David Fuller and Eoin Treacy's Comment of the Day
Category - General

    A Fed Cut This Year Is Now Being Priced In as a Near Certainty

    This article by Alexandra Harris for Bloomberg may be of interest to subscribers. Here is a section:

    The rate on the January fed funds futures contract implies that the central bank’s benchmark will fall to 2.075% by the end of 2019. This is more than 25 basis points below where the effective fed funds rate stood Friday, showing traders are fully pricing in a quarter-point reduction. The implied rate on the contract ended last week at 2.15%.

    This is happening as China threatens retaliatory tariffs on some American imports, an escalation in the trade war with U.S. President Donald Trump. The clash is fueling concern about economic growth, prompting a key part of the U.S. yield curve to invert again -- a sign to many that the risk of a recession has increased.

    While “China/U.S. trade ripple effects certainly affect the Fed’s outlook, I think this is more of a macro move,” said Todd Colvin, senior vice president at futures and options broker Ambrosino Brothers in Chicago. “It’s not about whether or not the Fed sees policy shifts, that is, as much as it’s looking at
    global growth woes, or increased market volatility.”

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    China Hikes Tariffs on U.S. Products as Trade-War Divide Deepens

    This article by Shawn Donnan and Miao Han for Bloomberg may be of interest to subscribers. Here is a section:

    China announced plans to raise duties on some American imports starting June 1, defying a call from President Donald Trump to resist escalating a trade war that is sending stocks tumbling and clouding the outlook for the global economy.

    Less than two hours after Trump tweeted a warning that “China should not retaliate -- will only get worse!” the Ministry of Finance in Beijing unveiled the measures on its website. The new rate of 25% will apply to 2,493 U.S. products, with other goods subject to duties ranging from 5% to 20%, it
    said.

    The next salvo was poised to come later Monday, when the Trump administration is expected to provide details of its plans to impose a 25% additional tariff on all remaining imports from China -- some $300 billion in trade.

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    Funds Flock to Dollar on Bets Markets Underpricing Trade Divide

    This article by Ruth Carson for Bloomberg may be of interest to subscribers. Here is a section:

    Uncertainty over how the dispute would be resolved in the one-month deadline set by Washington will reinvigorate a hunt for haven assets in a world already hampered by slowing growth.

    An easy bet will be to short the expected losers: risk-sensitive currencies from Asia to South America, they say. “To be honest, I thought the dollar would be rising at a much faster pace than this -- markets were pricing in a Goldilocks environment and they were clearly wrong,” said Stephen Miller, an adviser at asset manager GSFM and a former head of fixed income at BlackRock Inc.’s Australian business.

    “Right now I’d be long U.S. dollar versus EM currencies, the likes of Argentina and Turkey.” There’s a 60% chance that China and U.S. won’t reach a deal in the coming weeks, according to analysts at Australia and New Zealand Banking Group Ltd., after last week’s talks laid bare divisions including the removal of existing tariffs and a breakdown in trust. While both nations plan to continue negotiations, traders are waiting for Beijing’s retaliation measures after Washington slapped more duties.

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    China Armed With Powerful Market Weapons in Duel With Trump

    This article by Katherine Greifeld for Bloomberg may be of interest to subscribers. Here is a section:

    Chinese policy makers could devalue the yuan to offset the impact of U.S. duties on China’s economy. The offshore yuan weakened 5.5% against the dollar in 2018, drawing Trump’s ire and fueling speculation that the country was deliberately weakening its currency. While it has fallen 1.8% this week, the currency rose on Friday after the People’s Bank of China set its daily fixing at a stronger-than-expected level.

    However, China’s painful experience with devaluing the yuan in 2015, which prompted capital to flee the nation, is likely to dissuade a similar move, according to Tao Wang, UBS Group AG’s chief China economist and head of Asia economic research. “China doesn’t like the self-fulfilling outflows that come as a result of depreciation, which tend to diminish domestic confidence,” she said. “In addition, yuan depreciation last year angered the Trump administration and led to higher U.S. tariffs.”

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    Fed Seen as More Likely to Cut Rates After U.S. Tariff Boost

    This article by Rich Miller for Bloomberg may be of interest to subscribers. Here is a section:

    The Federal Reserve probably will be more inclined to cut interest rates now that President Donald Trump has followed through on his threat to increase tariffs on U.S. imports from China. But it won’t rush into doing so.

    While the higher levies will put upward pressure on inflation by raising import prices, the central bank will likely be more attentive to the potential drag they’ll exert on the economy by depressing consumer and business spending, Fed watchers said.

    “We would expect the Fed to initially focus on the growth implication and look past the inflation impact,’’ Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a May 7 note to clients.

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    U.S. Consumer Prices Trail Estimates, Testing Powell's View

    This article by Jeff Kearns and Reade Pickert for Bloomberg may be of interest to subscribers. Here is a section:

    At the same time, apparel prices dropped steeply for a second month, falling 0.8% in April after a 1.9% March drop that was the most since 1949. Apparel only accounts for just over 3% of the CPI but a new methodology in March had dragged down the overall index.

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    Virgin Galactic Moves Into Spaceport as Passenger Flights Nears

    This article by Justin Bachman for Bloomberg may be of interest to subscribers. Here is a section:

     

    Virgin Galactic already has about 700 customers who are each paying $250,000 for a 90-minute flight. Branson’s space effort had suffered delays due to major engineering changes that were required after the 2014 crash of its VSS Enterprise, which killed pilot Michael Alsbury.

    Virgin Galactic plans a few additional test flights from New Mexico in late summer or early fall, with additional employees along for the ride as the company finalizes its operating procedures.

    “We want to make sure we have a very choreographed service and offering planned out,” Whitesides said. “We want to give the pilots a few times to just fly it.”

    Of the work remaining to be done, Whitesides said “the No. 1 thing is we need to finish installation of the commercial cabin. Our interiors team is sort of going through that process to create the world-class Virgin cabin everyone expects—and that’s going to entail a lot of work.”

    Beyond the cabin work, Virgin Galactic is also ferrying its ground and training equipment from California. “We’ve moved from the realm of space-age physics to logistics,” he said.

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    Trump, China Signal Harder Stands Ahead of High-Stakes Talks

    This article by Shawn Donnan, Jenny Leonard and Miao Han for Bloomberg may be of interest to subscribers. Here is a section:

    But the mood on both sides going into the talks appears to be hardening with Lighthizer calling members of Congress ahead of the discussions to warn that a deal this week is unlikely, according to people familiar with the conversations. While Trump on Wednesday insisted that Liu was coming to make a deal and dubbed him a "good man," he later told a rally of supporters that China "broke the deal" by backsliding on prior commitments, leading him to order higher tariffs.

    China has disputed Trump’s characterization that the country reneged. But it has also sent its own signals that a deal could take time.

    Unlike in some of his previous visits to Washington, Liu is not traveling with the designation "special envoy" of Xi Jinping, according to people briefed on his trip. Chinese officials’ public statements have also hardened in recent days with Beijing vowing to retaliate against Trump’s tariff increase and rejecting the idea that it has reneged on any commitments made during the months of tough negotiations that have led to this week’s showdown.

    “China is credible and honors its word and that has never changed,” Commerce Ministry Spokesman Gao Feng told reporters on Thursday.

    The Ministry of Commerce also announced it would soon publish details of new retaliatory tariffs.

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