FIG Topics of Interest

 

04/01/19

“You couldn’t pick a worse time of year because Mexico supplies virtually 100 percent of the avocados in the U.S. right now. California is just starting and they have a very small crop, but they’re not relevant right now and won’t be for another month or so,” said Barnard.
https://www.reuters.com/article/us-usa-immigration-trump-consumer/avocado-shortages-virgin-margaritas-border-shutdown-would-hit-american-palates-idUSKCN1RD1XA
Trump said on Friday that there was a “very good likelihood” he would close the border this week if Mexico did not stop immigrants from reaching the United States. A complete shutdown would disrupt millions of legal border crossings in addition to asylum seekers, as well as billions of dollars in trade, about $137 billion of which is in food imports.

“When a border is closed or barriers to trade are put in place, I absolutely expect there would be an impact on consumers,” said Monica Ganley, principal at Quarterra, a consultancy specializing in Latin American agricultural issues and trade.

“We’re absolutely going to see higher prices. This is a very real and very relevant concern for American consumers.”

Mexico is the largest importer of U.S. exports of refined fuels like diesel and gasoline, some of which moves by rail. It is unclear if rail terminals would be affected by closures.

As changing palates have increased demand for fresh produce, and a greater variety of it, the United States has increasingly come to depend on Mexico to meet that need. Imports have nearly tripled since 1999. In that period, Mexico has gone from supplying less than a third of imported produce to 44 percent today.

In addition to avocados, most of imported tomatoes, cucumbers, blackberries and raspberries come from Mexico. While there are other producers of these goods globally, opening those trade channels would take time, said Ganley.

Click here to download a pdf of this article, Missile.pdf
 
 

03/29/19

Stephen Wang is counting the costs of President Donald Trump’s trade war. He had to put down 12 times more cash as a guarantee to U.S. customs that he would pay the bill for tariffs on the Chinese-made pumps, valves and motors he imports.
https://www.reuters.com/article/us-usa-trade-liabilities-insight/a-tax-on-a-tax-u-s-customs-demands-bigger-bonds-as-trade-tariffs-rise-idUSKCN1RA0CR 
The cost of the guarantee - a U.S. customs bond - has shot up, an additional hit to importers already facing steep customs bills adding up to tens of billions of dollars for tariffs imposed by the Trump administration on incoming Chinese goods, as well as steel and aluminum imports.

Since coming into effect last year, the tariffs have pushed up manufacturing costs, upended decades-old global supply chains and inflated prices for consumers, resulting in lower sales and forcing companies to defer investments. This, in turn, has dimmed global growth outlook, roiling financial markets.

Other ripple effects are less obvious, among them the rising expense of U.S. customs bonds. But for small companies that can ill afford the added cost, the impact can be crippling.

Given the extra duties associated with Trump’s tariffs, importers have been forced to post bonds that are worth much more to guarantee they can cover the added cost of bringing Chinese imports, and foreign steel and aluminum, into the United States.

In some cases, customs bond requirements have increased 500-fold, according to Reuters interviews with a dozen importers, underwriters and customs brokers.

“Managing the cash flow has become tough,” said Wang. If the tariff war drags on, he warns, companies operating with thin profit margins and a weak capital base could go bust.

Click here to download a pdf of this article, Missile.pdf
 
 

03/28/19

China has made unprecedented proposals in talks with the United States on a range of issues including forced technology transfer as the two sides work to overcome remaining obstacles to a deal to end their protracted trade war, U.S. officials told Reuters on Wednesday.
https://www.reuters.com/article/us-usa-china-trade-exclusive/exclusive-china-makes-unprecedented-proposals-on-tech-trade-talks-progress-u-s-officials-idUSKCN1R905P
“They’re talking about forced technology transfer in a way that they’ve never wanted to talk about before - both in terms of scope and specifics,” he said, referring to Chinese negotiators. He declined to give further detail.
“If you looked at the texts a month ago compared to today, we have moved forward in all areas. We aren’t yet where we want to be,” the official said, speaking on condition of anonymity.
Talks would continue as long as progress is being made on the core issues, the official said.

“It could go to May, June, no one knows. It could happen in April, we don’t know,” another administration official said.

The two sides still have differences over intellectual property and how to enforce a deal, he said.

Click here to download a pdf of this article, Missile.pdf
 
 

03/27/19

A Green New Deal proposal backed by numerous Democrats failed to advance in the Senate on Tuesday as Democrats protested what they called a political show vote orchestrated by majority Republicans.
https://www.cnbc.com/2019/03/26/aocs-green-new-deal-dies-in-mcconnell-led-senate-vote.html

The nonbinding resolution, which calls on the United States to make an ambitious effort to slash its use of fossil fuels to fight climate change, fell short in a procedural vote. The Senate did not proceed to debating the measure, as 57 senators voted against it and 43 Democrats and independents who caucus with them — nearly all of the Democratic caucus — voted “present.” Four senators who vote with Democrats — Joe Manchin of West Virginia, Kyrsten Sinema of Arizona, Doug Jones of Alabama and independent Angus King of Maine — voted against the resolution.

By voting “present,” Democrats hoped not to go on the record on a bill that had no realistic chance of passing, even if they support the concept of a Green New Deal. The six Democratic senators running for president next year — who co-sponsored the original resolution introduced by Sen. Ed Markey, D-Mass. — did not take a position on the measure Tuesday.

