist Keith Parker wrote Tuesday.

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Just what was the market so excited about on Monday? Not the terms of the Trump Nafta deal, or rather the U.S.-Mexico Trade Agreement, as he wants it called. Economists saw the deal as having little effect, other than to raise prices on U.S. autos. Wall Street celebrated mostly because it looked like Trump had decided to get out of the way of the Trump economic boom. Yet that impression may not last for long.

Trump has threatened tariffs of 25% on $200 billion worth of Chinese imports, with trade officials set to close the public comment period on Sept. 5. UBS expects an announcement to come a week or so later that the U.S. will impose 10% tariffs on the full $200 billion in imports, holding an even harsher trade action in abeyance to pressure China to reach a deal.

The apparent lack of any progress in last week's China trade talks hosted by Trump's Treasury officials undercut hopes for a thawing ahead of the coming tariff decision.

S&P 500 Drop Seen On China Trade War

"The implementation of 10% tariffs on $200 billion of China imports in September is likely to lead to a 2% or more S&P decline," Parker wrote.

Similarly, David Bianco, chief investment officer in the Americas for DWS, sees a 5% to 9% market drop likely this fall after a recovery to new highs fueled by 25% earnings growth, low bond yields and "a willingness to worry about trade later." Among a host of risk factors he sees is "an emerging market slowdown aggravated by U.S. tariffs, which already contributed to a bear market in China and a Turkish lira crash."

UBS expects that new Trump tariffs on China will cut Q4 GDP growth to 1.6%, leading the Fed to skip a December rate hike. Meanwhile S&P 500 "earnings would take a ~3% hit if 10% tariffs go through, with U.S. equities down a similar amount." Parker noted, though, that an escalation of tariffs may be partly priced into current stock levels.

Trump's Auto-Tariff Rules

While that doesn't sound great, it's also possible that Wall Street has looked too favorably on the Trump Nafta deal. Here's why: The new rules governing auto content aim to boost the North American share of auto components to 75% in final assemblies. Also, 40% to 45% of production must be done by auto workers earning $16 an hour or more. This is sure to raise the cost of producing in the U.S. Costs would have to rise dramatically for production in Mexico — if Mexico couldn't escape the more onerous rules by paying a 2.5% tariff.

Yet to avoid a race to the bottom, the U.S. insisted that new or expanded production in Mexico that doesn't comply with the new Trump Nafta rules must face a new Trump auto tariff of up to 25%. The Commerce Department is still figuring out the tariff level that's appropriate under the national security investigation ordered by Trump.

In other words, more Trump auto tariffs are coming, and Trump will hold them over any country that doesn't reach a trade deal to his liking.

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53. Trump NAFTA Deal: This Big Shoe Has Yet To Drop On Stock MarketПн., 27 авг.[−]

President Donald Trump loves walls, and the Trump NAFTA deal with Mexico aims to build one to protect the U.S. auto sector. The surprise for stock market investors is that the wall will only stand if it comes with a big hike in U.S. auto tariffs on the rest of the world.

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Trump touted a "very good deal" with Mexico on Monday. He said the pact will be called the United States-Mexico Trade Agreement, dropping the NAFTA name. He said he hopes Canada will join the bilateral accord, but "we'll see." Yet most analysts believe that the name change is symbolic and that there is little chance that Canada will be excluded. They noted that the terms reached by the U.S. and Mexico are meant to apply to the broader North American trade bloc.

Sen. Orrin Hatch, a close ally of the president, dismissed Trump's talk that the deal might be bilateral in a statement. "Today's announcement by the United States and Mexico is an important step toward modernizing NAFTA, the largest free trade zone in the world." Congress, he noted, must OK any revamped NAFTA.

The Trump deal with Mexico fueled stocks. The Dow Jones industrial average, S&P 500 index and Nasdaq composite all rallied solidly. The S&P 500 and Nasdaq composite hit record highs, with the latter topping 8000 for the first time. Shares of General Motors ( GM) and Ford ( F) rose 4.8% and 3.2%, respectively, in afternoon trading on the stock market today. Rail stocks also moved solidly higher, including Canadian-based operators. Foreign auto stocks also rallied, likely on hopes that a NAFTA deal means that Trump is backing off harsh trade threats. That could be a misreading.

"A big deal looking good with Mexico!" Trump tweeted about the NAFTA agreement early Monday.

Auto Tariffs Outside North America

A North American trade deal, whatever the ultimate name, will significantly shrink the risk that Trump will get the U.S. into a full-scale global trade war. Yet the Trump NAFTA deal's terms appear to confirm that higher U.S. auto tariffs are on the way.

In fact, a key reason Mexico likely agreed to some, though not all, of Trump's auto demands is that it will largely escape the Trump tariff sledgehammer that may hit other auto-producing countries.

"The only way the NAFTA revision would not hurt U.S.-based automakers is if the United States were to raise the cost of imported cars by imposing a stiff new tariff on imported cars from Europe, Japan and South Korea," wrote Jeffrey Schott, senior fellow of the Peterson Institute for International Economics.

In fact, Trump has been talking about — and the Commerce Department studying — a 25% tariff on U.S. auto imports.

"Officials of auto exporting countries should thus expect U.S. officials to threaten to impose additional auto tariffs of as much as 25% pursuant to the current Section 232 case on autos, if exporters don't accept 'voluntary' restraints on their shipments to the U.S. market," Schott wrote.

Less competition and the higher cost of producing in North America should hike prices for U.S. consumers, he says.

Auto NAFTA Deal Details

Under terms of the Trump NAFTA deal, 75% of a vehicle's components will have to come from within the North American trade bloc to qualify for tariff-free trade. That's up from 62.5% now but below the 85% initially sought by the Trump administration. Keep in mind that many foreign automakers serve the North American market with local production.

In addition, to avoid tariffs the final assembly of 40% of passenger cars and 45% of trucks must be completed by workers making at least $16 an hour.

If auto producers in Mexico can't meet these tougher restrictions they will face the 2.5% tariff on autos now applied by the U.S. Yet that may look like a bargain compared to both the cost of roughly doubling wages or the 25% tariff that Trump is mulling.

On the other hand, this won't be a loophole or escape hatch that Mexico can drive a truck through. New and expanded production would face the same new Trump tariff as the rest of the world. Second, pickup trucks and SUVs already face 25% tariffs.

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54. Did Jerome Powell Just Lay Groundwork To Skip December Fed Rate Hike?Пт., 24 авг.[−]

Fed Chairman Jerome Powell declared that the "economy is strong" at the annual monetary policy confab in Jackson Hole, Wyo., but he may have just begun laying the groundwork for skipping the expected Fed rate hike in December.

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Powell's dovish-sounding speech, even if he only briefly discussed the current outlook, may have helped the mood on Wall Street, with the Nasdaq composite and S&P 500 index hitting new highs.

Powell devoted much of his speech to praising former Fed Chair Alan Greenspan for showing "considerable fortitude" in stemming a push within the Fed to substantially raise rates from 1996 to 1998.

"Without serious inflation risks. Greenspan argued that the FOMC should hold off on rate increases," Powell recounted. The result: "Starting in 1996, the economy boomed and the unemployment rate fell, but, contrary to conventional wisdom at the time, inflation fell."

Economy Not 'Overheating'

Later in his speech, Fed chief Powell added, "We have seen no clear sign of an (inflation) acceleration above 2%, and there does not seem to be an elevated risk of overheating."

That's not to say Powell thinks the Fed currently faces the same situation as Greenspan. Higher productivity in late 1990s was key to Greenspan's success. But Powell's take on the Greenspan era could well lead him to err on the side of caution and skip a Fed rate hike in December if the biggest near-term risk factor comes to pass.

As discussed in the Fed meeting minutes from the Aug. 1 meeting, President Trump's China trade war is the biggest near-term question mark. While a rate hike in September looks like a sure thing, the December rate hike could be in doubt if the U.S. expands Trump tariffs to an additional $200 billion in Chinese imports. The Trump administration will wrap up its public comment period over the tariffs on Sept. 5 and a decision could come by mid-September.

Powell's speech on Friday hinted that, given the low inflation outlook, he might resist a push for a Fed rate hike in December to see how the U.S. economy and global economic and financial conditions fare after a major expansion of Trump tariffs.

Treasury Yield Curve Keeps Flattening

The other big change since Powell said the "U.S. economy is in great shape" after June's Fed rate hike is that the bond market has signaled increasing doubts about the Fed's rate-hike intentions via a flattening Treasury yield curve. The gap between the 2-year and 10-year Treasury yields has been cut by more than half since the Fed's June meeting, from 42 basis points to 20 basis points.

The flatter Treasury yield curve arguably reflects investors curbing their expectations about the strength and durability of the nascent Trump economic boom, with tighter Fed policy as a prime reason. While several regional Fed district presidents have said the Fed shouldn't let the yield curve invert, a reliable precursor of recession, Powell and others have suggested that an inverted yield curve may no longer be as worrisome in an era of low global bond yields.

Fed Rate Hikes Now, Global Pain Later?

But there's reason for the Fed to be cautious. Fed policymakers seem to be treating the stimulus-fueled burst of growth, from tax cuts and higher federal spending, as the new normal. Yet, as that fiscal boost flattens out by the middle of 2019, monetary policy may get too tight for the underlying economic conditions.

As U.S. growth surges above the rest of the developed world, rising interest rates and widening deficits have pushed the dollar higher. Yet the strong dollar is widely seen as a negative for global growth because emerging market economies often depend on dollar-denominated debt. That debt gets harder to repay as the greenback appreciates. This explains why the Fed is, more or less, the world's central bank. The Powell Fed didn't cause the emerging market crises in Turkey and Argentina, but it's making things worse by making global monetary policy tighter.

