Two of President Donald Trump’s priorities — a strong stock market and a tough China trade deal — are at odds. The conflict is frustrating Wall Street as it chases a moving target of pricing in a particular outcome.
Traders are hanging on the president’s every word looking for an easing in his rhetoric and a potential softening in the ongoing trade war.
If tweets are any indication, the president’s focus is shifting. In the past two weeks, his Twitter mentions of trade-related terms were double his mentions of the economy and stocks.
Year to date, Trump has tweeted about seven times per week on the subjects of China, trade and tariffs — the same average frequency for jobs, stocks and the economy. During the week of May 5, though, his China and trade mentions rose to roughly 46 times, while he mentioned economy-related phrases about 17 times, according to analysis of his Twitter feed. There is some overlap, as he occasionally bundles multiple subjects in the same tweet.
“Tariff Man,” as Trump once described himself, is winning the battle of the president’s personalities, and “Dow Man” is just going to have to take a back seat for a while.
Wall Street analysts find the job of predicting the president’s mindset on a daily basis for clients to be a difficult task.
“It’s impossible — the risk reward here is that almost all of this is at the discretion of President Trump,” Raymond James Washington policy analyst Ed Mills said. “You can’t know entirely what his intentions are.”
On one hand, Trump is appealing to his base with a tough stance on trade ahead of the 2020 election. But economists say less trade between the world’s largest economies threatens to dampen growth, at least in the near term.
That is taking a toll on global growth expectations and therefore the stock market. The Dow Jones Industrial Average — Trump’s go-to report card for a strong economy — dropped 600 points Monday following new rounds of retaliatory tariffs. It rallied on Tuesday on more trade optimism and again moved higher on Wednesday. Overall, the Dow is down a little more than 3% since Trump escalated the trade war 10 days ago by tweeting a threat to raise tariffs on China, which he followed through with on Friday.
“The problem is that the president has two conflicting polls here,” Fundstrat Washington policy strategist Thomas Block told CNBC. “He obviously watches the Dow and has friends who probably call him up and say, ‘Donald, we’re getting killed’ — that’s why that’s one side of Donald Trump. But there has also emerged a very political side.”
The political side has increased tariffs from 10% to 25% on $200 billion in Chinese imports. The U.S. is also taking necessary legal steps to slap another round of 25% tariffs on $300 billion of imports, which would happen in June at the earliest. Block highlighted uncertainty that he said is leading him to tell clients to “stay on the sidelines.”
“If I felt I understood Donald Trump’s mind better than anybody else and had a high level of confidence about the outcome, Fundstrat would have to pay me more money than they could afford,” Block said.
Block said his instinct is that “some sort of agreement” gets done around a June G-20 meeting. But he said Trump’s priorities, and therefore public stance, could change last minute.
‘Turn on a dime’
Isaac Boltansky, director of policy research for Compass Point Research & Trading, is also navigating this fickle market. He said clients are “cognizant of the fact that this narrative can turn on a dime.”
“The near-term sentiment shift has been undeniably warranted given recent developments, but investors recognize that the president could change market sentiment with a single tweet,” Boltansky said.
Trump rolled out the “Tariff Man” persona in a tweet in early December, a month that saw the S&P 500 drop 9.2% in its worst month since the financial crisis.
But the approach has played to his base and is part of the campaign’s strategy heading into 2020. Trump is also using the stance as ammo against Democratic candidate and former Vice President Joe Biden, who supported the Trans-Pacific Partnership.
“Tariffs are focused right at the electoral map of Trump, particularly farm states,” said Dan Clifton, a partner and head of policy research for Strategas Research Partners. “At the same time, Trump can make a convincing case that Biden has been weak on China, and a standoff with China benefits his re-election.”
China has responded to U.S. tariffs with its own hike on $60 billion worth of U.S. goods. That hits farmers at “every single angle,” according to an economist at the American Farm Bureau Federation. To curb the effect of Beijing’s retaliatory duties, Trump said this week that farmers would receive about $15 billion in aid. His campaign is betting that farmers will support Trump despite the hit to American agriculture.
“A deal with China to end their bad behavior would provide even more long-term benefit to the economy,” Tim Murtaugh, the Trump campaign’s communications director, told CNBC. “Farmers are patriotic and understand that someone had to finally call China to account.”
Murtaugh also pointed to a booming economy, another rallying point ahead of 2020. GDP growth in the first quarter grew by 3.2% — its best start to a year since 2015. In April, unemployment fell to its lowest level since 1969.
