Trump Mulls Options to Bolster Economy President says indexing capital-gains taxes to inflation is among the measures considered
(…) “We’re looking at various tax reductions,” Mr. Trump told reporters at the White House on Tuesday. “But I’m looking at that all the time anyway.” He added: “We’re very far from a recession.”
(…) Mr. Trump said his administration was exploring lowering capital-gains taxes by indexing gains to inflation, which he suggested he could do through regulatory action rather than through Congress. Such a move would likely face immediate court challenges. (…)
Among other possible steps to bolster the economy, Mr. Trump said Tuesday he has been thinking about a payroll-tax cut for “a long time,” but said nothing was imminent on that front—a day after White House officials said such a move wasn’t under consideration. (…)
The Wa-Po, first on the payroll tax-cut story on Monday, quotes Trump:
“Payroll tax is something that we think about, and a lot of people would like to see that, and that very much affects the workers of our country,” Trump said Tuesday during an exchange with reporters at the White House.
The NYT claims to have found the motivation for the WH discussing more stimulus:
Last fall, administration officials displayed a series of charts that showed how President Trump’s economy was outperforming President Barack Obama’s. But many of the indicators officials used to showcase a Trump-fueled economic “boom” have fizzled on the back of the president’s escalating trade fights. (…)
And this from Reuters’
We know that Trump talked to bankers and some CEOs last week. Maybe he learned something because these guys are not upbeat these days as these RBC Capital charts show:
Meanwhile,
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Central bankers seek fresh tools to combat slowdown Record-low rates trigger hunt for stimulus measures at Jackson Hole gathering
It is also likely that both the WH and the Fed are highly tuned to the bond market and the yield curve and are getting worried that investors could prove right in their assessment of the economy. Goldman Sachs’ CAI points to global GDP growing 3.0% in Q3 from 3.4% in Q2. GS also estimates that the impact of the trade war on the U.S. GDP will be maximum in Q3 and Q4 shaving 0.5-0.6% off GDP growth in each quarter.
Maybe the most recent U. of Michigan consumer sentiment survey found its way to the WH. All the index components were pretty weak in August. Income expectations were particularly weak at 53.8 vs 58.0 in July. Consumer spending is vital at this time.
At the other end of the trade war, things are also looking more and more difficult. Housing is critical to China and declining house prices could be catastrophic to this indebted country.
China developers sweat out a slowdown as home buyers wait for better deals
In July, China’s top 10 builders recorded a month-on-month fall of 80 billion yuan (US$11.4 billion) in total contracted sales, due to a combination of a slowdown in the economy and government policies to clamp down on their debt.
The biggest plunge among them was 58 per cent. The top 100 developers saw an average fall of 29 per cent.
The question is whether prices will begin to fall as well, as developers feel pressured sell lower to sell more. In the most recent government survey of 70 major Chinese cities, homes prices fell in only three of them. (…)
Home prices in Shenzhen and five other cities were unchanged in July, according to data released by the National Bureau of Statistics last week. Prices rose in 61 cities. (…)
Every indicator in the housing industry declined last month across China. Sales by volume fell 1.3 per cent in July from the same month in 2018, the seventh straight monthly decline. Land sales to developers shrank 29.4 per cent last month, 1.9 percentage point weaker than in June. (…)
(…) Contracted sales in the period from its property development business rose 9.6 per cent year on year to 334 billion yuan, up from 304.7 billion yuan. (…)
BTW, Vanke’s 9.6% growth rate for the first half of 2019 is down from +14.5% in 2018.
US and Japan in race to finalise partial trade deal Agreement could come next month with Tokyo looking to secure immunity from car tariffs
The FT reports that the U.S. hopes to sign a “mini-deal” that would “involve Japan further opening up its agricultural market to American goods in exchange for some cuts to US industrial tariffs” while Japan also seeks an exemption “from possible tariffs on automotive imports that US president Donald Trump has threatened to impose on national security grounds later this year.” However, the Japanese government position has been “that a rushed or partial deal is unacceptable to Tokyo, according to people close to Japanese negotiators.”
Last Friday, I wrote about the collapsing Cass Freight Index which is a measure of spot market freight. Contract freight is doing much better but the weakness in the spot market is a warning flag that marginal demand is weak:
ATA Truck Tonnage Index Surged 6.6% in July
American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 6.6% in July after falling 1.2% in June. In July, the index equaled 122.7 (2015=100) compared with 115.1 in June.
“Tonnage in 2019 has been on a rollercoaster ride, plagued with large monthly swings, which continued in July as tonnage surged after falling significantly in May and June,” said ATA Chief Economist Bob Costello. “However, take out the month-to-month noise, and you see that truck tonnage is still on a nice upward path. It is important to note that ATA’s tonnage data is dominated by contract freight, which is performing significantly better than the plunge in spot market freight this year.” (…)
Don’t Expect a Meaningful Fiscal Push From Germany Even if German officials allow the government to run a small budget deficit, this won’t mean much fiscal stimulus for the economy
(…) Despite some talk of infrastructure spending, the German constitution caps the deficit at 0.35% of potential GDP—an ill-defined measure that allows some extra flexibility during recessions, but not much. And while German wages have been picking up in recent years and consumption is robust, the economy is still skewed towards exports rather than domestic spending.
Even if Germany’s massive surpluses come down a little, the hopes of European investors remain more in the hands of Chinese officials than German ones.
Mortgage Market Reopens to Risky Borrowers More than a decade after the financial crisis, home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to obtain credit
(…) Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019, according to Inside Mortgage Finance, an industry research group. Such mortgages aren’t guaranteed by government agencies and typically charge higher interest rates than conventional loans. (…)
Right now, unconventional loans are largely being extended by nonbank mortgage lenders. But big banks have found another way in:JPMorgan Chase & Co., Credit Suisse Group AGand Citigroup Inc. have in recent months been arranging mortgage bonds backed by unconventional loans. (…) Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter.
The market for unconventional home loans is still tiny compared with the rest of the mortgage market as well as its precrisis past, when unconventional borrowing peaked at more than $1 trillion. Big banks’ mortgage arms are still avoiding riskier borrowers, leaving them to nonbank lenders. (…)
Slowing Buybacks Remove Pillar of Stock Market U.S. corporations are repurchasing their own shares at the slowest pace in 18 months, a potential sign of more volatility as the buyback bonanza from the corporate tax overhaul wanes.
Companies in the S&P 500 repurchased about $166 billion of their own stock in the second quarter, S&P Dow Jones Indices projects, down from $205.8 billion in the first quarter and $190.6 billion in the same period a year ago. That marks the lowest total since the fourth quarter of 2017 and the second consecutive quarter of contraction. (…)
The S&P 500 slumped almost 7% in May, but the buyback data suggest companies didn’t step in to support their stock prices the way they did during the final months of 2018. (…)
Since 2013, U.S. companies have poured $4.2 trillion into stock buybacks, according to Bank of America Merrill Lynch. Investors, though, haven’t shown the same enthusiasm for stocks. Mutual funds and exchange-traded funds tracking U.S. equities have posted $84 billion in outflows over the same period, according to the bank’s analysis of EPFR Global data. (…)
Ed Yardeni’s chart (my red bar) illustrates the trends:
