Hello,

 

Given Trump’s tweets yesterday that were heard around the world, I wanted to provide a quick summary.

China/trade – investors were hoping for a relatively quiet Aug on the trade front following the recent round of negotiations in Shanghai but it looks like that might not happen. Trump sent around 4 tweets at 1:26pm ET Thurs afternoon in which he threatened to impose a 10% tariff on the final ~$300B tranche of imports from China. Interestingly, Trump isn’t necessarily citing trade for this 10% tariff threat but instead 1) the absence of large agricultural purchases and 2) the ongoing shipment of fentanyl products into the US. Trump actually said the Shanghai trade negotiations were “constructive” (and later in the day he indicated the next round of talks was still scheduled to happen in Sept although it’s unlikely China will participate if the 9/1 tariffs are actually implemented).

 

The question becomes how will the markets absorb this news over the coming days/weeks? Placing tariffs on this last round of Chinese imports will have a much larger impact on the consumer economy (as they could include the iPhone, apparel, etc.) and capital spending (which has already been depressed by trade uncertainty). However, Trump ostensibly set a relatively low bar to avoid them (i.e. if China were to make a few large agricultural purchases that could cause the White House to relent). Huawei is a huge part of this process – China appeared to be waiting for the Commerce Department waivers before making larger agricultural purchases but those have yet to come (Wilbur Ross recently said he could hand out some waivers during the week of 8/5 although it remains to be seen if that will happen). If the Huawei waivers are handed out and China begins soybean purchases, this 9/1 threat could quickly evaporate. However, China may simply decide to hunker down and break off talks altogether – the WSJ this week said the leadership in Beijing doesn’t feel as much urgency as it did before given the local economy was showing signs of stabilizing (and also China has its eye on the approaching Nov election).

 

Obviously this 9/1 threat will scramble Fed expectations – Powell on Wed celebrated the fact trade tensions had recently “returned to a simmer” but if Trump moves forward on 9/1 this threat that would change. The big day of Jackson Hole speeches (Fri 8/23) will occur before the 9/1 deadline.·

Bottom line: the persistence of Trump’s trade wars will weigh further on corporate capital spending, global growth (esp. in Europe), and S&P Earning Per Share estimates. For a variety of reasons this has created some uneasiness in the markets over the last couple of days. We feel the market will have trouble accelerating higher from these level for the time being. However, Trump’s tweets didn’t contain a big “ask” on the part of China to avoid higher levies on 9/1.

 

If you are in Toronto check out the top 5 new ice cream shops in Toronto this weekend. If you need a partner my children are always ready.

Enjoy the long weekend.