Note: In the process of recovering from Windows killing of my laptop. Testing new equipment with shorter posts…Sorry for poor display, software issues needing to be fixed. 
U.S.-China Trade Talks Hit Snag Over Farm Purchases Beijing balks at committing to specific purchases, resists U.S. requests for tech-transfer curbs, enforcement mechanism
Mr. Trump has said that China has agreed to buy up to $50 billion of soybeans, pork and other agricultural products from the U.S. annually. But China is leery of putting a numerical commitment in the text of an agreement, according to people familiar with the matter.
Beijing wants to avoid cutting a deal that looks more favorable to the U.S. than to China, some of the people said, and also wants to have flexibility within the agreement should trade tensions escalate again. “We can always stop the purchases if things get worse again,” said one Chinese official. (…)
Chinese officials also have resisted U.S. demands for a strong enforcement mechanism for the deal and curbs on the forced transfer of technology for companies seeking to do business in China—all of top importance to the international business community—according to people familiar with the talks.
Speaking to reporters at the White House Wednesday, Mr. Trump said talks were progressing. “We’ll see what happens, but it’s moving along rapidly,” Mr. Trump said. A day earlier, the president said he was prepared to raise U.S. tariffs on Chinese imports substantially if the two sides fail to reach an accord. (…)
“We will only accept a deal if it’s good for the United States and our workers and our great companies, because we’ve been hit very hard,” Mr. Trump said in a speech Tuesday at the Economic Club of New York.
He also said that “If we don’t make a deal, we’re going to substantially raise those tariffs, they’re going to be raised very substantially”.
We will see how the Chinese react to that. Investors don’t seem too anxious about this other display of The Art of the Deal, trying to corner 1.4 billion people. (Chart from the FT)
China and the United States are holding “in-depth” discussions on a first phase trade agreement, and cancelling tariffs is an important condition to reaching a deal, the Chinese commerce ministry said on Thursday.
The degree of tariff cancellation should fully reflect the importance of a ‘phase one’ agreement, ministry spokesman Gao Feng told a regular briefing.
“China has emphasized many times that the trade war began with additional tariffs and should end with the cancellation of additional tariffs,” said Gao. (…)
A source previously told Reuters that Chinese negotiators wanted the United States to drop 15% tariffs on about $125 billion worth of Chinese goods that took effect on Sept. 1.
They also sought relief from earlier 25% tariffs on about $250 billion of imports, ranging from machinery and semiconductors to furniture. (…)
The Bussiness Confidence Survey 2019/20 published by the German Chamber of Commerce in China, in cooperation with KPMG in Germany, finds that almost a quarter of German companies operating in China are preparing to relocate production facilities.
The survey was conducted from late July through mid-September and had 526 member companies out of 2300 respond. Out of the 526 member companies, 23% of the respondents said their factories will be transferred out of China or are contemplating the move.
Among the German companies leaving or actively planning to leave China, about 71% blame increasing labor costs; 33% cited unfavorable policy environment; 25% said the US-China trade war, and 22% said market access barriers. (…)
Of the respondents who’ve resorted to relocation, 52% have chosen Southeast Asia, 25% India, 19% Central/Eastern Europe, and 17% Western Europe. Only 5% of respondents said they were going to move operations to the US, contrary to President Trump’s claim that companies exiting China will be rushing to the US. (…)
Fed’s Powell Signals Comfort With Current Interest-Rate Stance Federal Reserve Chairman Jerome Powell told lawmakers the central bank saw little need to cut interest rates further after making three reductions since July.
“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market” and stable inflation, Mr. Powell told Congress’s Joint Economic Committee on Wednesday.
“Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly,” he added. (…)
He largely repeated that message Wednesday, stressing that Fed policy wasn’t on a preset course. Asked if his statements meant that the Fed wouldn’t change interest rates over the next year, he said, “I wouldn’t say that at all.” (…)
Mr. Powell said lawmakers should be ready for fiscal policy to support the economy in a downturn.
At the same time, he warned that the long-term path of rising federal budget deficits and a higher debt load are unsustainable, which could “restrain fiscal policy makers’ willingness or ability to support economic activity during a downturn.”
Mr. Powell said businesses continue to report that trade-policy uncertainty “is a real distraction for management,” he said. “It’s something that is weighing on business sentiment and ultimately on the economy.” (…)
Mr. Powell said, “The very, very low and even negative rates that we see around the world would not be appropriate for our economy.” Negative rates abroad occur when “growth is quite low and inflation is quite low.”
In brief, Powell said that the FOMC thinks its current policy is the right one but “will respond appropriately” if proven wrong (which always happens) and that Congress should put its fiscal house in order because there will eventually be a need for fiscal stimulus.
-
U.S. Budget Gap Hits $1 Trillion Over Past 12 Months The U.S. budget gap grew 34% in the first month of the fiscal year as federal spending outpaced revenue growth, pushing the 12-month deficit past $1 trillion for the first time since February 2013.
Auto Borrowing Rises Amid Low Interest Rates, Solid Economy Americans are borrowing more for cars, a sign lower interest rates and a decadelong economic expansion are supporting purchases of large household items.
Auto-loan originations increased to $159 billion in the third quarter to the second highest level on record, according to a report released Wednesday by the Federal Reserve Bank of New York. Auto debt now accounts for nearly 10% of overall household debt, up from about 6% when the recession ended in mid-2009. (…)
Credit standards for new auto loans slightly tightened in the third quarter. The median credit score was 711, compared with 703 a quarter earlier.
The third-quarter rise in auto loans was driven by greater lending to borrowers with credit scores of 760 or higher. Subprime auto loans were roughly stable.