10% drop before he changes tune
But changes in trade winds threaten that boom, according to multiple economists. One estimate from Oxford Economics puts the loss per household around $500 at the current tariff levels. If the White House adds tariffs to all Chinese imports, the U.S. economy would be about $100 billion smaller by 2020, translating to an $800 loss per household.
“U.S. policymakers are willing to accept some pain because they believe the pain imposed on China will be greater than the U.S. and force China back to the negotiation table,” Clifton said. “The key is how this impacts the economy.”
Raymond James’ Ed Mills said stocks still have room to fall before Trump eases rhetoric on the deal. Equities would have to experience a correction of at least 10% “before Trump starts talking up the prospects of a G-20-timed deal,” Mills said. Trump and his Chinese counterpart, Xi Jinping, are expected to meet at next month’s G-20 summit.
“China made a calculated decision that there’s only so much pain that the Trump administration is willing to take from the equity markets before it changes its tune,” Mills said.
According to former White House chief strategist Steve Bannon, the chances Trump folds are slim. In a CNBC interview Wednesday, Bannon said there is “no chance” the president will back down in the global standoff.
“It would be very easy for him to sign a deal where they bought more soybeans and have the cheerleaders on Wall Street say this is terrific, and have the stock market go up for a moment,” Bannon told CNBC’s “Squawk Box” Wednesday. “This cuts to the core of what the United States is going to be in the future.”
WikiLeaks co-founder Julian Assange charged with 17 new criminal counts
WikiLeaks founder Julian Assange gestures from the window of a prison van as he is driven out of Southwark Crown Court in London on May 1, 2019, after having been sentenced to 50 weeks in prison for breaching his bail conditions in 2012.
Daniel Leal-Olivas | AFP | Getty Images
Wikileaks co-founder Julian Assange on Thursday was hit with new federal criminal charges alleging he published secret documents obtained by former Army intelligence analyst Chelsea Manning, some of which included the disclosure of foreigners who were aiding the U.S. military abroad.
Assange was charged with 17 new criminal counts, which included violations of the Espionage Act.
The charges, contained in an indictment issued in U.S. District Court for the Eastern District of Virginia, were revealed during a press conference held by Department of Justice officials in Washington.
Assange is currently in British custody after having been expelled from Ecuador’s embassy in London, where he had lived for nearly seven years.
Julian Assange was “complicit” and “conspired with” Manning, an official said.
Officials said that Assange’s publication of the names of human sources in the Middle East “is alleged to have created imminent risks to the life and liberty” of those individuals.
Assange, the officials said, “knew the publication of these sources endangered them.”
The information could be seen by terror groups and countries hostile to the United States, and “documents related to this material was even found in the Osama bin Laden compound,” an official said.
Some press freedom groups have protested Assange’s treatment, arguing that his conduct constituted journalism and should not be punished.
“This strikes at the heart of the First Amendment and puts all journalists in extreme danger,” The Freedom of the Press Foundation said in a tweet Thursday afternoon.
But an official pushed back on that characterization.
“Assange is not a journalist,” the official told reporters. “No responsible actor, journalist or otherwise, would purposely publish names he or she knew to be confidential sources in warzones.”
A lawyer for Assange did not immediately respond to CNBC’s request for comment on the superseding indictment.
Manning, meanwhile, is currently in jail for refusing to cooperate with a grand jury.
Asked if she had changed her stance, an official said: “Ms. Manning remains in jail.”
Assange was arrested on April 7 in London on a U.S.-lodged charge of conspiring to hack a U.S. government computer in 2010.
In that case, he was alleged to have conspired with Manning to crack passwords on government computers and to download large amounts of classified information with the intent on publishing them on WikiLeaks.
Those documents allegedly included approximately 800 Guantanamo Bay detainee assessment briefs, a quarter-million State Department cables and 400,000 Iraq War-related reports.
This is breaking news. Please check back for updates.
Facebook fake account takedowns doubled Q4 2018 vs Q1 2019
Mark Zuckerberg, chief executive officer and founder of Facebook Inc., speaks during a joint hearing of the Senate Judiciary and Commerce Committees in Washington, D.C., U.S., on Tuesday, April 10, 2018.
Al Drago | Bloomberg | Getty Images
Facebook has stepped up its fight against fake accounts.
On Thursday, in its third periodic Community Standards Enforcement Report, the company said it took action on nearly twice as many suspected fake accounts in the first quarter of 2019 as it did in the fourth quarter of 2018.
