Dec 3, 2019

Axios Markets

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"Power concedes nothing without a demand. It never did and it never will." - See who said it and why it matters at the bottom.

1 big thing: Bringing the trade war back to life

Illustration: Sarah Grillo/Axios

The trade war looks to be back on in a big way after a series of pronouncements from President Trump and the White House.

The latest: Trump told reporters in London Tuesday he had "no deadline" for a China deal and that he liked "the idea of waiting until after the election for the China deal."

That followed an early Monday announcement that the U.S. would reimpose tariffs on steel and aluminum imported from Brazil and Argentina for "presiding over a massive devaluation of their currencies."

  • U.S. stocks predictably performed poorly, with the S&P 500 closing 0.9% lower and the tech-heavy Nasdaq dropping 1.1%.
  • "Trump’s tweets suggest a failure to understand how trade flows, exchange rates, or economies function at the most basic level," Karl Schamotta, chief market strategist at Cambridge Global Payments, told Axios.

Hours after Trump's Monday morning tweet, Commerce Secretary Wilbur Ross said on Fox Business that December was a "really good time" to add more tariffs to Chinese imports because it wouldn't "interfere with this year’s Christmas."

  • Ross also noted that time was running out to secure a trade deal before the next round of tariffs kick in on Dec. 15.

Later in the day, the USTR issued a statement saying it was "initiating a process to assess increasing the tariff rates and subjecting additional EU products to the tariffs,” and claiming the EU didn’t sufficiently eliminate the adverse effects of its subsidies to Airbus.

To top it off, Trump’s chief trade negotiator Robert Lighthizer yesterday suggested adding tariffs of 100% on $2.4 billion of French imports like cheese, sparkling wine and makeup. This was in response to an investigation that concluded a French digital services tax discriminated against U.S. internet companies.

On the other side: Chinese officials have continued to slowroll and push back on the "phase one" trade deal. Late Monday, China said they would soon publish a list of “unreliable entities” that could lead to sanctions against American companies.

  • France's finance minister said the European Union would "be ready to retaliate” if the U.S. imposed the tariffs on its products.

The big picture: “Markets have had a great run this year and expectations are already high that a trade deal gets done,” David Carter, chief investment officer at Lenox Wealth Advisors, told Reuters.

  • “The most recent tariff tweet has reminded markets that there’s a lot of uncertainty around trade policy and U.S. actions."

The bottom line: The day's actions "ought to make a whole lot of people nervous,” William Reinsch of the Center for Strategic and International Studies told the Washington Post. “It kind of makes people wonder what’s the point of negotiating if this is going to happen.”

Bonus: A good day for steel
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Data:; Chart: Andrew Witherspoon/Axios

While the broader market suffered, shares of U.S. steel companies got a big boost from the president's Monday morning tweet.

Yes, but: It's been a rough year for the American steel industry. Both TimkenSteel and U.S. Steel have lost around a third of their share price year to date and while AK Steel shares have risen on the year, they are around 80% below their 2017 peak.

2. Catch up quick

PG&E failed to adequately inspect and maintain power lines for years before one started the deadliest fire in California history, a state investigation found. (WSJ)

The Reserve Bank of Australia held rates steady at its policy meeting, pausing after three rate cuts so far this year. (Reuters)

The Atlanta Fed's forecast for U.S. fourth quarter GDP edged down to 1.3%, but remained well above the 0.4% it predicted in mid-November. (ATL Fed)

3. U.S. manufacturing indexes have diverged sharply
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Data:; Chart: Lazaro Gamio/Axios

The ISM's November U.S. manufacturing index got all the headlines with a fourth straight reading showing the industry in contraction, but IHS Markit's index was also released Monday and told a very different story.

What's happening: Both surveys are well respected by investors and economists, but follow different methodologies. This seems to have created a widening divide in which IHS Markit's data is showing a solid recovery in U.S. manufacturing while ISM's is showing further deterioration.

Why it matters: Manufacturing is a leading economic indicator and if ISM's data is correct, the U.S. economy could be in peril.

  • Alternatively, if IHS Markit data is correct, it appears the industry has found its bottom and has steadily been rebounding over the past few months.

Details: ISM uses five components, each weighted evenly at 20% — new orders, production, employment, supplier deliveries and inventories.

  • IHS uses a weighted average that gives greater importance to new orders (30%), output (25%) and employment (20%), and lower weighting to suppliers’ delivery times (15%) and stocks of purchases (10%).

Be smart: The ISM survey includes only members of the Institute for Supply Management, making it more consistent but also potentially more prone to groupthink. Analysts also have suggested that this makes it more likely to focus on larger companies.

  • IHS Markit says its survey panel includes more companies and is larger than the ISM's stated panel size.
  • The company "surveys just under 800 manufacturing companies (approximately double the size of the ISM panel size) from which an 80% response rate is typically received," IHS Markit's chief business economist Chris Williamson wrote in a recent explainer.
4. Macquarie: Stock values to double by 2030

Strategists at $234 billion asset manager Macquarie Investment Management laid out an exceptionally bullish prediction for U.S. stocks — their equities team is calling for the market to double in value over the next 10 years.

  • That would put the Dow at around 55,000.

What they're saying: "Growth has entered a secular phase where many companies focused on the new economy can continue to grow for years to come," Alex Ely, Macquarie's CIO of U.S. small-mid cap growth equity, said during a call with reporters Monday.

  • The "new economy" is focused on the expansion of healthy food, advanced drug treatments and the digital economy, he said.

John Leonard, Macquarie's global head of equities, tells Axios that such predictions don't make them super-bulls; it's more that many other investors are "irrationally bearish" on equities and have missed out on a great deal of the gains in recent years.

  • "The fact that this market has been relatively positive and extended since the financial crisis doesn’t mean that the earnings can’t continue to grow and stock prices can’t continue to go up as a result of that."
5. Investors bearish as Viacom and CBS deal nears close
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Data:; Chart: Andrew Witherspoon/Axios

Axios' Sara Fischer writes: The long-awaited merger between Viacom and CBS is expected to close this week, but investors don't seem too excited about it. Shares from both companies have been down since the all-stock deal was formally announced in mid-August.

Why it matters: Analysts have expressed reservations about whether the combined company will be big enough to compete with the likes of Amazon and Netflix.

  • Some investors have taken issue with the deal terms. Last month, CBS was sued by an investor arguing that the all-stock acquisition of Viacom is better for the company's majority shareholder Shari Redstone than other investors.

Go deeper: CBS and Viacom agree to massive merger

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On Dec. 3, 1847, abolitionist and former runaway slave Frederick Douglass published the first edition of his newspaper, The North Star. The freedom paper's motto was "Right is of no Sex — Truth is of no Color — God is the Father of us all, and we are all brethren."