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55. Fed Signals Readiness To Hike Rates Again If Economy Stays On TrackСр., 22 авг.[−]

U.S. central bankers are ready to raise interest rates again so long as the economy stays on track, according to a record of the Federal Reserve's most recent policy meeting.

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"Many participants suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation," minutes of the July 31-Aug. 1 Federal Open Market Committee meeting released Wednesday in Washington said.

The minutes said that "further gradual increases" in their target rate "would be consistent with a sustained expansion of economic activity, strong labor market conditions and inflation near the committee's symmetric 2% objective over the medium term."

Led by Jerome Powell, a Trump appointee who took over the chairmanship in February, policy makers are gradually raising rates. They aim to give the economy room to run while also trying to keep inflation expectations anchored.

Fed Minutes Precede Jackson Hole

There's little evidence that the seven quarter-point increases since December 2015 are hurting growth. Nevertheless, the rate increases have drawn criticism from President Donald Trump. Powell may update his outlook when he gives a speech Friday on "Monetary Policy in a Changing Economy" at the Kansas City Fed's annual forum in Jackson Hole, Wyoming.

Fed officials left the benchmark lending rate unchanged earlier this month while upgrading their description of economic growth in their statement to "strong," compared to "solid" in June.

Much of their discussion during the meeting involved upside and downside risks.

Some participants raised the concern "that a prolonged period in which the economy operated beyond potential could give rise to inflationary pressures or to financial imbalances that could eventually trigger an economic downturn," the minutes said.

Fed district banks reported that firms had "greater scope than in the recent past to raise prices" in response to strong demand or rising input costs.

Fiscal Stimulus

They debated the impact of the fiscal stimulus with some noting "larger or more persistent positive effects" as a potential upside risk.

"All participants pointed to ongoing trade disagreements and proposed trade measures as an important source of uncertainty and risks," the minutes said.

The staff gave a presentation on the lower boundary on interest rates and alternative policy tools. Participants emphasized there was "considerable uncertainty" about the economic effects of unconventional tools, the minutes said, and they had agreed to continue studying the topic at future meetings.

The staff forecast continued to project that the economy would grow "at an above-trend pace." Staff economists also "continued to assume that the projected decline in the unemployment rate would be attenuated by a greater-than-usual cyclical improvement in the labor force participation rate," the minutes said.

Data showing a robust U.S. labor market with inflation around the central bank's 2% target have solidified investor expectations of another hike at their meeting next month.

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56. Trump Has Good Reason To Be Upset With The FedПн., 20 авг.[−]

President Donald Trump is going where he's not supposed to once again, criticizing the Fed and his hand-picked chairman, Jerome Powell. In this case, he's got a point: The Trump Fed has sped up its rate-hiking plans to offset the Trump tax cuts, even though policymakers expect economic growth to slow. The bond market, via the flattening Treasury yield curve, is worried too.

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Trump told CNBC last month that he wasn't happy about the succession of Fed rate hikes. The president reportedly doubled-down on his Fed criticism at a weekend fundraiser. Trump told Reuters in an interview released Monday he's "not thrilled with his raising of interest rates, no. I'm not thrilled."

Unless Powell takes an unexpected dovish turn in Friday's speech at the Fed's annual monetary policy meeting in Jackson Hole, Wyo., Trump may not be able to hold his tongue — or tweets.

Treasury Yield Curve Flattens Further

Trump's case against the Fed seems to have some pretty potent supporters — including the bond market. On Monday, the gap between the 2-year Treasury yield and 10-year yield narrowed to just 23 basis points, the smallest since the lead-up to the 2007 recession.

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

To some analysts, the flattening yield curve is a cause for concern that the yield curve will invert, with long-term yields falling below short-term yields. That's a reliable precursor of recession. But Powell and most other Fed policymakers have mostly shrugged off the concern, suggesting this time is different because of low global interest rates.

With the economy clearly accelerating in the second quarter, the Trump Fed hiked rates in June for the second time this year. At the time, policymakers signaled expectations for two additional hikes in 2018. That's a dramatic change from just a year ago. Last August, before inflation data started to firm, markets priced in just one quarter-point rate hike over the coming 12 months.

Policymakers are treating the stimulus-fueled burst of growth, from tax cuts and higher federal spending, as the new normal. But as that fiscal boost flattens out by the middle of 2019, monetary policy likely will get too tight for the underlying economic conditions.

Fed Lifts Dollar, Hurts Emerging Markets

As U.S. growth surges above the rest of the developed world, rising interest rates and widening deficits are pushing the dollar higher. The strong dollar also is making Trump unhappy, though he's blamed it more on other countries like China trying to weaken their own currency for a trade advantage. China, in turn, has blamed the sinking yuan on Trump tariffs and the escalating trade war.

Yet the rising dollar is widely seen as a negative for global growth because emerging market economies often depend on dollar-denominated debt. That debt gets harder to repay as the greenback appreciates. This explains why the Fed is, more or less, the world's central bank. The Trump Fed didn't cause the emerging market crises in Turkey and Argentina, but it's making things worse by making global monetary policy tighter.

Trump told donors that he thought he had selected a Fed chair who would continue relatively easy-money policy. Yet the Fed has taken hawkish turn that seems hard to justify. Fed policymakers see little risk that inflation will break out to the upside. After a burst of growth this year, they expect the economy to rapidly decelerate back to the old normal, according to their projections. However, Chicago Fed President Charles Evans, long seen as a very dovish policymaker, explained recently that the Fed needs to raise rates to a "somewhat restrictive" level.

The Fed seems to be targeting the potential for financial excess — i.e. high asset prices — that crashed the economy in 2007 but that appears to be much more contained in this cycle, according to Powell and others.

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. That's exactly what he got, yet it seems only a matter of time before the Trump Fed begins to retreat from the peak hawkishness.

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57. Affordable Housing Crisis: What You Must Know About The Housing BubbleСб., 18 авг.[−]

A decade after the housing crash triggered the Great Recession, housing markets in many of America's most dynamic cities have hit a different kind of wall. More Americans are now looking to exit job magnets like San Francisco and Seattle than are being drawn by opportunity. Who can blame them when the home supply is limited, the housing bubble puts prices out of reach, and the affordable housing crisis is overrunning suburbs?

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Homeownership is key to wealth-building and upward mobility, and a foundational part of the American dream. Major urban centers have played a critical role in giving America its innovative edge. The San Francisco and Seattle areas have spawned the top five S&P 500 companies with a combined market cap of $4.2 trillion — Apple ( AAPL), Amazon.com ( AMZN), Google parent Alphabet ( GOOGL), Microsoft ( MSFT) and Facebook ( FB) — as much as the bottom 282 companies in the big-cap stock index.

But the affordable housing crisis is preventing millennials and other Americans from settling down in top cities with cutting-edge industries.

Restrictive residential land use regulations in "America's most productive places seems to have led labor to locate in places where wages and prices are lower, reducing America's overall economic output in the process," argue economists Edward Glaeser of Harvard and Joseph Gyourko of the Wharton business school.

In a handful of expensive cities, building seems to have finally caught up to demand for luxury apartments, with high-end rents falling. But that's not so for homes for the middle class and working class. Efforts to boost the supply of affordable housing have hit a brick wall of zoning restrictions, high costs and geographic limits.

Despite an intensifying focus at the local level, cities have, at best, just begun to chip away at the affordable housing crisis. And some efforts could exacerbate the urban housing bubble.

Bay Area Housing Bubble

San Francisco added 175,000 jobs from 2011 through 2017 but built fewer than 20,000 housing units. The median San Francisco home now fetches over $1.6 million.

Neighboring Alameda County used to provide relief for residents willing to brave the commute. But the Bay Area housing bubble has engulfed Alameda. The median sale price of a single-family home topped $1 million for the first time in May. The county has permitted just 27,000 housing units since the start of 2012 even as the population has grown by 130,000.

In theory, building enough luxury apartments might trickle down to the middle class, as older "luxury" units lose their cachet. But for now overall demand still greatly outstrips supply. Few Americans would covet 1,200-square-foot, 50-year-old homes with tiny yards and no air conditioning. But in the west side of Los Angeles, many sell for more than $1 million.

Hot Real Estate Market Leads To Homes Selling Fast

Homes are selling faster than even at the height of the housing bubble, according to the National Realtors Association. In May, homes went under contract within just six days in Denver, seven days in Seattle, and eight in Boston.

The supply of homes has fallen steadily, but mostly in mid- and low-priced homes. With rising wages for construction workers, higher material and land costs, and lengthy, expensive approvals, builders face economic pressures to produce higher-end housing. That contributes to the scarcity of affordable housing for both buyers and renters. In 2016, 20.8 million renters, or nearly 50%, were deemed "cost-burdened" because rent cost more than 30% of income. More than half — 11 million — paid at least half their income on rent.

Some industry insiders think overly tight markets may be starting to buckle. Glenn Kelman, CEO of real estate brokerage Redfin, said this month that he saw supply rising and homes now taking long to sell, especially in housing-bubble markets such as San Francisco and Seattle.

Millennials Escape From The Bay?

Nationally, housing affordability has hit a 10-year low amid rising interest rates and home price hikes that are outpacing wage gains. Although housing affordability still looks good vs. prior decades, it will crater if mortgage rates ever get anywhere close to old norms.

The housing bubble would be far worse if millennials hadn't delayed forming households and buying homes relative to prior generations. Forget the urban legend that millennials all live downtown; the suburban reality is that young adults are scouting escape routes.

A survey last year found that 46% of Bay Area millennials were plotting an exit strategy. Even Amazon is looking for a second headquarters outside Seattle.

Housing Bubble Hurts Wages, Economic Growth, Productivity

One big question is where people — millennials in particular — can find opportunity without sacrificing their finances or quality of life. The stakes are high for individual and national well-being. The willingness of Americans to seek greener pastures has long underpinned the nation's economic dynamism. Growth and productivity will suffer if housing constraints stand in the way of individual and employer ambitions.


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Sky-high housing costs in large cities with high-productivity industry clusters are eroding the financial gain for going to college, argues George Mason University economist Alex Tabarrok.

"To earn high wages, college-educated workers must increasingly live in expensive cities," Tabarrok writes. "High housing costs don't simply redistribute wealth from workers to landowners. High housing costs reduce the return to education, reducing the incentive to invest in education." That's negative for future economic growth.

While millennials burdened by student debt have reason to complain, their less-educated peers are faring worse, the Urban Institute notes. Homeownership among high-school graduates age 18 to 34 who head households has fallen by about one-third since 2000. It's now 10% lower than among college graduates vs. just 3% in 2000, the Urban Institute finds.

Affordable Housing Crisis And Low-Income Renters

The State of the Nation's Housing 2018 report from Harvard University notes that the cost-burdened share of renters has doubled since the 1960s. Over that span, inflation-adjusted rent has grown 61% vs. 5% inflation-adjusted income growth among renters. The ranks of very low-income renters have grown by 6 million since 1987. Rental assistance hasn't kept pace. Worse, the growth in rental units has shifted to suburbs requiring longer commutes and higher transportation costs.

"The critical question," the Harvard report concludes, "is whether the homebuilding industry can supply, and local regulations allow, enough new housing to meet the need for homes affordable to a broad range of households."

Zoning for affordable housing is increasingly becoming a focus of the political fight over inequality, and not only at the state and local level.

Affordable Housing Requirements Counterproductive?

Efforts so far to make a dent in the affordable housing crisis haven't kept pace. In some cases, affordable housing requirements can add to the housing shortage. Inclusionary zoning laws require a percentage of affordable units in any housing development. But they "can impact the amount of overall unit construction by making it financially infeasible for developers to make investments," says the Bay Area Council Economic Institute. Developers essentially have to sell a big share of units at a loss.

Trying To Sidestep Local Zoning Laws

Zoning for housing falls within the purview of cities and counties. Housing density is a frequent flash point. Advocates for more housing at affordable prices spar with homeowners wanting to keep their property values high while worrying about urban crowding, clogged roadways and the "character of the neighborhood."

Zoning restrictions help explain why the price of housing per square foot has soared 188% since 2000 to $421 in Los Angeles vs. 79% to $120 in Dallas. Dallas has been leading the nation in population growth but accommodates that growth via builder-friendly regulations.

California this spring saw an effort to seize control from localities. SB 827 would have disallowed height limits below 85 feet along major transit corridors and stops. It also would have banned minimum parking requirements along such routes to cut costs, despite fears of parking nightmares.

The bill died a quick death in committee.

The Trump administration just proposed an incentive to encourage less restrictive zoning, making it a key criteria for awarding federal grants. Affordable housing advocates like the idea, in concept. But they object to Department of Housing and Urban Development Secretary Ben Carson's proposal to repurpose grants aimed at fair housing, or anti-discrimination, toward affordable housing.

Affordable Housing Crisis Revives Rent Control?

Instead of easing zoning rules, blue states and cities may move in the other direction. California voters this fall will decide whether to repeal a state law restricting local rent-control measures. That's despite a broad consensus among economists that rent control causes more problems. It helps certain renters, who often aren't poor. But rent control discourages building, exacerbating the supply-and-demand imbalance at the root of the problem.

Meanwhile, Sen. Kamala Harris, D-Calif., and Cory Booker, D-N.J., possible 2020 presidential contenders, have proposed separate bills offering tax credits to the poor and middle class paying more than 30% of their income in rent. Booker's HOME Act also would ease zoning restrictions and require that at least 20% of housing be affordable. But the tax credits would provide a huge incentive to raise rents.

Housing Bubble And Suburban Areas

As the push to address the affordable housing crisis in top cities stirs up a hornets' nest of opposition, millennials have another idea: moving to the suburbs.

The most recent census data "leave little doubt that suburbanization is on the rise," with millennials a key driver, wrote Brookings Institution demographer William Frey.

John Burns of John Burns Real Estate Consulting has coined a new "surban" geography, delivering an urban feel and walkability outside the urban core. "We're going to see more high-density housing built in the suburbs," near suburban downtowns, Burns told IBD. Struggling malls in the Amazon era could be turned into residential developments. A number of developers are considering turning shuttered J.C. Penney ( JCP) and Sears ( SHLD) stores into apartments.

But public investment in infrastructure, education and transportation would be needed to accommodate the growth.

And in high-priced areas such as the San Francisco Bay Area and Los Angeles, the housing bubble has expanded to traditional suburbs. Finding affordable housing can mean two- or even three-hour commutes from the hot interior.

Affordable Housing Crisis And Economic Concentration

Another option is to spread the wealth to communities that have long played second fiddle. You might say that is the aim of President Trump's policies that seek to revitalize the Rust Belt and reopen defunct steel mills.

Amazon could pick one of the older urban underdogs for its second HQ, such as Pittsburgh, Philadelphia or Newark, N.J. Others have proposed shifting federal agencies outside the Beltway. Trump is talking about dispatching thousands of FBI officials to Alabama, West Virginia and Idaho.

More geographically balanced opportunity and economic growth could solve the affordable housing crisis. Yet there's a reason a handful of metropolitan areas have been magnets for the world's most dynamic companies.

Unless these top cities dramatically loosen zoning restrictions — and politics make that "a dead end," Burns says — the U.S. will need a new growth model.

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58. Trump-Xi Meeting Report Lifts Dow Jones, But Don't Buy It — YetПт., 17 авг.[−]

For a second straight day, news headlines are pointing to good news in the China trade war and giving a lift to the Dow Jones industrial average. The latest report has a possible meeting between President Trump and Chinese President Xi Jinping that would be held in November, presumably to seal an armistice. But investors should be asking, "Where's the beef?"

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One keyword throws into question everything about Friday's report on a potential summit: Treasury. Start believing such reports if and when they come from Trump himself or the Office of the U.S. Trade Representative.

That's because there is a battle within the Trump administration over the China trade war, and so far Treasury Secretary Steven Mnuchin is losing. Mnuchin, you may recall, declared that the China trade war was on hold back in May.

The China trade war is at a key fork: It will sharply escalate in the coming weeks, which is the safer bet, or the two sides will begin serious talks over how to avoid a divorce of the world's most important economic couple.

Trump Tariffs Set To Expand

The first step toward restarting serious negotiations would likely be to stop an escalation of Trump tariffs. Next week, on Aug. 23, 25% Trump tariffs on another $16 billion worth of Chinese imports are set to take effect, with Beijing hitting back in equal measure. On Sept. 5, the U.S. will end the comment period over Trump's proposed 25% tariffs on an additional $200 billion worth of imports. Broad-based, double-digit-percentage tariffs could hit China before the end of September.

Treasury officials, who will lead "low-level" trade talks later this month, are now gearing up an effort to halt the escalating China trade war and create an environment for productive talks. Beijing has signaled that it sees a strong response to broad-based Trump tariffs as a matter of national pride. It has refused to acknowledge any misdeeds when it comes to the intellectual property rights of U.S. companies.

At this point, it's not clear what kind of deal is possible. The near miss hailed by Mnuchin in May came when China reportedly agreed to buy a total of $70 billion in U.S. goods, far less than the $200 billion annual trade-deficit reduction Trump sought. But Beijing hasn't put on the table anything that would fundamentally alter its trade policies or scale back its state-driven ambitions.

For a while, everyone thought China was using Qualcomm ( QCOM) as a trade war by blocking its acquisition of NXP Semiconductors ( NXPI). When Trump intervened to soften sanctions and give ZTE a new lease on life, the Qualcomm deal was expected to sail through. Yet China still wouldn't relent, and Qualcomm finally gave up. The point is that China has grand ambitions to be a global leader in advanced technology and has shown that it will play hardball to achieve its goals.

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59. Trump Tariffs: Trade But Don't Own This China Trade War Relief RallyЧт., 16 авг.[−]

News that the U.S. and China are set to resume trade talks later in August got much of the credit for propelling the Dow Jones industrial average to a 400-point gain on Thursday. But don't get carried away with the notion that the China trade war is over. Doubts may start to build a week from now when the next round of Trump tariffs on $16 billion in Chinese imports is set to take effect.

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Here are five reasons to doubt that this China trade war relief rally will have legs:

Earnings from Walmart ( WMT) and Cisco Systems ( CSCO), both among the 30 Dow Jones components, deserve much of the credit for the blue chip average's strong gains in Thursday's stock market trading. The S&P 500 index rose solidly, though Walmart stock and Cisco stock also helped the benchmark index. Meanwhile, the Nasdaq composite lagged somewhat, with FANG stocks Facebook ( FB), Netflix ( NFLX) and Google parent Alphabet ( GOOGL) retreating, and chip stocks edging lower. In other words, the sense of relief about the China trade war probably didn't have a powerful impact on stocks. That's partly because the stock market hasn't taken much of a hit from China trade fears to begin with, and partly because Wall Street didn't put too much stock in news that trade relations are thawing.

The strength of the U.S. economy and stock market, while China's stock market struggles, has President Donald Trump convinced that he's winning the trade war. That suggests Trump is no longer looking for an easy way out of the China trade war. That's a shift from earlier this summer, when Trump rescued Chinese telecom gear giant ZTE and held off new investment restrictions on China.

The trade talks to be held later this month will be led by low-level Trump administration officials and their Chinese counterparts. Under Secretary of Treasury for International Affairs David Malpass will lead the U.S.-China trade negotiations. That's notable because there is an apparent split within the Trump administration. Treasury Secretary Steven Mnuchin, you may recall, declared a trade war truce in May. Treasury badly wants to avoid a China trade war, but has so far been marginalized.

China hasn't shown any sign of giving in. For a while, everyone thought China was using Qualcomm ( QCOM) as a pawn in the trade war by blocking its acquisition of NXP Semiconductors ( NXPI) on trumped-up antitrust grounds. When Trump intervened to soften sanctions and give ZTE a new lease on life, the Qualcomm deal was expected to sail through. Yet China still wouldn't relent, and Qualcomm finally gave up. The point is that China has grand ambitions to be a global leader in advanced technology and has shown that it will play hardball to achieve its goals.

Beijing has made standing up to Trump tariffs a matter of national pride. The Trump tariffs — which could be extended to another $200 billion in Chinese imports in September — are a cudgel to force China to give up intellectual property misdeeds that it refuses to acknowledge. At this point, it's not clear what kind of deal is possible. The near miss in May came when China reportedly agreed to buy a total of $70 billion in U.S. goods, far less than the $200 billion annual trade-deficit reduction Trump sought. But Beijing hasn't put on the table anything that would fundamentally alter its trade policies or scale back its state-driven ambitions. It's hard to imagine any comprehensive talks moving forward as long as the threat of a huge escalation of Trump tariffs persists.

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60. Global Economic Boom Over: Copper Slides, Dollar Surges On Trump Tariffs, Fed Rate HikesСр., 15 авг.[−]

Shares of Caterpillar ( CAT) helped lead the Dow Jones industrial average lower on Wednesday, sending an ominous signal that the global economy has left behind its sweet spot. Want a second opinion? Ask Dr. Copper. Copper prices sank about 4% on the day, sliding to the lowest level since May 2017. The red metal, a key gauge of industrial demand, has fallen 20% since December's peak. Fed rate hikes, a rising dollar and Trump tariffs are all conspiring to exacerbate emerging market financial stresses and dampen investment plans.

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Turkey's plunging currency and new data from China showing a slowdown in investment added pressure on copper prices and demand for other metals. As capital flees emerging markets and the world's biggest consumer of industrial metals curbs its appetite, the global economy growth outlook is suddenly looking a lot less dynamic.

It was only last summer that Wall Street began celebrating a rare burst of synchronized growth for the global economy, with all economies of note rising solidly at one time. But those good times are gone and appear unlikely to return.

Take a look at Caterpillar's latest retail sales data. The top line is still solid, showing 24% year-over-year growth over the past three months. But the rate of growth is sliding just about everywhere — except North America, where Caterpillar growth has accelerated from 23% in January to 27% in August. Meanwhile, the pace of construction and resource industry machine sales has fallen from 49% to 16% in Latin America; from 31% to 13% in Europe, the Middle East and Africa; and from 51% to 30% in the Asia-Pacific region.

Caterpillar stock, which also has taken a hit from Trump tariffs on U.S. metal imports, is down close to 25% from its January peak and trading at a 10-month low. Shares of the Dow Jones component fell 2.1% on the stock market today. The Dow Jones lost 0.5%, the S&P 500 index 0.8% and the Nasdaq composite 1.2%. The Dow Jones and Nasdaq composite tested their 50-day moving averages before paring losses somewhat.

The problem going forward is that the burst of GDP growth in the U.S. is unlikely to last. A year from now, the federal tax-cut and spending stimulus that hit early this year will have flattened out. Some economists think U.S. growth could trip up in the fourth quarter if President Trump follows through with tariffs on another $200 billion in Chinese imports. Meanwhile, the Fed is expected to keep hiking interest rates even as the China trade war heats up and Trump tax-cut boom fades.

Global Economy Troubles Won't Stop Fed Rate Hikes

So far, Wall Street isn't expecting the Fed to blink. Markets are pricing in a 96% chance of a Fed rate hike in September and 66% odds of another hike in December. Fed expectations are propping up short-term Treasury yields even as doubts about the longer-term growth outlook weigh on long-term bond yields, leading to a flatter yield curve. On Wednesday, the gap between the 2-year and 10-year Treasury yield narrowed to 25 basis points.

Fed rate hikes, while the European Central Bank and Bank of Japan stay easy, draws investment dollars to the U.S. and puts upward pressure on the value of the dollar. That's happening at a time that federal borrowing needs have spiked due to Trump tax cuts and the Fed's gradual unwinding of bond purchases made in the wake of the financial crisis. The result has been a surging dollar, which is a negative for emerging markets because it makes it harder to repay dollar-denominated debt. The strong dollar also drags on the earnings of U.S. multinationals, like Caterpillar, with a big share of revenue coming from foreign currencies.

At this point, even if the Fed shifts gears, time is running out to reboot the global economy before the U.S. fiscal boost begins to fade around the middle of 2019.

Bottom line: The days of positive economic surprises are likely dwindling, both globally and inside the U.S.

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61. Retail Sales Strong In July Amid Amazon Prime DayСр., 15 авг.[−]

Retail sales rose 0.5% in July, the Commerce Department reported Wednesday. Outside of autos, retail sales grew 0.6%, on a month highlighted by the record-breaking Amazon Prime Day and matching sales across the retail sector.

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July's upside surprise came as June retail sales were revised lower to show growth of 0.2%, both overall and excluding autos.

From a year ago, sales rose 6.4% and accelerated to 7.2% excluding autos.

Strong consumer spending has helped give the economy a head of steam, likely helped by tax cuts and job growth. But inflation has picked up too. The latest CPI data showed overall consumer prices rising 2.9% from a year ago, with prices up 2.4% excluding food and energy. Continued strength in retail sales could keep the Fed on track to raise interest rates in September and again in December.

Q2 productivity growth and the August New York Fed Empire State manufacturing index both topped forecasts in reports early Wednesday.

The Dow Jones industrial average, S&P 500 index and Nasdaq 100 pointed lower before the open on the stock market today. China stocks and the yuan continued to fall, while investors remain worried that Turkey's ills will spill over to other emerging markets. After the retail report, stocks struggled to pare losses.

Retail industry groups have been strong performers lately, with long-suffering department stores among the market leaders in the first half of the year.

But Macy's ( M), which reported a sales decline early on Wednesday saw shares slump before the open after breaking out on Tuesday. Macy's earnings and guidance were strong.

July sales at department stores rose a strong 1.2% on the month and a modest 0.3% from a year ago. Nonstore retailers, including Amazon ( AMZN), saw sales growth decelerate to 8.7% from a year ago, with a 0.8% gain from June.

Market leading IBD 50 stocks from the retail sector include Five Below ( FIVE) and Lululemon Athletica ( LULU).

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62. Dollar Hits 14-Month High As Trump, Fed Wallop Turkey, Emerging MarketsПт., 10 авг.[−]

Turkey's crashing lira highlights a key trend in 2018. While President Donald Trump and the Fed aren't to blame for overseas crises, their policies are exacerbating problems as the U.S. enjoys relative prosperity. Now emerging market woes increasingly are an issue for Wall Street, as the surging dollar drags on global growth and cuts into S&P 500 earnings.

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Few emerging markets are in as bad shape as Turkey. Its economic position is probably untenable, as the lira's fall has sparked rampant inflation and made it impossible to repay an excess of foreign debt denominated in other currencies. President Erdogan's belief that higher interest rates spur inflation has make it hard for Turkey's central bank to gain control. European banks with exposure to Turkey took it on the chin on Friday, as the European Central Bank expressed concerns about such lenders.

The S&P 500 index fell 0.7% on the stock market today. The Dow Jones slid 0.8% and the Nasdaq composite 0.7%.

Yet U.S. policies have undoubtedly expedited and exacerbated the crises. As U.S. growth surges thanks to an unprecedented late-cycle fiscal boost from tax cuts and federal spending, and the Fed takes a hawkish tilt on interest rates, the dollar has appreciated close to 8% since March vs. advanced economy currencies and significantly more vs. emerging market currencies. Money that had been gravitating toward emerging markets amid the recovery in global growth that began in 2016 is now looking for safety and opportunity in the U.S.

Trump Trade War Lifts Dollar

On top of that, Trump's aggressive use of tariffs and sanctions has further put a chill on investment. China's currency, the yuan, has sunk about 10% vs. the dollar in recent months, which Beijing has blamed on Trump tariffs.

Rather than recognizing he's at least partly responsible, Trump has viewed falling overseas currencies as hostile, intentional actions to gain a trade advantage. On Friday, Trump tweeted that due to the fall in the lira, he had doubled steel and aluminum tariffs on Turkey to 50% and 20%, respectively. That news sent the lira falling further and pressured U.S. stock markets.

Trump has had reason to help push Turkey, on the precipice of a massive crisis, over the edge. Last week, the U.S. imposed sanctions on Turkey, an unprecedented step against a NATO ally, for holding American evangelical pastor Andrew Brunson as hostage since 2016. Turkey claims he played a role in a failed military coup.

