Month: May 2019

U.S. President Donald Trump on Monday said U.S. tariffs on China bring billions of dollars into U.S. coffers. He said China’s retaliatory tariffs can have no effect on the U.S. economy. The escalation of the U.S.-China trade war sent stock markets tumbling on Monday, with the Dow Jones Industrial Average falling more than 600 points. Earlier, China announced new tariffs of up to 25 percent on $60 billion worth of U.S. goods, starting June 1. VOA’s Zlatica Hoke has more.
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As Washington and Beijing impose ever-higher tariffs, prompting financial markets to falter, U.S. lawmakers are expressing hope for a swift but comprehensive resolution of America’s deepening trade disputes with China. 

Unease prevailed on Capitol Hill after China retaliated against a new round of American tariffs by hiking duties on U.S.-made goods. Even so, senators of both parties say China must be confronted. 

“We need to challenge China to change a lot of its trade practices and its domestic business practices.”said Maryland Democrat Chris Van Hollen. “For example, they’ve been stealing U.S. (technological) secrets for a long time.”

But Van Hollen faults President Donald Trump’s focus on tariffs.

“What I see is a tariff-only strategy. I don’t see a more comprehensive strategy towards China,” Van Hollen said. “American consumers are paying more and more by the day. It’s not all about how many sales they (Chinese producers) are making and how many sales the United States is making to China.”

Among the most vocal about trade war concerns are American farmers. Republican Senator Roy Blunt represents agriculture-rich Missouri.

“We (Missouri farmers) were selling about one out of every four rows of soybeans just to China,” Blunt said. “Soybeans, corn, livestock  that’s a great market that’s being disrupted.”

But Blunt believes Americans understand that short-term economic pain is necessary to secure better trading terms with China.

“If there’s a trade fight worth having, it’s the trade fight with China,” Blunt said. “They have not been fair traders.”

While the U.S.-China dispute is grabbing most headlines, Blunt also urged Congress’ swift consideration of a new U.S.-Canada-Mexico free trade pact.
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A drop in the consumer outlook for inflation and intensifying trade tensions drew caution from Federal Reserve officials on Monday as policymakers faced fresh market volatility and a renewed set of risks.

While Fed officials have largely discounted the trade war so far as unlikely to derail the U.S. economic expansion, officials emphasized Monday that a protracted tit-for-tat battle between the United States and China was a different matter that might require a Fed response.

“If the impact of the tariffs — and whatever financial market reaction to those tariffs is — causes more of a slowdown, then we do have the tools available to us, including lower interest rates,” Boston Fed President Eric Rosengren, a voter this year on Fed rate policy, said in an interview with Reuters.

While Rosengren said he was “not necessarily” expecting a rate cut to be necessary, the market sell-off Monday was deep and potentially disruptive to the Fed’s core expectation that interest rates will remain on hold for some time to come.

Major U.S. equity markets were down between 2% and 3.5% on Monday, while bond investors sharply increased their bets that the Fed would be forced to cut rates this year. A closely watched spread between long- and short-term bonds turned negative, seen by some officials as a sign of weakened market confidence in the economic outlook.

After the collapse of U.S.-China talks last week and the threat of tariffs ratcheting ever higher, there was more reason to believe the tensions will last a while.

“If it’s the worst-case scenario and it’s ever-increasing tariffs for an extended period of time, that could change things, that could have a real effect on U.S. GDP growth,” Minneapolis Fed President Neel Kashkari said on CNBC. Traders and analysts on Monday said the volatility is likely to continue.

“You cannot game what two leaders … are going to do from day to day,” said Anthony Saglimbene, global market strategist with Ameriprise Financial Services in Troy, Michigan, of the high-stakes standoff between Trump and Chinese President Xi Jinping.

Rate cuts back on radar 

Fed officials have been careful to say that nothing yet has changed their core outlook, which envisions rates to be held in their current range of between 2.25% and 2.5% until either growth demonstrably weakens and inflation falls further, justifying a rate cut, or faster inflation makes higher rates warranted.

As the trade war intensified over the last few days, however, traders in the federal funds futures market have moved decisively in favor of expecting a Fed rate cut in coming months. 

Data from the CME Group now sees the Fed cutting rates in October, with a near 10 percentage point shift since Friday in the probability of a rate reduction at that Fed meeting. The pressure on the Fed could come from several directions.

Economic growth overall could slow if the tariff wars continue and global trade declines; “wealth effects” could directly impact business and household confidence and spending if the stock declines continue; higher costs could hit company profits, and discourage hiring.

A further complication for the Fed: The inflation outlook among U.S. consumers dipped sharply in April, countering Fed policymaker hopes that inflation dynamics will improve and the pace of price increases soon rise toward their target level.

Survey data released by the New York Federal Reserve on Monday showed consumer expectations of the inflation rate over the next year fell to 2.6% from 2.82% in the March survey.

The nearly quarter point drop was the third-largest since the survey was launched in mid-2013. The outlook for inflation over the next three years also fell, to 2.69% from 2.86%, evidence that medium-term expectations have also weakened in recent weeks.

