Trade War Risks From ‘National Security’ Tariffs Donald Trump’s trade policy has so far been more bark than bite: dramatic rhetoric about shaking up the old order. That may change as soon as this week, when the president bares his “America First” teeth with more ferocity, advancing plans to curb steel imports in the name of “national security.”
China’s Workers are Saying Goodbye to Double-Digit Pay Raises
(…) The government classifies more than 400 million urban employees into one of three categories: non-private, private, and self-employed. The largest segment, non-private, includes almost 180 million workers at state companies, listed companies, and foreign firms. Their pace of pay gains last year was the slowest since 1997, rising 8.9 percent to 67,569 yuan ($10,166), according to the National Bureau of Statistics.
In the private category, which in practice means mainly smaller domestic employers, paychecks for 121 million employees rose 8.2 percent last year, less than the 8.8 percent gain in 2015. Similarly slowing is the pay of about 280 million rural migrant workers, who saw a 6.4 percent wage gain as of February, down from more than 20 percent in 2011. Those increases are still well above the current rate of inflation. (…)
Policy makers also have shied away from boosting pay in order to stay competitiveagainst cheaper southeast Asian nations. Just nine of 31 provinces and regions increased the minimum wage last year, the fewest in at least four years and about a third of the number in the prior year. Local governments also issued guidance for companies to slow the pace for raises. (…)
Speaking of wages:
Bank of England Governor Sees Weak Wage Growth Delaying Rate Rises Bank of England Gov. Mark Carney said that while rate setters’ tolerance for above-target inflation is coming to an end, it is too early to raise the key interest rate for the first time in a decade.
Not in the USA:
(…) Asked about a so-called flattening of yields in the bond market, which suggest investors are skeptical that this Fed policy-tightening cycle will last much longer, Dudley said pausing policy now could raise the risk of inflation surging and hurting the economy.
He said he did not read the market move as a negative signal for the U.S. economy, but rather one that reflects low overseas inflation and borrowing costs. (…)
Meanwhile:
BofA Sees Off-Lease ‘Tsunami’ Hitting U.S. Auto Market
U.S. auto sales peaked last year and are now likely in a “decisive downturn,” according to the Bank of America Merrill Lynch. A “tsunami” of returned leased vehicles will drive down prices of used cars and make new autos less affordable, analysts John Murphy and Aileen Smith wrote in a report dated June 15. The analysts predict new-vehicle sales will drop 2.5 percent in 2017 and fall each year before bottoming out at 13.1 million in 2021.
EARNINGS WATCH
- Overall, the estimated earnings growth rate for Q2 2017 of 6.5% today is below the estimated earnings growth rate of 8.7% at the start of the quarter (March 31). If the Energy sector is excluded, the estimated earnings growth rate for the remaining ten sectors would fall to 3.6% [+3.7% last week] from 6.5%.
- Downward revisions to earnings estimates in aggregate for the second quarter to date have been below recent averages. The Q2 bottom-up EPS estimate (which is an aggregation of the earnings estimates for all 500 companies in the index and can be used as a proxy for the earnings for the index) has fallen by 2.0% (to $31.49 from $32.13) since March 31. This decline in the EPS estimate for Q2 2017 is below the trailing 1-year (-3.0%) average, the trailing 5-year (-4.3%), and the trailing 10- year average (-5.9%) for the bottom-up EPS estimate for a quarter. (…)
- The estimated revenue growth rate for Q2 2017 is 4.9%. If the Energy sector is excluded, the estimated revenue growth rate for the index would fall to 3.8% from 4.9%.
- At this point in time, 113 companies in the index have issued EPS guidance for Q2 2017. Of these 113 companies, 76 have issued negative EPS guidance and 37 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 67% (76 out of 113), which is below the 5-year average of 75%.
- While the number of companies issuing negative EPS is slightly below the 5-year average (79), the number of companies issuing positive EPS guidance is well above the 5-year average (27).
IT and Financials are expected to grow EPS 7.7% in Q2 [+8.2% last week], down from 9.5% expected on March 31. The 6 consumer-centric sectors are expected tp show EPS growth of only 0.6% [unchanged], down from +2.4% on March 31.
Ex It and HC, guidance is 47 negative [46 last week] and 10 positive [unchanged]; the 82% negative ratio compares with 85% at the same time in Q1’17 and 80% at the same time in Q2’16, so essentially in line with recent experience.
A Shift Away From Tax Reform to Cuts in the U.S.?
Between Feb. 28 and May 28, President Trump explicitly mentioned “tax reform” along with tax cuts in five of six of his tweets found by BI Economics discussing his tax plan. For example, on April 22 President Trump tweeted, “Big TAX REFORM AND TAX REDUCTION will be announced next Wednesday.”
Since then, through June 16, the president has two tax related tweets, neither of which mentions reform. The most recent tweet came on June 6: “Big meeting today with Republican leadership concerning Tax Cuts and Healthcare. We are all pushing hard — must get it right!” On May 28, when the president last used “tax reform” in a tweet, he indicated the plan was coming along “ahead of schedule”; this was followed by a tweet two days later that read, “The U.S. Senateshould switch to 51 votes, immediately, and get Healthcare and TAX CUTS approved, fast and easy. Dems would do it, no doubt!” This may indicate the plan was beginning to hit some roadblocks.
While the president’s tweets are far from being a clear indicator of where he stands on tax policy, they may provide some subtle clues to his own expectations, especially if he continues to avoid the phrase “tax reform.”
BI Economics recently significantly downgraded the medium-term outlook for U.S. economic growth. This was not due to a reassessment of economic fundamentals — in fact, underlying momentum is very much intact.
Instead, it reflects the sharply reduced odds that any of the main pillars of Trumponomics will be successfully implemented, including comprehensive tax reform. (Bloomberg Briefs)
How did Argentina pull off a 100-year bond sale? Despite past defaults, the Latin American country has sold debt maturing in a century
(…) Argentina sold $2.75bn of the debt with a coupon of 7.125 per cent, equating to an annual yield of 7.9 per cent, according to a statement from the Argentine finance ministry late on Monday. The bond attracted $9.75bn in orders from investors. (…)