Fed Rate Hikes Pressure Currencies

Back in 2016, when China's currency sank vs. the dollar amid concern about capital flight, then-chair Janet Yellen halted a nascent Fed rate hike campaign. Fed statements then stressed global economic and financial market conditions, implying that the Fed had really become the central bank of the world. But so far the Fed under Jerome Powell, who succeeded Yellen in February, seems to be unconcerned about the global impact of Fed tightening.

On Friday, currencies from Argentina to Mexico suffered significant losses, though not nearly as bad as Turkey's lira. But it's not just emerging market currencies that are sinking against the dollar. The euro fell below $1.14 on Friday for the first time since June 2017. That may be partly because of Turkey's closer proximity and deeper financial ties. But the euro has been steadily sinking as the Fed has turned more hawkish and the ECB delays ending its financial market interventions.

Last weekend, Trump tweeted that the U.S. was winning the China trade war. His proof: China's reeling stock market vs. the thriving U.S. economy and stock market. Yet there are two potential problems. For one, Wall Street may still be underestimating Trump's determination to escalate the China trade war. Further, as Friday's market action reminds, it's hard to be an island of prosperity in a globally connected market. The rest of the world's problems often wash back up on American shores.

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63. Core CPI Inflation Picks Up But That Won't Bother FedПт., 10 авг.[−]

Core consumer prices, excluding food and energy, rose 0.2% in July, while the core CPI annual growth rate accelerated to 2.4%, the Labor Department reported on Friday.

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Wall Street expected the core CPI to rise 0.2% on the month and 2.3% from a year ago.

The overall CPI rose 0.2% on the month and 2.9% from a year ago, as expected. Higher costs for housing, used cars and trucks, new vehicles and airline fares contributed to the gain.

After the CPI data, the S&P 500 index, Dow Jones industrial average and Nasdaq 100 futures remained solidly lower on the stock market today, with the focus on a spike in the dollar to the highest level in more than a year amid fear of fallout from a Turkish currency crisis. The 10-year Treasury yield pared its decline to 2.90%.

The yield curve flattened, as long-term interest rates slipped more than short-term rates, pressuring bank stocks. Bank of America ( BAC) and Dow Jones component JPMorgan Chase ( JPM) were off 0.9% in premarket trading.

Why Is The Fed Raising Rates?

Don't expect big market reactions to incoming inflation data, now that core inflation is close to the Fed's 2% goal and central bankers see slim chance of a substantial acceleration from here. Yet that begs a question: If inflation isn't a worry and wage growth is stuck under 3%, why is the Fed so dead-set on keeping up its steady campaign of rate hikes? Yes, growth picked up notably in the second quarter, but that may be short-lived. If economic growth doesn't take a big haircut from the China trade war, then it will in the second half of 2019 as the boost from federal tax-cut and spending stimulus levels off.

Nevertheless, the Fed remains worried that financial excesses will result from interest rates that are too low, even if those excesses don't show up in higher inflation and wages.

Chicago Fed President Charles Evans said on Thursday that inflation isn't a real concern and won't be even if it continues to rise somewhat above 2%. "We don't have to win the war on inflation over again because we did that in a very difficult costly and arduous fashion in the eighties and into the nineties."

Yet he thinks the Fed will need to get rates to a restrictive level in 2019 or 2020 as the labor market overshoots full employment.

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64. China Hits Back; How China Trade War May Jolt U.S. GDPЧт., 09 авг.[−]

Neither side is blinking in the China trade war. Beijing on Wednesday finalized another $16 billion in tariffs on U.S. imports, a day after 25% Trump tariffs on Chinese imports were cleared for launch.

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So far, Wall Street is taking the escalating tensions in stride. The Dow Jones industrial average, S&P 500 and Nasdaq composite closed narrowly mixed on the stock market today.

But markets may be underestimating both the likelihood and impact of further escalation, warns UBS, which now has in its baseline forecast 10% Trump tariffs on an additional $200 billion worth of Chinese imports next month.

That would cut Q4 GDP growth to 1.6%, shrink the earnings per share of S&P 500 companies by 6% and lead the Fed to pause on rates, instead of hiking them for the fourth time this year in December.

Trump's escalated threat last week to slap 25% tariffs on the full range of $200 billion in imports "reinforces our view that the White House will follow through on the imposition of tariffs and raises the risk of escalation beyond our baseline," wrote UBS economists.

An escalation beyond their baseline view, and closer to the latest threat of 25% Trump tariffs, could sink growth "possibly well below 1%" and put the Fed's March hike at risk as well, UBS says.

Trump got close to making a deal with China in May, then gave Chinese communications equipment firm ZTE a new lease on life and punted on Chinese investment restrictions and export controls.

Yet none of Trump's efforts helped bring the sides together, suggesting that the deep divide pushing the U.S. toward a technological cold war with China may be unbridgeable.

UBS says that the economic hit to the U.S. from Trump tariffs may be bigger than expected "because many of the goods on the list to receive tariffs are important inputs to production, and China is a substantial source of those goods in many instances."

On Tuesday, Element Electronics said it will have to close its factory in Winnsboro, S.C., and begin laying off 126 workers because of Trump tariffs on television components imported from China.

Beijing said on Wednesday that tariffs on the next $16 billion in U.S. imports will take effect in two weeks. Last week, China said it would hit another $60 billion worth of U.S. imports with tariffs of 10%-25% if the U.S. follows through on the initial threat to target $200 billion worth of Chinese imports with 10% Trump tariffs.

Wall Street also is worried about non-tariff measures China might take, impeding U.S. multinationals from U.S. markets. This week, a Chinese state newspaper said that Beijing could use Apple ( AAPL) as a bargaining chip in a trade war with the U.S.

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65. IBD/TIPP Economic Optimism Index Surges To 14-Year HighВт., 07 авг.[−]

The IBD/TIPP Economic Optimism Index continued to surge in August, gaining 1.6 points to 58, the highest point since January 2004. Americans feel better about their own personal finances than in any other month, save one, in the nearly 18-year polling history.

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Do President Donald Trump and Trumponomics deserve credit for the economy? Democrats resoundingly say, "No," but political independents are beginning to think so. Independents' view of federal government economic policies rose to the highest level in more than a decade. That could be key as Republicans try to keep control of Congress in midterm elections this fall.

The IBD/TIPP Economic Optimism Index surged past February's 13-year high of 56.7 set in the wake of tax cuts. Readings above the neutral 50 level reflect optimism.

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.

The six-month economic outlook gauge jumped 3.4 points to 56.8, continuing a resurgence since it dipped into pessimistic territory in April, though still a bit below February's 13-year high 57.5.

The six-month personal financial outlook index gained 2.3 points to 65.1, just below the poll's lifetime high of 65.3 in January 2004.

Meanwhile, the measure of confidence in federal economic policies, which had jumped 4.6 points in July, slipped eight-tenths of a point to 52.1. Federal policies have rarely been more popular among Republicans (79.6) or less popular among Democrats (24.8). But independents quietly are becoming mildly optimistic about federal economic policies (51.2). That's the highest reading in more than a decade.

Stock Market Rising

Despite a volatile stock market, the S&P 500 index rose in July, its fourth straight monthly gain. The S&P 500 index closed Monday at a six-month high, just below its Jan. 26 peak. The S&P 500 rose modestly Tuesday morning, less than 1% below an all-time best.

The IBD/TIPP Poll reflects 939 responses collected from July 26 to Aug. 2.

In early July, the China trade war went live with Trump tariffs of 25% on an initial $34 billion in Chinese imports. Trump has since threatened to hit another $200 billion worth of Chinese imports. The Trump administration also pledged to aid farmers hurt by China's retaliation. Meanwhile, the Nasdaq composite hit a record high on July 25. It's just below that peak.

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The post IBD/TIPP Economic Optimism Index Surges To 14-Year High appeared first on Investor's Business Daily.


66. IBD/TIPP Poll: Economic Optimism Index For August 2018Вт., 07 авг.[−]

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

Yes, We Are Better Off After 2 Years Of Trump, Even If Dems Won't Admit It: IBD/TIPP PollMidterm Elections: If you follow the mainstream news, you'd never know it, but the country is much better off today than it was two years ago, when voters elected Donald Trump as... Read More

IBD/TIPP Economic Optimism Index: Overall

View Questions And Full Results

The IBD/TIPP Economic Optimism Index saw a 2.8% gain to 58 in August. This is the fourth straight gain for the index, and the second highest it's been since January 2004. It also marks the 23rd 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 jumped 6.4% to 56.8 in August. 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 46.5. 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 3.7% in August to 65.1, which marks the fourth 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 57.2.

Federal Policies

A measure of Americans' confidence in government, the Federal Policies component dipped 1.5% in August to 52.1. But the August data dip followed a 10% surge in July. The gauge stands at its second-highest level in nearly 12 years and well above its 17-year average of 44.9. 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 For August 2018 appeared first on Investor's Business Daily.


67. Wage Growth Was The Soft Spot In The July Jobs ReportПт., 03 авг.[−]

Don't sweat the slower payroll growth in July, which looks mostly like a seasonal adjustment issue with education jobs. If there was a soft spot, it was wage growth, which has slowed from a 2.79% annual rate in May to 2.74% in June to a hair under 2.7% in July. Although the unemployment rate dipped back down to 3.9%, there is no sign of a broad wage acceleration.

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The U.S. economy added 157,000 jobs, well below the 190,000 expected. Yet including an upward revision to May and June payroll gains of 59,000, the economy has added a robust 224,000 jobs a month over the past three months.