Following the Fed’s most recent meeting, Chairman Jerome Powell and others said they felt recent weak inflation readings were driven by “transitory” factors that would disappear over time and allow overall inflation to rise.

But a drop in inflation expectations is another matter, and could be evidence that households and businesses are losing faith in the Fed’s ability to deliver on its inflation goal — a worrying development for central bankers who feel their ability to keep expectations set around their inflation target is critical to meeting the goal.

As of the Fed’s last policy statement on May 1, officials said they felt expectations remained stable.

While consumer surveys are discounted by some officials as overly influenced by things like changes in gasoline prices and other costs that consumers closely monitor, some broader market expectation measures have also shifted.

Since late April, for example, a St. Louis Federal Reserve measure of the inflation rate expected five years from now, based on trading in different types of bonds, dipped to 1.9% from 2.1%, a sign traders also see weaker inflation ahead.
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The Dow Jones Industrial Average plunged more than 500 points Monday as investors sought shelter from an escalating trade war between the U.S. and China.

The Dow and S&P 500 index each fell more than 2% as investors sold trade-sensitive shares in a broad sell-off that extended the market’s slide into a second week.

Technology stocks led the way lower, with digital storage companies and chipmakers among the big decliners. Heavy equipment makers Deere and Caterpillar drove losses in the industrial sector.

The world’s largest economies had seemed on track to resolve the ongoing trade dispute that has raised prices for consumers and pinched corporate profit margins. Investor confidence that the two sides were close to a resolution had helped push the market to its best yearly start in decades.

Those hopes are now being dashed and replaced by concerns that the trade war could crimp what is otherwise a mostly healthy economy. Analysts have warned that failed trade talks and the deterioration in relations will put a dent in the U.S. and China’s economic prospects.

“The larger issue with the tariffs isn’t the specific amounts of tariffs at any given time, but the uncertainty that’s surrounding these tariffs and the `what’s-next?’ of an escalating trade war,” said Willie Delwiche, investment strategist at Baird. “That weighs on the global economy and could then weigh on the U.S. economy.”

The Dow dove 544 points, or 2.1%, to 25,398 as of 3:08 p.m. Eastern Time. Earlier, it was down 719 points. Boeing and Caterpillar fell the most in the Dow. Both companies get a significant amount of revenue from China and stand to lose heavily if the trade war drags on. Boeing slid 4.2% and Caterpillar was 4.4% lower.

The broader S&P 500 index fell 2.1%. The benchmark index is coming off its worst week since January, though it’s still up sharply for the year. The Nasdaq, which is heavily weighted with technology stocks, slid 2.9%, on track for its biggest daily loss of the year.

Technology stocks were bearing the heaviest losses. Apple fell 5% and Cisco slid 3.4%. Chipmakers and other technology companies have warned that uncertainty over the trade war’s outcome is prompting a slowdown in orders.

Bank stocks also fell sharply. Bank of America dropped 3.8% and JPMorgan Chase fell 2.1%.

Safe-play holdings were the only winners as traders sought to reduce their exposure to risk. Utilities were the only sector to rise on the stock market, and prices for U.S. government bonds, which are considered ultra-safe investments, rose sharply, sending yields lower. The yield on the 10-year Treasury fell to 2.40% from 2.45% late Friday.

Overseas markets also fell. European indexes mostly finished more than 1% lower. In Asia, the Shanghai Composite index fell 1.2%. Japan’s Nikkei 225 index gave up 0.7% and South Korea’s Kospi fell 1.4%.

In another sign of how nervous investors were feeling, an index known as Wall Street’s “fear gauge,” which measures how much volatility the market expects in the future, spiked 27%. The VIX, however, is still far below the elevated levels it reached at the end of last year when the S&P 500 came extremely close to entering a bear market, meaning a decline of 20% or more from a recent peak.

Trade talks between the U.S. and China concluded Friday with no agreement and with the U.S. increasing import tariffs on $200 billion of Chinese goods to 25% from 10%. Officials also said they were preparing to expand tariffs to cover another $300 billion of goods.

China on Monday announced tariff increases on $60 billion of U.S. imports, particularly farm products like soybeans. The price of soybeans slid 0.8% to $8.03 a bushel. They were trading around $9 a bushel last month and are now at their lowest price since December 2008. The falling price has put pressure on U.S. farmers.

Analysts have said investors should prepare for a more volatile stock market while the trade dispute deepens. Many are still confident that both sides will eventually reach a deal.

“Since we see a trade accord being reached in the not-too-distant future, we don’t expect the market to endure more than a short-lived spate of indigestion,” said Sam Stovall, chief investment strategist at CFRA.

The deteriorating trade negotiations follow what has been a mostly calm period of trading where solid economic data and corporate earnings helped push the market steadily higher. The S&P 500 is still up 12.5% of the year with technology stocks blowing away rest of the market with 18.8% gains.