(…) About one-fifth of auto originations went to subprime borrowers, or those with credit scores of less than 620, in the third quarter, in line with recent years.
Car buyers who start out with negative equity, meaning they owe more than the car is worth, are often subprime borrowers. Such underwater loans have increased in recent years. (…)
From NBF:
(…) thanks to a solid economy and plentiful jobs, new seriously delinquent balances (90+ days
delinquent) fell to just 2.27% of overall balances, the lowest since 2006. The delinquency rate for mortgages fell to a record low
0.99%, reflecting tighter standards ─ recall that more than 57% of mortgage originations since 2016 have gone to highest rated
borrowers (i.e. those with credit scores 760 and above). Delinquency rates also fell in Q3 for credit cards, student loans, and
stabilized for auto loans. As today’s Hot Chart shows, stabilization of the delinquency rate for auto loans can be attributed in
part to tighter lending standards as evidenced by a declining share of sub-prime in auto loans.
Gary Schiling notes, however, that
(…) the share of trade-ups with negative
values—”upside down” auto loans—has
jumped from 17% in 2009 to 33% and auto loans
now average 69 months, a record, and
some extend to 85 months. A third of
new car buyers who trade in their old
vehicles roll debt into new loans, up
from a fourth before the financial crisis.
Auto loans at the end of June totaled
$1.3 trillion, up from $740 million a
decade ago.Only 18% of U.S. households have
enough liquid assets to buy a new car,
according to a Fed survey. The median income
household with a four-year auto
loan, 20% down and payments of 10%
of gross income could afford a car
costing $18,390, excluding taxes,
according to bankrate.com. But the
average loan has risen to $32,119 in the
last decade. Hence the need for stretched
out repayments. (…)
U.S. CPI Firms as Energy Prices Strengthen
The Consumer Price Index increased 0.4% (1.8% y/y) during October following stability in September. It was the largest increase since March. Expectations had been for a 0.3% rise in the Action Economics Forecast Survey. The CPI excluding food & energy rose an expected 0.2% (2.3% y/y) following a 0.1% uptick.
Providing strength to consumer price inflation last month was a 2.7% increase (-4.2% y/y) in energy prices. This followed declines during four of the prior five months. Gasoline prices increased 3.7% (-7.3% y/y), also following declines in four of the prior five months. Fuel oil prices improved 0.8% (-10.6% y/y) after similar weakness in earlier months. The cost of natural gas surged 2.4% (0.2% y/y) following a 0.7% decline. Electricity prices strengthened 1.6% (0.4% y/y) after remaining unchanged.
Services prices increased 0.2% (3.0% y/y) following four straight 0.3% monthly increases. Exhibiting strength last month were medical care prices which rose 0.9% (5.1% y/y) for the second time in three months. (…) The cost of shelter edged 0.1% higher (3.3% y/y). The owners’ equivalent rent of primary residences rose 0.2% (3.3% y/y) while rents of primary residences improved 0.1% (3.7% y/y). (…)
Consumer goods prices excluding food & energy weakened 0.1% last month following a 0.3% fall. The y/y rise of 0.3% compared to a 1.0% decline during October 2017. (…) Apparel prices were off 1.8% (-2.3% y/y) after a 0.3% slip. Prices of new vehicles weakened 0.2% (+0.1% y/y), down slightly for the fourth consecutive month. Furniture & bedding prices slipped 0.1%. (…)
The Cleveland Fed’s Median CPI analysis looks fairly steady:
The NY Fed’s Underlying Inflation Gauge:
- The UIG “full data set” measure for October decreased by 0.1 percentage point from the previous month to a currently estimated 2.3%.
- The “prices-only” measure for October increased by 0.1 percentage point from the previous month to a currently estimated 2.1%.
The “prices-only” underlying inflation gauge (UIG) is derived from a large number of disaggregated price series in the consumer price index (CPI), while the “full data set” measure incorporates additional macroeconomic and financial variables.
The Atlanta Fed breaks down the core CPI between sticky (a weighted basket of items that change price relatively slowly) and flexible (a weighted basket of items that change price relatively frequently) prices. Core inflation tends to stick to the sticky part:
Heard on the Street: The Fed Gives Investors a Green Light
The only thing that seems likely to get the Federal Reserve to raise rates again is a lot more inflation. Until that happens, it will be giving investors a green light to buy stocks and other risky assets. Similar occasions have had very unhappy endings. (…)
After years of low inflation, the central bank is worried that inflation expectations—which economists believe help to shape inflation’s path—have slipped to the point that it will be hard to keep inflation at its target. Indeed, in Congressional testimony Wednesday, Fed Chairman Jerome Powell noted that measures of longer-term inflation expectations “are at the lower end of their historical ranges.”
So the Fed isn’t likely to raise rates until its preferred measure of core inflation moves meaningfully above 2%—let’s call it 2.3%. As Evercore ISI policy strategists point out, that differs from the late 1990s, when, after a series of insurance rate cuts, the Fed moved to raise rates again once it had an all clear on growth. This trepidation implies an even longer sweet spot for stock market investors. They know the Fed will cut rates again if risks to the economy emerge and that it isn’t likely to take away the punch bowl anytime soon. (…)
TECHNICALS WATCH
From CMG Wealth:
- NDR Daily Trading Sentiment Composite:
Source: Ned Davis Research
Walmart Boosts Forecast Again, Setting Stage for Strong Holiday
Comparable sales excluding gas for Walmart stores in the U.S. rose 3.2% in the period, just beating analysts’ 3.1% growth estimate and marking the 21st straight gain. Both the number of customers and the size of their average orders were up, fueling the growth. (…)
It now sees full-year adjusted earnings per share increasing slightly compared to last year, after saying in August either a slight decrease or slight increase was possible. (…)