Ian Shepherdson, chief economist of Pantheon Macroeconomics, noted a likely seasonal adjustment problem with education jobs. Local education jobs fell 13,900, while private education jobs shrank by 10,800 on a seasonally adjusted basis.

While the 0.3% monthly rise in average hourly wages met Wall Street estimates, the unrounded 0.26% rise was on the soft side. Wages rose a revised 0.1% in June.

The Dow Jones, S&P 500 and Nasdaq composite rose modestly in late morning trade on the stock market today. Meanwhile the 10-year Treasury yield ticked down to 2.97%, with both the jobs data and China's plan to retaliate against Trump tariffs in focus.

The brightest data point in the jobs report was a 37,000 gain in factory jobs, the strongest of the year. Other job creation came in temporary help services (28,000), health care and social assistance (33,500), and leisure and hospitality (40,000).

A Fed hike remains a virtual lock Sept. 26, though markets saw slightly lower odds of another rate increase in December: 68.5% vs. 72% ahead of the jobs report, according to CME Group's FedWatch page.

Retailers, Restaurants Raise Wages At Low End

Faster wage gains appear to be coming on the lower end of the pay scale as companies bid to attract and retain quality workers. This week, Cheesecake Factory stock took a dive amid higher labor costs, including hourly wage increases of 6% to 7%. In January, Cheesecake Factory ( CAKE) expected 5% wage growth. Costco ( COST) hiked its starting pay by $1 an hour to a range of $14 to $14.50 starting June 11. Costco will raise other hourly wage rates by 25-50 cents.

Target ( TGT) raised its base wage $1, to $12 an hour, 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 recently that it will subsidize an online college education for associates.

The Labor Department said the Employment Cost Index, which covers both wages and benefits, rose 2.8% from a year ago. That was the fastest rate in a decade. Yet growth actually slowed to 0.6% in the second quarter, following a 0.8% first-quarter increase. The data raise the possibility that wage and benefits got a bigger one-time boost via tax cuts. In that case, wage growth might not continue to accelerate.

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The post Wage Growth Was The Soft Spot In The July Jobs Report appeared first on Investor's Business Daily.


68. Trump Trade War: China Readies Tariffs On $60 Billion Of U.S. ImportsПт., 03 авг.[−]

China announced a list of $60 billion worth of U.S. imports it plans to apply tariffs on should the Trump administration follow through with its latest trade war threats.

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Duties ranging from 5% to 25% will be levied on 5,207 kinds of American imports if the U.S. delivers its proposed taxes on another $200 billion of Chinese goods, the Ministry of Finance said in a statement on its website late Friday.

The retaliation stands to further inflame tensions between the world's two biggest economies and echoes China's response to the previous round of tariffs which took effect last month.

President Donald Trump this week ordered officials to consider imposing a 25% tax on $200 billion worth of imported Chinese goods, up from an initial 10% rate. The move was intended to bring China back to the negotiating table for talks over U.S. demands for structural changes to the Chinese economy and a cut in the bilateral trade deficit.

The Trump administration slapped duties on $34 billion of Chinese goods last month, which prompted immediate retaliation from China, and another $16 billion will likely follow in the coming days or weeks.

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69. It's OK To Panic: Latest China Trade-War Freakout Is The Real DealЧт., 02 авг.[−]

Each time President Donald Trump has upped the ante on his China trade-war tariff threats — and we're probably in double digits now — Beijing has fired back and the stock market has faced a bout of selling. Yet investor concerns over Trump tariffs have ebbed and flowed, mostly staying on the back burner.

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This latest Wall Street panic over a China trade war looks pretty much the same right now: The S&P 500 bounced back after a weak open to rise solidly on the stock market today, while the Dow Jones industrial average rallied all the way back from a 200-point drop with a boost from $1 trillion Apple ( AAPL). The Nasdaq, fueled by Apple, Tesla ( TSLA) and others, jumped 1.2%.

Yet there's now good reason to think that China trade-war fears, rather than fading, will only keep growing. Trump and Chinese President Xi Jinping have passed up three chances to turn back from a trade war since May. In fact, Trump had appeared ready to jump at all three exit opportunities. But Beijing has held firm, while allowing its currency to fall against the dollar.

Now Trump's frustration with China has bubbled over, provoking his latest threat of 25% tariffs on an additional $200 billion worth of Chinese imports. Yet there are no more obvious offramps from a conflict that continues to heat up.

Let's review. Back on May 21, Trump tweeted that China had "agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products — would be one of the best things to happen to our farmers in many years!" A day earlier, Treasury Secretary Steven Mnuchin said the U.S. was putting the China trade war "on hold."

Why China Trade Talks Have Failed

So what happened? The full story hasn't been told, but here's a pretty safe guess. The near-deal, which would have had Beijing buy $70 billion worth of U.S. goods over the next year or more, wasn't exactly a slam dunk for the U.S., which is running a $375 billion trade deficit with China. Hard-liners in the Trump administration likely told him he had to hold out for a better deal.

Even if Trump was sold or Xi was willing to sweeten the pot a bit, Beijing likely wanted assurance that the deal would provide closure. Xi had to fear that Trump would renew his China bashing and that the U.S. would demand more concessions later or impose export controls that would set back his ambitious Made in China 2025 agenda.

Although negotiations stalled, Trump subsequently gave Xi two more opportunities to reach a trade deal without losing face.

First, Trump intervened to save Chinese telecom gear giant ZTE from a de facto death sentence. U.S. sanctions deprived ZTE of key components from American firms. Trump's initial vow to rescue ZTE seemed to kick-start talks in May. He then fought off a Senate effort to reinstate the harshest sanctions for ZTE, which repeatedly defied a U.S. ban on doing business with Iran and North Korea.

Then, Trump seemed to blink just ahead of a planned June 30 date to announce emergency investment and export restrictions aimed at China. The White House was reportedly ready to impose a 25% limit on Chinese ownership in firms buying key technology. There was some talk that the U.S. might ban chip equipment sales to Chinese firms. Instead, Trump decided to punt on the June 30 deadline and back legislation in Congress to strengthen the Committee on Foreign Investment in the United States, or CFIUS. Trump's statement on support of a stronger CFIUS never even mentioned China.

Yet none of Trump's concessions to Xi has paid off. Beijing was believed to be blocking the Qualcomm ( QCOM) acquisition of NXP Semiconductors ( NXPI) because of the uncertain fate of ZTE. Yet even after ZTE's reprieve, Qualcomm scrapped the NXP deal amid China's continued resistance.

Now there may be no turning back for Trump. Trump tariffs of 25% already have targeted $34 billion worth of tech-related Chinese imports. Beijing answered with an equal amount of retaliation. U.S. tariffs on an additional $16 billion in goods, after a further short-term review, could be in place soon.

China Response To Trump Tariffs

Eventually, China won't be able to match Trump tariffs dollar for dollar, because the U.S. has a $375 billion trade deficit with China. That's the idea behind going big with tariffs on an additional $200 billion in Chinese imports. Yet China has devalued its currency, the yuan, offsetting much of the 10% tariffs that Trump initially proposed. That may be why Trump is eyeing 25% tariffs.

A further devaluation could come if the tariff fight escalates. China also retaliates in more subtle ways, hampering prospects for American multinationals in China such as Boeing ( BA), Caterpillar ( CAT), Apple and Tesla ( TSLA).

Beijing's response to Trump's latest threat should worry Wall Street. "China has made full preparation for the U.S. threats to escalate the trade war, and will have to retaliate to defend national pride and the people's interests," China's Ministry of Commerce said.

Students of Chinese history say that when "national pride" is at stake, there's no chance Beijing will cut a deal. Trump, after already trying to cut a deal and making some big concessions, has come up empty. He appears ready to follow through on his threats because he has no Plan B.

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70. Trump Tariffs: Trump Escalates China Trade War Threats AgainСр., 01 авг.[−]

President Trump wants 25% tariffs on $200 billion worth of Chinese imports, the Trump administration confirmed after the stock market Wednesday. The escalation of Trump tariffs would come as China continues to "double down and double down" on unfair trading practices with each new U.S. demand and threat, a senior administration official told reporters.

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That complaint suggests the result won't be any better this time, and initial reports indicated Beijing is in no mood to give into "blackmailing and pressuring" over trade.

The 25% tariff isn't a done deal. The Office of the U.S. Trade Representative will hold a hearing and extend a comment period until Sept. 5. The comment period initially focused on Trump's proposed 10% tariff on $200 billion in goods.

Trump tariffs of 25% already have targeted $34 billion worth of tech-related Chinese imports, which prompted an equal amount of retaliation by Beijing. Tariffs on another $16 billion in goods were subject to further short-term review.

China's Non-Tariff Trade War Weapons

Eventually, China won't be able to match U.S. tariffs dollar for dollar, because the U.S. has a $375 billion trade deficit with China. But so far, Beijing isn't giving in. Beijing nuked the Qualcomm ( QCOM) deal to acquire NXP Semiconductors ( NXPI) on antitrust grounds. China has also devalued its currency, the yuan, blaming Trump tariffs for what it characterized as a market-based move.

A further devaluation could come if the tariff fight escalates. China also could hamper prospects for American multinationals in China such as Boeing ( BA), Caterpillar ( CAT), Apple ( AAPL) and Tesla ( TSLA).

At one point in May, Trump and Chinese President Xi Jinping seemed close to a deal, with Trump touting an increase in Chinese agricultural purchases. But China apparently wasn't offering anything that would let Trump declare victory, even though Trump did Xi a favor by rescuing Chinese communications equipment firm ZTE.