The uptick was due to “automated attacks by bad actors who attempt to create large volumes of accounts at one time,” the company said.
On a call discussing the report, Facebook CEO Mark Zuckerberg responded to calls to break up his company through antitrust, saying it would hurt Facebook’s efforts to combat fake news and other content that violates its policies.
“The amount of our budget that goes toward our safety systems is greater than Twitter’s whole revenue this year,” said Zuckerberg on a call on Thursday. “We’re able to do things that I think are just not possible for other folks to do.”
Specifically, Facebook disabled 2.19 billion accounts in the first quarter of 2019 compared to 1.2 billion accounts in the fourth quarter of 2018.
That’s a huge number of accounts considering Facebook reported 2.38 billion monthly active users (MAUs) in its first quarter of 2019. A Facebook spokesperson said the number of accounts it disabled is not included in its MAU figure since the obvious fakes tend to be removed fairly quickly. Still, Facebook estimated that about 5% of the accounts counted in monthly active users are fake.
The latest report comes after Facebook in March announced a pivot to privacy that will eventually shift more of users’ communications to private, encrypted channels via the chat functions of Instagram, Messenger and WhatsApp. Zuckerberg on Thursday said that this pivot will make it harder for Facebook to find and remove the type of content covered in the Thursday report.
“We’ll be fighting that battle without one of the very important tools, which is of course being able to look at the content itself,” Zuckerberg said. “It’s not clear on a lot of these fronts that we’re going to be able to do as good of a job on identifying harmful content as we can today.”
Facebook launched the first edition of the report in May 2018 on the heels of the Cambridge Analytica scandal that rocked users’ and investors’ confidence in the company’s ability to enforce its policies. In an effort to promote transparency, Facebook uses the reports to share information about how it responds to false, violent and graphic information on its platform.
Facebook also shared data about illicit sales of drugs and firearms on its platform for the first time in Thursday’s report.
Facebook said it proactively detected and took action on 83% of 900,000 pieces of drug sale content in the first quarter of 2019. That was up from 77% the previous quarter. (The remaining content in the total count was flagged by users.)
Similarly, Facebook said it proactively detected and took action on 69% of the 670,000 pieces of firearm sale content during the first quarter, compared to 65% the previous quarter.
The company also began including information about appeals and corrections to content removal. Facebook and other social media companies have been criticized by lawmakers, particularly on the right, for being biased against political conservatives.
In the latest edition of the report, Facebook disclosed for the first time the number of pieces of content appealed and restored across various policy areas including spam, hate speech, nudity and terrorism. Of 1.1 million pieces of content appealed under “Hate Speech” in Q1 of 2019, for example, Facebook said 152,000 pieces were restored.
Wall Street is becoming convinced the trade war is here to stay and will only get worse
Presidents Donald Trump and Xi Jinping.
As stocks plunged Thursday, Wall Street inboxes were filled to the brim with predictions that the White House would go full throttle and slap tariffs on all Chinese goods, in an escalating and prolonged trade war that could begin to hit consumers and slow global growth.
The Dow lost more than 400 points at its lows Thursday, as both the U.S. and China appeared to dig in to their positions. No talks are now scheduled, and China’s Ministry of Commerce Thursday warned the U.S. to act with “sincerity” and change its “wrong actions.”
A number of firms released new reports warning the trade war was getting worse including economists and strategists from Nomura, Goldman Sachs and Bank of America.
“I still think the risk is a full-blown trade war and it’s beginning to look increasingly like one,” said Ed Keon, chief investment strategist at QMA.
Energy led the market lower, but tech names were hit hard, with the S&P technology sector losing more than 3.3%. Tech names are in the cross hairs of the trade war as the U.S. also seeks to thwart Chinese acquisition of U.S. intellectual property. It has also blacklisted China telecom firm Huawei, preventing it from buying U.S. components. The VanEck Vector Semiconductor ETF SMH was down 2.5%, and is now down nearly 15% for the month of May.
Moving into cash
Keon said if the trade war escalates, it could push the stock market into a correction of as much as 10% or more. He has moved more assets into cash and has a larger position in Treasury futures, as he awaits a more certain outcome.
The U.S. moved forward May 10 with raising tariffs on $200 billion in Chinese goods to 25% from 10%, and President Donald Trump has said there could be tariffs on the roughly $300 billion in Chinese exports that do not yet have tariffs. Many of those goods go directly to consumers.
