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Things you need to know
– Trumps Shakes up Trade – Imposes new Tariffs
– Mkts around the Globe feel the pain
– China vows to retaliate and fight on
– Is it time to go shopping?
The Americans (think Mnuchin and Lighthizer) returned from Beijing empty handed (whatever happened to that “We’re 90% there” comment?). The FED cut rates by 25 bps and halted the balance sheet reduction program, and the mkts initial response was negative because the algo’s weren’t satisfied…. They had demanded more and didn’t get it and then blamed the confusion on FED Chair Jay Powell. Saying things like ‘he doesn’t understand’ or ‘he promised more’ or by saying it was a ‘mid-cycle adjustment’ really meant it was one and done… and that was on Wednesday – mkts ended the day lower…….…and then yesterday – mkts appeared to settle down. The analysis turned from ultra-negative to moderately positive…..the indexes surged – taking back all of the losses they suffered on Wednesday afternoon….it was all good…….the US and the Chinese agreed to come back to the table in September to talk of lower rates, and another move began to permeate the conversation – and the mkts surged……..… Then, NOT to be outdone – the President – hits the mkts with a ‘surprise’ announcement…..at 1:25 pm – he announced MORE tariffs on China – an add’l 10% on another $300 bil worth of goods (with increases likely). Tech, retail, and the industrials all got slammed and energy names took it in the gut as analysts/strategists started opining on what this means for global demand….. blah, blah, blah……By the end of the day – the mkts got slapped – the Dow swung 627 pts from high to low ending the day down 280 pts or 1.05%, the S&P swung 68 pts from high to low ending the day down 26 pts or 0.90%, the Nasdaq saw a 230 pt swing – finally ending the day down 64 pts or 0.8%, the Russel had a 41 pts swing ending down 24 pts or 1.5%……and the Dow Transports had a 311 pt swing ending the day down 268 pts or 2.5%.
Now the first thing that comes to mind is this whole idea of a surprise announcement…….Really? No, he did not. He has indicated that more tariffs were always on the table….but you would think that there might be more of a warning (he would tell you that he was very clear – there was no need to warn – he’d already done that) ……..or did he just decide while taking a shower that he was going to hit Xi Xi with more tariffs? Did he decide over lunch that it was time to make this announcement? It feels a bit manipulated, no? We go along, it’s all good, everyone is playing nice in the sandbox (while the Chinese apparently have no intention of making a deal..), the FED, while cutting rates, did not cut them enough (according to Donny). In fact, the President was quick to condemn Powell on Wednesday afternoon for ‘disappointing the mkts’……so now he thinks –
“OK, the Chinese are pulling my chain, The Democrats are carrying on, The Iranians are causing trouble in the Gulf, the UK is about to go rogue as Boris (the new PM) pushes for BREXIT, The ECB, BoJ, and BoE all left rates unchanged while acknowledging weakness, AND Powell DID say that he was concerned about trade and the impact it was having on the global and US economy so let’s give him something to worry about and BOOM! Let’s hit ‘em with more tariffs and disrupt the status quo even more, let’s let the algo’s go crazy on the mkts, let the FED (and other central banks) see the pain as trillions of dollars get wiped off the face of the earth, let the media lay it out…….and then let’s see what the FED mouthpieces have to say now!”
And September can’t come fast enough! He’ll get his 25 bps cut and if he pushes really hard, he might even get a 50 bps cut….(I guess that depends on how the data looks…). Either way – it is what it is….Trump is fighting a fight that prior Presidents have chosen to ignore – trade policy designed in the late 80’s is no longer the best policy and so Trump is making that abundantly clear, clear that he intends on fixing it….and the Democrats don’t know what to do – other than say – ‘Our plan is to raise taxes on Americans so that we can give everything away for FREE’. (But THAT is a whole other conversation…..) At this point – does it really make a difference? Unless you have been living under a rock – his style should be NO surprise at all.
The move in the mkts was swift, while the pain was felt across the board – Retail and Energy took it the hardest…the XRT (Retail ETF) was down by 3.25% while individual names got hit worse….and Energy – which has been under pressure recently due to what most will try to tell you is slowing demand (vs. oversupply) got hit again…..Oil fell by more than 4% dragging energy names into the abyss…the XLE (Energy ETF) lost 2.3% with individual names in that group seeing even more pressure……
OK…..so what’s next? I’ll tell you – China ain’t sitting back and saying ok…..they announced this morning that ‘every action creates a RE-action’ and that Beijing would have to take countermeasures….and while ‘they do not want a trade war with the US, they are NOT afraid of fighting one’. Look – the longer this drags out the more risk to China….and in China it is
‘The year of the Pig’ – …….and according to the Chinese zodiac – The stars may not align perfectly – causing trouble for people who were born in the year of the PIG….1923, 1935, 1947, 1959, 1971, 1983, 1995, 2007 and 2019….Just a note – Xi Xi was born in 1953 (the year of the SNAKE….just sayin’).