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71. Fed Hawks Don't Yield An Inch; S&P 500, Dow Jones Stay In RedСр., 01 авг.[−]

The two-day Fed meeting wrapped up on Wednesday with no change in interest rates, as expected, and no real softening of the U.S. central bank's hawkish policy statement or rate-hiking intentions. The Dow Jones and S&P 500 index initially dipped further in the red before staging a modest recovery.

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The statement continued to assert that monetary policy "remains accommodative," implying a need for another batch of Fed rate hikes to reach a neutral level of interest rates, at which Fed policy neither artificially boosts nor restrains growth.

The Dow Jones industrial average and S&P 500 index, modestly lower ahead of the Fed statement, closed down slightly on the stock market today. The Dow Jones lost 0.3% and the S&P 500 index 0.1%. The Nasdaq composite, buoyed by Apple ( AAPL), rose nearly 0.5%. The 10-year Treasury yield, which climbed to right around 3.0% ahead of the Fed release, were right at that key level afterward.

Bank stocks were among Wednesday's better-performing groups. Bank of America ( BAC) rose 1.2%, Dow Jones component JPMorgan Chase ( JPM) advanced 0.6%, and Citigroup ( C) ticked up 0.1%.

The updated Fed statement included few changes from June, and none of them were especially significant. Household spending has "grown strongly" now vs. "has picked up" in June.

But Wall Street's reaction suggests that investors might not be too worried about the lack of a change, because they expect one next month.

Fed Rate Hikes 'For Now'

Speaking before Congress last month, Fed Chairman Jerome Powell may have raised expectations for a moderation of the Fed's language with his two-word qualification that further gradual rate increases were warranted — "for now."

Jefferies economists wrote before the latest Fed statement that they expect policymakers to stop calling policy accommodative at the September meeting — when another Fed rate hike is pretty much a slam dunk — but probably not before.

Lawmakers last month peppered Powell with questions about the flattening of the yield curve. Powell's testimony may have been the first step back from peak hawkishness for the cycle. Wall Street has been obsessing over the yield curve because an inversion — when long-term yields fall below short-term yields — is a reliable recession precursor.

What is interesting is how financial markets have responded to the idea that rates might not rise as much. The gap between the two-year and 10-year Treasury yield, which had narrowed to just 24 basis points, abruptly started widening out, which is good news for banks that are able to reap wider net interest margins. Along with positive earnings news, a modestly wider yield spread has helped lift JPMorgan stock and Bank of America stock toward buy points lately.

There's a good reason for the Fed to rethink its rate trajectory. Although the economy zipped along at a 4.1% annual rate in the second quarter, growth is getting a big lift from federal tax-cut and spending stimulus. But growth is expected to moderate in the second half of the year, and stimulus will level off in about a year. At that point, the economy very well might not need all the extra interest-rate hikes the Fed envisions making — five hikes through the end of 2019.

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72. U.S. Manufacturing Growth Cools As Orders Gauge Hits 1-Year LowСр., 01 авг.[−]

U.S. manufacturing growth cooled by more than expected in July as a gauge of new orders fell to the lowest in more than a year, reducing backlogs and supplier bottlenecks, data from the Institute for Supply Management showed Wednesday.

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The ISM manufacturing index fell 1.9 points to a three-month low of 58.1, below views of 59.4. Readings above 50 indicate expansion. The news orders gauge slid 3.3 points to 60.2, the lowest since May 2017. The production subindex retreated 3.8 points to 58.5. The employment index was up 0.5. to 56.5. The prices-paid gauge eased, sliding 3.6 points to 73.2, the lowest since January.

Key Takeaways

Even with a step down in output and orders, the July index was higher than the 57.4 average for all of 2017 and is still consistent with expansion in manufacturing at the start of the second half following a quarter with the fastest pace of economic growth since 2014.

The ISM results were weighed down by declines in several gauges that indicate an easing of capacity constraints on American factories. Delivery times quickened a bit, while the purchasing managers group's measure of order backlogs declined by the most since 2015. That may help explain some of the cooling in prices paid, though the gauge remains elevated.

In prior months, supply issues in part may have reflected producers' rush to buy materials ahead of President Donald Trump's planned tariffs on products from China and levies on steel and aluminum from around the world. The industry faces the risk that trade tensions may persist and erode business confidence, even though lower taxes are providing a boost.

The latest ISM data suggest that factory production may stay resilient for now. While a gauge of manufacturers' stockpiles rose to a four-month high, an index of customer inventories in July dropped to a more than seven-year low.

Other Details

The backlog index fell 5.4 points to 54.7, the weakest since November. The supplier delivery gauge decreased to 62.1 from a 14-year high of 68.2 in June; the 6.1-point drop was the biggest since 1988. The export orders measure dropped to 55.3, lowest since October, from 56.3.

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73. Consumer Spending Solid, Core Inflation Still Below 2%Вт., 31 июля[−]

U.S. consumer spending posted a fourth-straight solid advance in June, fueled by steady income growth and underscoring strength in the biggest part of the economy. Inflation, meanwhile, topped estimates, though core inflation remained below the Federal Reserve's 2% target.

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Purchases, which account for about 70% of the economy, rose 0.4% after a revised 0.5% advance that was larger than previously estimated, Commerce Department figures showed Tuesday. Incomes also climbed 0.4% in June, matching the May increase. The Federal Reserve's preferred measure of inflation rose 2.2% on a year-over-year basis for a second month.

The results are in sync with data reported last week that showed a solid labor market, lower taxes, and improving finances buoyed consumer purchases, driving an acceleration in second-quarter economic growth. A core measure of inflation stayed within striking distance of the Fed's 2 percent goal, though a touch shy of the median projection.

The Fed's preferred inflation gauge — tied to consumption — rose 0.1% after the previous month's 0.2% gain. June's year-over-year increase marked the third month in the last four that this measure exceeded the central bank's goal.

Excluding food and energy, so-called core prices also climbed 0.1% after a 0.2% gain. The core was up 1.9% from June 2017 and compared with a 2 percent median projection.

Fed Policymakers Meet

Even with the latest firmer price data and signs of resilience in spending and growth, Fed policymakers are likely to stay on the path of raising interest rates gradually. However, no hike is expected when officials gather Tuesday and Wednesday in Washington.

The economy expanded at a 4.1% annualized rate in the second quarter, the fastest since 2014, with consumption rebounding to a 4% pace, according to data released on July 27.

Wages and salaries increased 0.4% in June, the data showed. Disposable income, or earnings adjusted for taxes and inflation, rose 0.3%, the most in three months, after a 0.2% gain.

Workers' paychecks have been slow to show sustained progress even with hiring remaining strong and an unemployment rate that's hovering near the lowest since 1969. While lower taxes are helping, the pickup in inflation is acting as a hurdle.

The June report also showed the saving rate held at 6.8%. That's in line with comprehensive revisions issued last week that revealed Americans have been socking away more money in recent years than had been earlier thought.

Other Details

Durable goods spending, adjusted for inflation, rose 0.4% after a 0.6% increase in the prior month; non-durable goods fell 0.1% after surging 0.8%. Household outlays on services, adjusted for inflation, increased 0.4% after 0.1% advance in the prior month.

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74. Why The Fed Might Throw A Bullish Curve This WeekВт., 31 июля[−]

Fed hawkishness likely hit its peak for the cycle in June. There's only one way to go from here, and there's an outside chance it could start at this week's Fed meeting.

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This week's Fed meeting is expected to be a non-event, and it probably will be — at least until the minutes come out in three weeks. But if the Fed does make news, it could be great news for the stock market.

Wall Street sees virtually no chance of any change in the Fed interest rate or investment policy, so any surprise would have to come from the post-meeting statement. While it's a long shot, policymakers could take what some economists expected at the June Fed meeting, when they hiked their key interest rate to a range of 1.75% to 2% and stepped up projections for future hikes.

UBS economists had anticipated the Fed's June 13 statement would soften policymakers' assertion that the stance of monetary policy "remains accommodative." Instead, UBS chief U.S. economist Seth Carpenter wrote at the time, "the Committee remains convinced that policy is accommodative — unqualifiedly."

Adding a qualification such as "modestly" this week would signal that policymakers, upon further reflection, suspect the federal funds rate is getting close to neutral — a level that neither boosts nor restrains the pace of economic growth. That would suggest the Fed won't need to go much further to take away the punch bowl.

Powell Watching Treasury Yield Curve

It's possible that policymakers are starting to moderate their view of the neutral level of interest rates. Determining the neutral rate isn't an exact science. But Fed Chairman Jerome Powell told Congress earlier this month that he looks at the slope of the Treasury yield curve, or the gap between the yields for short- and long-term Treasuries, as one indication of the long-run neutral interest rate.

The gap between the 2-year and 10-year Treasury yield has shrunk since the hawkish June meeting from 42 basis points to 31 basis points on Monday, having narrowed to as little as 24 basis points two weeks ago as Powell spoke to Congress. On Monday, the 2-year Treasury yielded 2.66% vs. 2.97% for the 10-year.

The flatter Treasury yield curve has had Wall Street on alert for a yield-curve inversion. When long-term yields fall below short-term yields, signaling doubt about the growth outlook, recession generally follows before too long.

While few Fed policymakers have expressed concern, the flatter yield curve may have eroded their conviction that that another bunch of rate hikes will be needed to get to neutral.

Five More Fed Rate Hikes?