“We now think it is more likely than not that the Trump administration will move ahead with the final tranche of tariffs targeting roughly $300bn in imports from China at a 25% rate. Our baseline scenario assumes that the new tariffs go into effect at some point before end-2019, most likely in Q3 after a meeting between Presidents Trump and Xi at the G-20 in late June,” wrote Nomura chief U.S. economist Lewis Alexander.
Alexander said there could be a short-term truce following the G-20 meeting, talks could breakdown later in the year, resulting in more tariffs. “Without a clear way forward during an intensifying 2020 US presidential election, we see a rising risk that tariffs will remain in effect through end-2020,” he wrote.
Bank of America fixed income strategists, in a note, said the trade war is turning out to be worse than they expected. They sliced their forecast for the 10-year Treasury yield to 2.6% at year end, from a previous 3% based on trade war impacts and the easier policy of global central bankers, who are responding to slower growth, low inflation and concerns about financial conditions. The U.S. 10-year yield sank to 2.30% Thursday, the lowest level since November, 2017. Yields move opposite price.
“Following the latest tariff developments, our year ahead numbers imply a best case scenario for a resolution of the US-China trade dispute, which seems unrealistic. We cut our forecasts,” the Bank of America strategists wrote.
Over at Goldman Sachs, economists late Wednesday say they are still hoping for a trade deal, but if there is no deal, the hit to the U.S. and Chinese economies would be greater and inflation would rise.
“While we still think an agreement is more likely than not, it has become a close call and without additional signs of progress over the next few weeks, implementation of the next round of tariffs on $300 billion of imports from China could easily become the base case,” wrote Goldman Sachs economists.
The economists estimates that a further trade war escalation with an across-the-board 25% tariff on all imports from China would boost US core PCE inflation by 0.6 percentage points, compared with a 0.2 percentage point boost now.
“Our model says that an across-the-board 25% tariff on China with a limited amount of retaliation would hit US GDP by 0.5% and Chinese GDP by 0.8%, all over a three-year period,” the economists wrote.
The sell-off in stocks deepened Thursday, and bond prices rose as fresh data PMI data showed a slowdown in services and manufacturing activity in the U.S. and Europe. The U.S. PMI data showed the softest rise in new business since the series began in October 2009.
Keon said the views on Wall Street have been becoming more gloomy about the trade war, but he still believes the consensus expects a deal.
“At some point the fears will get fully reflected in the consensus, and at that point, the selling will have run its course. I still think there’s a fair amount of complacency about the possibility that something will get worked out, and both sides will pull back from the brink,” Keon said. “If it doesn’t get worked out, the market has more downside.”
CFRA analysts warned that the market may be too complacent about the trade talks. “The standstill began three weeks ago and discussions have ceased. There is an increasing chance for the situation to last longer and possibly escalate further,” the analysts wrote. They do not see a significant impact of the higher tariffs, now at 25% , if left in place for the balance of the year.
Second half earnings
But the firm does see downside risk to second half earnings outlooks, given the fact that the increase in tariffs to 25% from 10% on $200 billion Chinese went into affect after most companies reported first quarter earnings and gave their outlooks. They also noted that retailers like Walmart and Macy’s plan to pass along price increases to consumers, to protect their margins.
CFRA said it is cautious on the market now. “We continue to like equities but prefer exposure to defensive and more value-oriented sectors over their growth counterparts right now,” the analysts wrote.
Keon said there are collateral risks as the U.S. and China find new outlets for their battle.
“It’s morphing into a more complex multi-faceted trade war,” he said, adding China could decide to make it difficult for the U.S. to acquire the rare earth minerals it mines. Those minerals are used in electronic equipment, and China is the biggest supplier.
“Each side is looking for where they have pressure points that give them leverage. We have a complicated relationship together so both sides have pressure points,” he said.
Technology is the latest battleground with the Huawei move by the U.S., and there are rising concerns that China will take aim at Apple, either with a consumer boycott or some regulatory move.
“Given the pressure we’re putting on their tech companies, it will end up hurting ours as well, through the supply chain. It’s a complicated situation. Until we get some clarity, tech may well be negatively affected,” said Keon.
The International Monetary Fund warned Thursday weighed in on the trade war, saying that U.S. importers have borne the brunt of the tariffs.
“While the impact on global growth is relatively modest at this time, the latest escalation could significantly dent business and financial market sentiment, disrupt global supply chains, and jeopardize the projected recovery in global growth in 2019,” the IMF said. Tariffs on additional goods would hurt consumers in both the U.S. and China, it said.
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