Click here to download a pdf of this article, Missile.pdf
 
 

03/26/19

The proportion of the yield curve that’s inverted isn’t as high as in past recessions, and part of the reason 10-year Treasury yields have slumped can be attributed to dynamics outside the U.S., Goldman strategists led by Alessio Rizzi and Christian Mueller-Glissmann wrote in a note Monday. American credit spreads also aren’t telegraphing stress, they highlighted.
https://www.bloomberg.com/news/articles/2019-03-26/goldman-joins-chorus-downplaying-menace-of-inverted-yield-curve?srnd=premium
“Recession risk remains somewhat low even amid an environment of lower returns” and a high rate of change for volatility itself, the Goldman strategists wrote. While the economic backdrop indeed may be less favorable, hurting profit growth, “equity and risky assets in general can have positive performance with a flat yield curve,” they wrote.

Others agree that things aren’t so dire. Fidelity International is among those anticipating a pick-up in growth later this year. Andrea Iannelli, a London-based investment director at the fund manager, wrote Tuesday that “given how much pessimism is already baked into prices, we favor an underweight stance to U.S. rates.”

At Morgan Stanley, strategist Matthew Hornbach thinks the three-month-10-year inversion would need to continue at least until the June Federal Reserve policy meeting before policy makers get “uncomfortable. If it continues beyond that, the Fed may begin to contemplate actions necessary to keep the party going."

For his part, Chicago Fed President Charles Evans said Monday that yield curves recently have been “throwing off a slightly higher probability of recession” but they have “often misfired” in the past. And Boston Fed President Eric Rosengren said Tuesday he doesn’t “take nearly as much information from the shape of the yield curve as some people do,” though it should pick up if the economy grows as he expects.

Click here to download a pdf of this article, Missile.pdf
 
 

03/25/19

“We have to take into account that there’s been a secular decline in long-term interest rates,” Evans said in comments at the Credit Suisse Asian Investment Conference in Hong Kong, days after the Fed signaled an end to its tightening and abandoned plans for further rate hikes in 2019.

“Some of this is structural, having to do with lower trend growth, lower real interest rates,” he said. “I think, in that environment, it’s probably more natural that yield curves are somewhat flatter than they have been historically.”
https://www.reuters.com/article/us-usa-fed-evans-rates/flattened-yield-curve-reason-to-be-nervous-but-u-s-economy-solid-feds-evans-idUSKCN1R604R

On the sidelines of the conference, Evans told CNBC in an interview that he could understand why investors were more “watchful, waiting and looking,” adding the Fed was doing the same. But, he added, economic fundamentals were “good” and he expected growth to be around 2 percent this year.

“Your first reaction is gonna (be) ‘wow, this is less than what we had’ and I think this is missing the message.”
Speaking at the same event, former Fed chair Janet Yellen said the yield curve may signal the need to cut interest rates at some point, but it does not signal a recession.

“In contrast with times past, there’s a tendency now for the yield curve to be very flat,” Yellen, who led the Fed between 2014 and 2018, said.

Click here to download a pdf of this article, Missile.pdf
 
 

03/22/19

Hopes that the slowdown had reached a trough have taken a beating from renewed weakness in France and the deepest slump in German manufacturing in over six years. A euro-area Purchasing Managers Index is signaling growth of 0.2 percent this quarter, matching the pace of the previous three months.
https://www.bloomberg.com/news/articles/2019-03-22/german-factory-slump-drags-down-euro-area-growth-in-march
Much of the source of the economic weakness appears to be external, with export orders -- particularly in manufacturing -- under pressure. Trade tensions, tariffs and weaker global growth are all taking a toll, with Germany feeling much of the pain. Japan, another export heavy economy, also reported a contraction in activity in its manufacturing sector on Friday.

Click here to download a pdf of this article, Missile.pdf
 
 

03/20/19

“Slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue,” Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer, said in statement.
https://www.cnbc.com/2019/03/19/fedex-just-warned-the-whole-globe-is-slowing.html
A top executive at FedEx is flagging serious concerns in the global economy.
The multinational package delivery service reported declining international revenue because of unfavorable exchange rates and the negative effects of trade battles.

Click here to download a pdf of this article, Missile.pdf
 
 

03/19/19

U.S. economic growth is set to slow sharply this year and next, according to respondents to the CNBC Fed Survey for March, and weaker global growth and tariffs are seen as the major culprits.
https://www.cnbc.com/2019/03/19/us-economic-growth-is-set-to-slow-sharply-this-year-and-next-according-to-cnbcs-fed-survey.html

The average forecast for gross domestic product growth this year is just 2.3 percent, down from 2.44 percent expected in the January survey and a further slowing from the actual 3.1 percent year-over-year pace for the fourth quarter of 2018. Economic growth is seen stepping down below 2 percent in 2020, according to the survey.
Asked about the biggest threats to the US expansion, slowing global growth and protectionist trade policies ranked No. 1 and No. 2, respectively.

“If Trump wants to be a two-term president, he needs to make a China trade deal and start lowering tariffs across the board,” said Hank Smith, co-chief investment officer, Haverford Trust Company. “This will cause business confidence to rise and capital spending to increase, stimulating the economy.”

Click here to download a pdf of this article, Missile.pdf
 
 

03/18/19

“The basic cyclical trend of the German economy remained subdued after the turn of the year. This was mainly due to the continuing slowdown in industrial momentum,” the Bundesbank said in its monthly report published Monday. Greater catch-up effects in the country’s auto industry “are no longer expected for the current quarter.”
https://www.bloomberg.com/news/articles/2019-03-18/bundesbank-gives-up-on-first-quarter-economic-rebound-in-germany?srnd=premium-europe
The assessment comes after a series of temporary factors -- such as new emissions-testing procedures that stalled production at carmakers -- led to an unexpectedly pronounced weakening of key economic metrics. Policy makers are trying to assess how much of the slowdown in Germany and the euro area is related to one-offs, or whether it marks a more protracted shift in the economy.

Click here to download a pdf of this article, Missile.pdf