· The euro and Japanese yen on Tuesday largely held gains made against the dollar this week after disappointing manufacturing data and signs of new fronts in U.S. President Donald Trump’s trade war rattled greenback investors.
Moves in currency markets were broadly contained, however, with volatility remaining low and investors not appearing to take much fright at news of U.S. tariffs on imports of metals from Argentina and Brazil and the threat of more tariffs on a range of European goods.
The euro has recovered from a three-week low against the dollar of $1.0981 on Friday, moving as high as $1.1091. On Tuesday it was flat on the day at $1.1076.
The yen also held most of its gains, a reversal from a six-month low plumbed before Trump’s tariff announcements. The dollar last traded at 109.08 yen, down from Monday’s 109.73.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 97.737 after falling from levels above 97.9 seen earlier.
· President Donald Trump said on Tuesday a trade deal with China might have to wait until after the U.S. presidential election in November 2020, denting hopes that the two largest economies would soon reach an initial deal to ease their damaging trade war.
“I have no deadline, no,” Trump told reporters in London, where he was due to attend a meeting of NATO leaders.
Trump's remarks sent stock prices tumbling and triggered a rush into safe assets such as U.S. Treasury debt.
· President Trump’s comment that he had no deadline on a China deal has predictably thrown markets into a tizzy, as the self-imposed deadline of Dec. 15 for additional tariffs is now less than two weeks away.
The market is now grappling with the likelihood of no trade deal, but the critical issue is tariffs. I asked UBS Art Cashin if traders would be satisfied with
1) no new tariffs on Dec. 15,
2) keeping additional tariffs, and
3) no deal going into the new year.
“I don’t think it would cause a big swing one way or another,” he said. “I think they would say, obviously negotiations are still going on. The reason you’ve had two pretty significant down days is, people were believing there would be a deal by the end of the year. Now, that’s clearly in doubt and that’s where we’re going.”
If additional tariffs are put on Dec. 15, that is a different story: “Then there’s another sell-off. If they put on additional tariffs and he bumps them by 10% or 15%, a sell-off but nothing severe. 50% or something like that? Better put on your helmet,” Cashin said.
Despite signs that even a so-called phase one trade deal might not be achieved, bulls are still holding out the prospects that the markets might be mollified by some sign — any sign — that talks are continuing.
· Commerce Secretary Wilbur Ross told CNBC on Tuesday that Trump would be willing to leave tariffs in effect if he doesn’t get the deal he wants. He also said no high-level talks are scheduled, and the situation in Hong Kong has been a factor. Trump signed legislation last week supporting Hong Kong protesters.
“The new variable is the Hong Kong situation. That’s complicated life for President Xi [Jinping]. They got somewhat upset when the president signed that bill,” said Ross, adding the bill would have been veto proof because of its wide support in the Senate.
· U.S. Commerce Secretary Wilbur Ross said on Tuesday the Trump administration has not ruled out imposing tariffs on imported autos, after letting a review period end in November with no action.
U.S. President Donald Trump did not announce any new tariffs after a six-month, self-imposed review period expired in mid-November following a Commerce Department “Section 232” investigation into whether imported autos pose a national security threat. He has threatened to tax them by as much as 25%.
· France fights back over U.S. tariff threat to champagne, cheese
France and the European Union said on Tuesday they were ready to retaliate if U.S. President Donald Trump acted on a threat to impose duties of up to 100% on imports of champagne, handbags and other French products worth $2.4 billion.
· Admiral Michael Rogers, former head of the U.S. National Security Agency and U.S. Cyber Command, was instrumental in some of the early intelligence reporting that put Chinese tech giants Huawei and ZTE on the radar of the intelligence community and Congress.
He said China’s main goal is to achieve 21st century technological dominance, and he explained some of the tactics that are hard to counter, such as IP theft, government subsidies of tech companies, and linking corporate interests to education and government research. He also offered some concrete suggestions on how to counter China’s efforts while maintaining an American business philosophy.
“The last time we had a near-competitor who we viewed as a potential adversary, in terms of a nation-state, was the Soviet Union. They were largely a political, diplomatic and a military challenge. They were never an economic challenge. They were never going to surpass the United States economically. They didn’t have the global economic impact or capabilities that we had. They never had those kind of things as options,” Rogers said.
“Fast forward to now: China also represents a significant diplomatic, political and military challenge. But what makes it so different is it combines all of that with this significant economic capability. We have also not had a near-peer economically who is also such a competitor or potential adversary,” in those other ways, Rogers said.
He also said comparing our current trade, privacy or security standoffs with China to a “Cold War” is also unhelpful.
“I would say that’s not a good analogy; rather, I would say that we are now competing against a nation-state that has a range of capabilities that we have not had to deal with before,” he said.
In particular, he argued, attempting a “containment” strategy probably wouldn’t work as it did with the Soviet Union, he said, referring to a series of U.S. foreign policy decisions starting in the 1940s that focused on minimizing the spread of Soviet ideology and power.
Rogers said that China’s sponsorship of its companies puts the country on an uneven playing field with its Western competitors, by centralizing funding and providing a cushion that doesn’t exist for U.S. firms.
But he also cautioned that competing with China tit-for-tat likely wouldn’t work for the U.S. Increased government intervention with technology companies simply wouldn’t fly in the U.S., and providing government support for taking competitors’ intellectual property or trade secrets would not be helpful, he said.
Still, the U.S. could vastly improve its public-private partnerships. “You saw the power of that partnership in the space race, the best of government and the best of the private sector.”
· U.S. President Donald Trump solicited foreign interference to boost his re-election chances, undermined national security and ordered an “unprecedented” campaign to obstruct Congress, Democrats said on Tuesday in a report that lawmakers will use as the basis of any formal impeachment charges.
Republican Trump, who will stand for re-election in November 2020, denies any wrongdoing and calls the inquiry a hoax.
· Oil moved between gains and losses on Tuesday ahead of OPEC’s bi-annual meeting, which kicks off Thursday in Vienna. Expectations of output cuts from OPEC and allied producers brought prices back up after they slid briefly following comments from U.S. President Donald Trump that a trade deal with China may be delayed.
U.S. West Texas Intermediate (WTI) crude futures rose 14 cents to settle at $56.10 a barrel, while Brent futures slid 5 cents to $60.87 a barrel. Trump said a U.S.-China trade agreement might have to wait until after next November’s presidential election, denting hopes of a quick resolution to a dispute that has weighed on the world economy.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, are discussing a plan to increase an existing supply cut of 1.2 million barrels per day (bpd) by a further 400,000 bpd and extend the pact until June, two sources familiar with the matter said.
Reference: CNBC, Reuters
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