There's a good reason for the Fed to rethink its rate trajectory. Although the economy zipped along at a 4.1% annual rate in the second quarter, growth is getting a big lift from federal tax-cut and spending stimulus. But growth is expected to moderate in the second half of the year, and stimulus will level off in about a year. At that point, the economy very well might not need all the extra interest-rate hikes the Fed envisions making — five hikes through the end of 2019.

The Fed has a tough call. It can try to rein in today's stimulus-fueled growth or set rates for when the stimulus wears off. So far it's trying to do the former, which probably helps explain why the yield curve has flattened.

By putting "modestly" ahead of "accommodative" when characterizing its policy stance, the Fed would signal that it's unlikely to err on the side of getting policy too tight. That would likely increase confidence in the durability of the economic expansion and give a big lift to the stock market.

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75. U.S. GDP Growth Hits 4.1%, Fastest Since 2014, In Win For TrumpПт., 27 июля[−]

Consumer spending propelled U.S. economic growth to a 4.1% pace in the second quarter, the fastest since 2014, letting President Donald Trump claim a win for his policies even though most analysts see the high as temporary.

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The annualized rate of gains in gross domestic product was just shy of the 4.2% median forecast in a Bloomberg survey. It followed first-quarter growth of 2.2% that was revised from 2%, the Commerce Department reported Friday. Consumer spending grew 4%, more than estimated, while nonresidential business investment climbed at a 7.3% clip.

Illustrating the volatility of some elements of GDP, net exports contributed 1.06 percentage point to the pace of growth, the most since 2013, partly on a surge in soybean shipments ahead of retaliatory tariffs. Inventories subtracted 1 point, the most since 2014, also on a decline in soybean stocks as well as those of drugs and sundries and petroleum and related products.

Nevertheless, the score card gives Trump a chance to highlight the success of his policies, including the biggest tax overhaul since the Reagan era, which probably boosted consumer spending and business investment. Yet the risks from tariff wars and a fading effect from tax cuts are among reasons analysts see difficulty keeping the economy growing at such a robust pace.

Even so, Federal Reserve policy makers are expected to continue their gradual pace of interest-rate hikes aimed at keeping the economy from overheating, without moving so fast that they could choke off growth.

"I wouldn't want to overstate the underlying strength in GDP growth based on Friday's numbers," Omair Sharif, senior U.S. economist at Societe Generale, said before the report. "There was a big boost from trade, but that'll go away." Going forward, "it's highly unlikely we'll get 4% growth, or even 3% on a sustained basis."

'Terrific' Numbers

Trump on Thursday was managing expectations for the release, saying the figures would be "terrific" even if growth might not be as high as 5.3%. "If it has a 4 in front of it, we're happy," while 3.7% or above would be OK, he said in Granite City, Illinois.

Economists' forecasts for second-quarter GDP, the value of all goods and services produced in the nation, ranged from 3% to 5%. The GDP estimate is the first of three for the quarter, with the other releases scheduled for August and September when more information becomes available.

With the Friday data, the Commerce Department also released comprehensive GDP revisions going back decades. They showed a higher household-saving rate than previously reported, as well as faster growth in the first quarter of recent years, though the overall narrative of the economy's performance over the last decade wasn't much different.

The revisions also showed the economy surpassed $20 trillion in nominal dollars in the first quarter.

Even with the relatively strong pace of growth last quarter, most economists expect expansion to settle back to near its long-run rate, and some have flagged the risk of a recession in two years. While polls and historical trends suggest Democrats are primed for significant gains in November's midterm elections, voters give Trump high marks for the economy.

GDP Goal

Compared with a year earlier, second-quarter GDP rose 2.8%, just shy of the 3% mark, which was last reached in 2015. The Trump administration's official goal is for sustained GDP growth of 3%, which would well exceed the average 2.2% pace during this expansion and the Fed's longer-run expectation of 1.8%.

One measure that economists look at for a better sense of underlying demand showed strength. Final sales to private domestic purchasers — which exclude trade, inventories and government outlays — grew at a 4.3% pace, the second- fastest since 2014.

The pace of expansion in consumer spending, which accounts for about 70% of the economy, exceeded projections for 3% and contributed 2.69 percentage points to growth. Purchases of new autos were a major factor, along with spending on health care, housing and utilities and food services and accommodations. That followed a downwardly revised 0.5% pace of consumption growth in the prior three months.

In addition to lower taxes, consumers' purchasing power is benefiting from steady hiring, an unemployment rate that's near the lowest since 1969, improving finances, relatively low borrowing costs and contained inflation.

Business Investment

The growth in nonresidential business investment contributed almost 1 percentage point to growth though the 7.3% pace was slower than the first quarter's 11.5%. Spending on structures advanced 13.3% following a 13.9% gain in the prior period, while equipment investment cooled to 3.9% and intellectual property spending slowed to 8.2%.

Housing remained a weak spot in the economy amid signs that the sector is poised for its broadest slowdown in years. Residential investment contracted at a 1.1% rate, the fourth decline in five quarters. The drag on overall growth, though, was negligible.

The contribution from net exports reflected a 9.3% gain in shipments abroad and a 0.5% increase in imports. In addition to soybeans, exports were boosted by petroleum and related products.

Government spending increased at a 2.1% rate, adding 0.37 percentage point to growth. Federal outlays rose 3.5%, the second-fastest rate since 2014, boosted by defense spending. State and local outlays advanced 1.4%.

Spending Power

The data showed consumers' wallets grew at a slower pace. After- tax incomes adjusted for inflation increased at a 2.6% annual pace, after 4.4% in the prior quarter. The saving rate fell to 6.8% from 7.2%, which was revised from 3.3% as part of the comprehensive update.

First-quarter gross domestic income, adjusted for inflation, was revised to a 3.9% gain from a previously reported 3.6%.

Price data in the report indicated that inflation was in line with the Fed's goal. Excluding food and energy, the central bank's preferred price index rose at a 2% annualized rate last quarter, following 2.2% in the first three months of the year.

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76. Trump, Juncker Announce Deal Pulling Back From U.S.-EU Trade WarЧт., 26 июля[−]

President Donald Trump reached an agreement Wednesday with European Commission President Jean-Claude Juncker aimed at averting a transatlantic trade war, easing tensions stoked by Trump's threat to impose tariffs on car imports.

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The two sides agreed to expand European imports of U.S. liquified natural gas and soybeans and lower industrial tariffs on both sides, Trump said. The U.S. and European Union will "hold off on other tariffs" while negotiations proceed, Juncker said.

"We had a big day, very big," Trump said at a joint statement with Juncker at the White House Wednesday. He hailed "a new phase" of trade relations.

The two leaders also said they would work toward "zero" tariffs on industrial goods, according to Trump. He added that they would try to "resolve" steel and aluminum tariffs he imposed earlier this year and retaliatory duties the EU levied in response.

Stocks jumped before the 4 p.m. close in New York on early reports that a deal had been reached. Yields on U.S. Treasuries climbed.

Auto Tariff Threat Stoked Trade War Fears

Trump and Juncker took no questions after their brief remarks in the Rose Garden, an impromptu appearance scheduled after less than two hours of talks.

Juncker came to Washington for a last-ditch bid to avoid U.S. tariffs on cars. He told reporters he entered Wednesday's meeting with the intention of reaching an agreement with Trump.

Trump warned at a cabinet meeting last week that he would move forward with 25% auto tariffs if the meeting with Juncker didn't go well.

Trump could impose car tariffs on national security grounds once Commerce Secretary Wilbur Ross completes a required investigation.

Auto tariffs at the level Trump has threatened would add about 10,000 euros ($11,700) to the sticker price of a European-built car sold in the U.S., according a European Commission assessment obtained by Bloomberg News last month. That would cut U.S. imports of European cars and car parts in half, the commission forecast.

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77. Trump Blasts Fed Rate Hikes Again, Says China, EU Manipulate CurrencyПт., 20 июля[−]

President Donald Trump again accused China of devaluing its currency and reiterated his criticism that the Federal Reserve is raising interest rates. Stocks and the dollar fell.

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"China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day — taking away our big competitive edge," Trump tweeted early Friday. "The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates — Really?"

His comments that China and the EU are manipulating currencies contradict a Treasury Department semi-annual report released in April that refrained from naming any country a currency manipulator based on specific criteria.

The Bloomberg dollar index fell to its weakest levels of the day after Trump's remarks. S&P 500 futures declined.

Earlier Friday morning, CNBC aired an interview with Trump, in which he said he's ready to impose tariffs on all Chinese imports.

Trump on Thursday criticized the Fed's series of interest-rate increases, breaking with more than two decades of White House tradition of avoiding comments on monetary policy out of respect for the independence of the U.S. central bank.

The Fed has raised interest rates five times since Trump took office in January 2017, with two of those coming this year under Chairman Jerome Powell, the president's pick to replace Janet Yellen. In the interview, Trump called Powell a "very good man."

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78. 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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79. 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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80. 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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81. 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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82. 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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83. 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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84. 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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85. 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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86. 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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87. 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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88. IBD/TIPP Poll: Economic Optimism Index For July 2018Вт., 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

Yes, We Are Better Off After 2 Years Of Trump, Even If Dems Won't Admit It: IBD/TIPP PollMidterm Elections: If you follow the mainstream news, you'd never know it, but the country is much better off today than it was two years ago, when voters elected Donald Trump as... Read More

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


89. 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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90. 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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91. 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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92. 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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93. 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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94. 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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95. 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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96. 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.


97. 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.


98. 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.


99. 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.


100. 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.



 
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