–This Week: China, Iran, N. Korea, Venezuela – and Uber
By Denny Gulino
WASHINGTON (MaceNews) –Countercurrents swirled in a jumbled whirlwind of market, trade and geopolitical uncertainties the second Friday in May yet among the exceptions is U.S inflation, which continues to be an eddy of calm in April’s report.
The future as always is hazy but the present isn’t much clearer, with the White House juggling a set of negotiations and initiatives complex enough to challenge the management team of the Galactic Empire. The Consumer Price Index report, on the other hand, had no puzzles.
Despite sharply higher gasoline prices, the CPI’s all-items index rose just 0.3%, under expectations for April. The core was up just 0.1%. Through April, then, the consumer annual inflation rates were 2.0% overall and 2.1% excluding food and fuels. Trailing about a half point behind is the inflation measure the Federal Reserve tries to target, the Personal Consumption Expenditures index that lacks the CPI’s focus on shelter costs.
Speaking of the CPI’s massive flywheel, the slow-to-change shelter index, it remained a sturdy bulwark against disinflation, rising 0.4% for the second month, helped by a fifth month of strong acceleration for vacation rentals, a 1.7% jump. It never gets old to be reminded shelter is more than 33% of the CPI.
Other categories were ho-hum, with the annual increase in energy just 1.7% and food 1.8%, though food was slightly negative in April, the first monthly negative there in nearly two years.
Once the CPI was a market mover all by itself, but on this particular Friday it was hardly a small bird on a market radar scope crammed with big chunks of tumbling trade and geopolitical debris. Why worry when the stock indices are still up close to 10% for the year? Because a few days ago they were up a lot more and now we’re finishing 2019’s worst week in equities.
China’s Vice Premier Liu He remained in town, after unsuccessfuly arguing so far against the U.S tariff increases to 25% from 10% on $200 billion Thursday night before the midnight deadline. Markets were hoping for some clear signal on whether talks keep going into future Washington-Beijing rounds.
Having heard President Trump Thursday say he might speak to President Xi Jinping after a “beautiful” letter from Beijing Wednesday night, markets also hoped that telephone might ring soon, making it all better.
In turbulent times, the natural inclination is to look for leadership and guidance is ever only a couple of key clicks away. President Trump was up to the task, with more than a dozen tweets in three hours, most of them reassuringly positive about what he sees as the merits of increased tariffs on China.
For instance, “Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped. Waivers on some products will be granted, or go to new source!”
The “starving nations” reference is to how, with China buying less of the now more expensive U.S. foodstuffs, the U.S. government can buy the crops instead and subsidize their shipment overseas. That would be good news for starving nations, who saw the Trump administration’s 2020 budget proposal cut food aid in half.
In another tweet, Trump said, “Talks with China continue in a very congenial manner – there is absolutely no need to rush – as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.”
This and other tweets about how the Treasury is going to be collecting additional billions from China of course elicited the reflex mighty groan of the Internet, as economists, pundits, trade specialists, beat reporters and even farmers responded by saying no, Mrs. President, the tariff tax is actually on U.S. consumers and middlemen, not China.
The numbing effect of the repetitious claim from a head of state who seems immune to the reality of which all his advisers must be aware – that it’s the importing county that pays the tariff tax – migt get less and less unsettling since another reality, that China will retaliate, perhaps in creative ways, takes center stage. Should Trump follow through and apply 25% tariffs to all the rest of China products, the reality of economic damage on both ends will overwhelm the effect of mere tweets.
So in a day that seems designed to accommodate the definition of cognitive dissonance, the smiling, supremely confident faces of the Uber management team members as they stand applauding above the NYSE bell ringing in the day of their mountainous initial public offering seem to reinforce the message, the United States of America is still the place of rags to riches, the turbine of opportunity in the world.
Soybean farmer may worry about the opposite, riches to rags, having seen their prices drop 3.5% this week and 12% so far this year. Wheat is down even more this year, 17%.
However, as Trump tweeted a short time ago, there could be new winners. “With the over 100 Billion Dollars in Tariffs that we take in, we will buy … agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance.”
Meanwhile there’s plenty more to fill the intelligence briefings: new U.S. carrier and bomber groups heading toward the Persian Gulf, the big cargo freighter seized from North Korea where denuclearization talks have stalled, the opposition political figures being rounded up by the Maduro regime in Venezuela, those stubborn concerns about Brexit, the halving of the GDP outlook for Europe’s powerhouse Germany and, oh yes, horrible weather in the Midwest.
Toward midday, the DJIA is down 328 or 1.27%, the S&P is off 42 or 1.5%, the Nasdaq is down 1.7% and the Russell has dropped 1.2%. The U.S. 10-year continues to rally in price as the yield drops to 2.436%. Muni holders are very happy.
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UPDATE: Treasury Secretary Steven Mnuchin says at midday trade talks are over for the day, without saying if they will continue, if China’s Liu He is staying for now, of whether President Trump will have a telephone conversation with China President Xi Jinping that he yesterday said was possible.