Investors have so far made it through the bulk of first quarter corporate earnings reports in decent shape. Earlier in the year they had expected earnings to severely contract. The results so far show less than a 1% drop in profit.

The escalating trade war threatens to spoil an expected earnings recovery in the second half, however.

“Investors are increasingly worried an anticipated second-half profit rebound may now evaporate as President [Donald] Trump’s threat to tariff the remaining $325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven US economy,” said Alec Young, managing director of global markets research at FTSE Russell.

Elsewhere in the market, generic drug developers are sinking after many of them were accused of artificially inflating and manipulating prices. The lawsuit from attorneys general in more than 40 states alleges that for many years the makers of generic drugs worked together to fix prices.

Teva, which was specifically mentioned, sank 15.1%. Mylan slumped 9.8%.

Ride-sharing company Uber tumbled another 11% on its first full day of trading following its rocky debut on the stock market Friday. The stock had priced at $45 at its initial public offering but is now trading just below $37.

Gold mining companies were some of the few stocks making gains amid the broad market slump as the price of gold, another safe-play asset, rose 1% to $1,301 an ounce. Newmont Goldcorp rose 2.8%.
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The Supreme Court is allowing consumers to pursue an antitrust lawsuit that claims Apple has unfairly monopolized the market for the sale of iPhone apps.

New Justice Brett Kavanaugh is joining the court’s four liberals Monday in rejecting a plea from Cupertino, California-based Apple to end the lawsuit over the 30 percent commission the company charges software developers whose apps are sold through the App Store.

The lawsuit was filed by iPhone users who must purchase software for their smartphones exclusively through Apple’s App Store.

Four conservative justices dissented.

 
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Usually, the U.S. ambassador in Hanoi brings American interests to Vietnam, but next month he plans to take Vietnamese companies to the United States.

U.S. Ambassador to Vietnam Daniel J. Kritenbrink and his team have been recruiting companies in the Southeast Asian country for a business delegation to Washington, D.C., which sparks a broader question: Is it time for Vietnam’s firms to go abroad?

“Investing in the United States is one of the best decisions that Vietnamese firms can make, especially as the country’s economy continues to rapidly expand,” Kritenbrink said. “As firms benefit from this expansion, they should look to expand into new markets and it’s only natural to consider one of Vietnam’s largest export markets, the United States.”

U.S. economic officers have been holding events in Hanoi and Ho Chi Minh City throughout the year to lobby them to join the delegation to Washington, which is scheduled for June 10-12.

The proposition comes as Vietnam’s economy is maturing, prompting more companies to consider if this is the time for them to take the next step in their growth and expand beyond the country’s borders.

As Kritenbrink noted, the U.S. is the biggest market for Vietnamese products, which is a reminder that the communist country already has a big presence in the international arena, having established itself as an export powerhouse in the past two decades.

​But Vietnam thinks it would be a major achievement if companies take it to the next level, no longer just shipping goods overseas, but actually setting up operations and offices overseas. 

Some corporations have done so already, whether it’s the electronics conglomerate FPT going to Japan or the telecommunications giant Viettel servicing markets from Burundi to Peru.

The trend, however, is broadening to businesses that are not as well resourced. Saigon Innovation Hub (Sihub) announced a program last year to provide support to startups that want to go abroad, a program known as Runway to the World. 

“Following our strategy toward 2020, Sihub targets to gather all local and international resources to realize the key mission of boosting economic growth,” Huynh Kim Tuoc said for the launch. He is the managing director of Sihub, which is under the Ho Chi Minh City Department of Science and Technology.

Supporters say going global is the natural next step in Vietnam’s evolution. In the 1980s, the communist government started allowing business activities typical of a market economy. In the 1990s, the United States lifted its trade embargo, and in the early 2000s, Vietnam joined the World Trade Organization. It has since become a leading exporter of rice, textiles and garments, and phones to the international market.

Standard Chartered Bank executive Nirukt Sapru said the context helps, as Vietnam is still seeing increases in gross domestic product, foreign direct investment (FDI) and FDI-driven manufacturing.

“Vietnamese mid-corporate manufacturers can capitalize on this and shield themselves from headwinds by pursuing strategies, such as investing in technologies and exploring new markets, which will help them move up the value chain,” said Sapru, who is the chief executive officer for Vietnam, Southeast Asia, and South Asia at the bank. “In fact, we are seeing an increasing number of local electronics players expressing interest to venture overseas for growth.”

The headwinds he mentioned include trade challenges that could hurt Vietnam’s exports if they hurt the global economy, such as the trade war between China and the United States, slowing growth in China that could affect demand for products and services elsewhere, and U.S. President Donald Trump’s other tariff fights, such as with Japan and the European Union.

By going abroad, Vietnam’s companies hope not just to strengthen their home economy from foreign trade tensions, but also to help build the national brand around the world.
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White House economic adviser Larry Kudlow on Sunday acknowledged that U.S. tariffs on Chinese goods will be paid by U.S. importers, contrary to President Donald Trump’s claims that China will pay for the U.S.-imposed levies. VOA’s Zlatica Hoke reports.
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