Overnight – global mkts react to the news…..Asian mkts fell – Japan -2.11%, Hong Kong – 2.35%, China -1.47% and ASX – 0.30%.
European mkts have all opened and are under pressure….after Trump re-ignites the trade war…..And in the UK – the new PM – Boris Johnson – suffered his first defeat after the PRO-European Liberal Democrats won the Parliamentary seat of Brecon and Radnorshire in Wales – taking it away from the Conservatives. This loss cuts the majority in Parliament down to just one, all ahead of what is expected to be a fight over BREXIT…..(more drama). FTSE – 1.68%, CAC 40 – 2.57%, DAX – 2.40%, EUROSTOXX – 2.37%, SPAIN -1% and ITALY -1.6%.
Futures are down again….although well off their overnight lows….which saw the S&P trade down to 2936…just 10 pts shy of the first technical support trendline at 2928. While they will try to push the tariff news to the back burner as the eco data comes out – I am not sure that anyone will pay much attn to the macro data news today….. The conversation will be all about what the FED will do next…because remember – last month when the NFP blew the doors off the bus – the talk was that the FED did not have to do anything – yet they did…so no matter what the data is – the assumption is that the FED is cutting again in September…and if it gets bad enough – I suppose they could call an emergency meeting in August if need be….Watch for talk about retail, tech and energy, as those names got clocked…. Is it time to go bargain hunting? Not yet – sit tight….
We are now 5 months away from Christmas and the new year – so expect the conversations to be around the holiday shopping season as we move thru August…..By next week – you will be seeing Halloween decorations all over the place, by September you’ll see “Horns of Plenty” and statues of Pilgrims and Indians along with the Nina, the Pinta and the Santa Maria (I bet there is a whole generation of Americans that have no idea what those were…) sharing the Thanksgiving meal, and then by October 1st we’ll see Christmas trees and Hanukah Dreidels populating the storefronts……Just sayin….Get ready….
August is a quiet month – not a lot of data that anyone pays attn to, Most of Europe is on vacation and the last 3 weeks of August will see many Americans off to the beach. The Jackson Hole Economic Symposium (sponsored by the Kansas City Fed) – will be the talk of the town – it takes place on August 22-24th and is titled: “Challenges for Monetary Policy”. Expect to hear more about this in the weeks ahead.
Take good care
Cavatappi w/Green Pea Pesto
The pesto sauce originated in Genoa which is in the Liguria region of Northern Italy. Liguria borders France, Piedmonte, Emiglia-Romagna and Tuscany…. and sits right on the coast of the Ligurian Sea. The hills lying immediately beyond the coast coupled with the sea account for a mild climate year-round. Average winter temperatures are 45 to 50 °F and summer temperatures are 73 to 75 °F. This makes it a very temperate place year round and as such remains quite popular.
Portofino lies on the coast just up from the capital of Genoa and is a destination for some of Europe’s rich and famous. Today’s recipe makes use of the mortar and pestle – The verb Pestare means to pound or crush – Pesto is the past participle of this verb. – The reference to pounding is because of the way they used to make it in a mortar and pestle – this is a tool that is used to crush/grind certain ingredients/herbs etc…..Now you can use the mortar and pestle or you can use the food processor – your choice…..and as you now know Pesto is usually made with garlic, basil, pine nuts, parmegiana cheese and olive oil…..(in other recipes – I substitute – basil for Arugula, Asparagus, or Broccoli and make pesto out of those ingredients) so today we are going to use Peas.
For this you will need: Frozen peas, Parmegiana cheese, 2 garlic cloves, splash of lemon juice, a bit of chopped basil, pepper (the cheese is salty enough) and olive oil.
First bring a small saucepan of water to a boil and add the peas…cook until the water re-boils +1 min. Now strain….Blend all of the ingredients – taste – adjust if necessary then set aside.
Now bring a pot of salted water to a rolling boil and add the linguine (you can use any type of pasta you want – but I like linguine with this meal) – cook for 8 / 10 mins or until andante…strain – reserving a mugful of the pasta water. Put back in pot and add back ¼ cup of water to remoisten…stir….no puddle in the pan…capisce? Now add the pea pesto and toss. Serve immediately in warmed bowls. Always have extra grated cheese on the table for your guests. Again – this is a simple meal and easy to prepare. Enjoy it for what it is – comfort food…..