So, the first cracks come from politics. Anybody surprised?
That [Trump] trade went into reverse in Tuesday’s U.S. trading: The S&P 500 fell 1.2%, its first decline of more than 1% this year and biggest drop since October, while the ICE U.S. dollar index, which tracks the dollar against a basket of six currencies, slipped below 100 for the first time since Feb. 6. (…)
The “Trump Lite” trade hinges upon the administration’s getting sandbagged in policy fights, such as the current wrangling over health care. (…)
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Trump Lobbies GOP on Health Bill, but Holdouts Remain President Trump put his political capital on the line in a late effort to save House Republicans’ health-care legislation, but he didn’t immediately win over conservative skeptics who could scuttle the bill.
(…) Several lawmakers said the president told the group: “I’m afraid you’re going to blow it.’’
Mr. Meadows, whose bloc claims it has enough votes to defeat the bill, said he wasn’t convinced by Mr. Trump—a sign GOP leaders have more work to do to secure the votes needed to pass the bill. (…)
“What we do know is from the last election there is evidence that Republicans who crossed Trump paid a political price in general elections,” said David Wasserman, the House editor at the Cook Political Report. (…)
The full House is expected to vote on the legislation on Thursday. (…)
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Ryan’s Leadership Is Tested by GOP’s Civil War on Health Bill
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Why Trump’s Tax Cut May Be Later, Smaller Than Thought With Republicans’ health-care overhaul threatening to chew up the legislative calendar, their tax-reform plans risk getting pushed back.
The fight in Congress over health care could go on for a while. The more of the legislative calendar it chews up, the longer it will take for the corporate tax cut investors are banking on to come to the floor and the longer the odds on it becoming law. That, in turn, should be factored into stock prices. (…)
Moreover, if it does pass, the bill’s prospects in the Senate aren’t good. But before Senate Republicans can come up with their own version of the health-care legislation, they have a Supreme Court nominee to approve.
Then, if the Senate can pass a bill of its own, there will be a House-Senate conference to resolve differences.
It is a process that would come with significant hurdles even in normal times, much less today’s distraction-riddled political climate. At the least, the health-care bill could be sitting on Capitol Hill for a long time.
(…) it is looking as if the legislation might not land on President Donald Trump’s desk until early next year. (…) A year from now, when the midterm elections are looming, it will be hard for Congress to accomplish much of anything. (…)
The Trump rally assumed that the positives would more than offset the potential negatives. It now seems that protectionist measures will take the front seat and that the positives will, or might, come later. On top of “Trump Lite” markets are must also deal with these other realities:
Here is a Trump trade index from TD Securities (a combination of specific currencies, rates, etc.) from The Daily Shot:
MORE SURVEYS
There are the ISM and PMI surveys, the NFIB survey, we now get the RSM, filling the gap in the middle:
America’s Middle Market Posts Record-High Growth, Quarterly Index Shows
The first quarter 2017 RSM US Middle Market Business Index (MMBI), released today, posted a record-high composite score of 129.8, up 9.7 points over the previous quarter, and 29.8 points above a baseline reading of 100, which indicates an expanding middle market. RSM US LLP (“RSM”) – the nation’s leading provider of audit, tax and consulting services focused on the middle market, along with the U.S. Chamber of Commerce, the nation’s largest business federation – joined forces to present the MMBI, in collaboration with Moody’s Analytics. (…)
Middle market businesses — those with annual revenues between $50 million and $1 billion — account for 40 million jobs (about one third of all U.S. jobs), 200,000 companies and 40 percent of the nation’s Gross Domestic Product (GDP). These companies contribute $6.2 trillion annually to the U.S. economy. (…)
Nearly 70 percent of respondents expect noticeable improvements in the economy over the next six months, which represents a fresh cyclical high in the index. Half of respondents believe tax reform provides the greatest opportunity for growth, while one in four believe renegotiated trade agreements pose the greatest risk for their business, followed by limits on immigration. (…)
The MMBI also shows that employers are experiencing labor issues on two fronts – tightening of labor supply and a skills gap, coupled with lack of desire for people to take certain jobs:
74 percent of respondents reported a lack of qualified workers available for existing job openings, which also reflects the findings in the monthly Jobs, Openings, Layoffs and Turnovers data produced by the Federal Government.
71 percent of survey respondents reported issues with intra-industry competition for workers, 68 percent stated that it is difficult to find individuals interested in work in their industry and 69 percent implied that the cost of training for workers remains a challenge. (…)
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What’s Giving Businesses Confidence? Here’s What They Expect A new survey of midsize firms shows which parts of Donald Trump’s agenda they find most likely
(…) In the first quarter, 71% of middle-market firms said they expect an increase in revenues, up from 55% last quarter, and 66% expect profits to improve, up from 55%, according to the RSM Middle Market Business Index, produced by the consulting firm RSM and the U.S. Chamber of Commerce. (…)
For this first survey, which was conducted in late January and early February, shortly after the inauguration, a majority of businesses rated health-care reform as “very likely” to be completed in the next two years. Renegotiation of trade deals, reduction of federal regulations, and immigration reform were also rated “very likely” by more than 40%.
But moving down Mr. Trump’s agenda, the odds gradually decrease. Slightly less than 40% think an overhaul of the corporate tax code is “very likely” and only one-third say the same for the proposed infrastructure package. Many businesses are just cautiously optimistic, with about 40% rating the above changes as “somewhat likely.” (…)
(…) We expect wage growth to exceed 4 percent by the end of the year, with risk to the upside related to a pronounced shift in bargaining power to labor from firm owners, a much different dynamic than has been prevalent in the United States since the late 1990s. (…)
At this point, the public has bought into the durability of the cyclical expansion, and wage expectations (currently at 3.6 percent) have improved to their best point since the recession. This mirrors the movement in the compensation expectations index within our own proprietary RSM US
Middle Market Leadership Council survey, which in the fourth quarter of last year pointed to much higher wages by mid-2017. (…)
Middle market businesses frequently are forced to deal with large company problems with small company capabilities. In the year ahead, middle market businesses will need to adjust to the challenges of recruiting and retaining workers in a labor-market environment where there is a 5 percent premium, on average, to retain workers who have other opportunities. For skilled workers in areas such as value-added manufacturing, technology, life sciences and finance, those premiums may rise into the double digits. (…)
The Philly Fed non-manufacturing survey shows no signs of “wage pressures.” (The Daily Shot)
HARD DATA WATCH
Not completely hard but interesting:
The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), posted its strongest year-over-year gain in nearly seven years. The 5.5 percent increase over this time last year reflects elevated consumer and business confidence and an overall rising optimism in the U.S. economy.
The barometer posted a 0.5 percent gain in March, following a 0.5 percent gain in February and 0.4 percent gain in January. All data is measured on a three-month moving average (3MMA). Coupled with consecutive monthly gains in the fourth quarter of 2016, the pattern shows consistent, accelerating activity. On an unadjusted basis the CAB climbed 0.4 percent in March, following a 0.4 percent gain in February and a 0.6 percent increase in January.
The Chemical Activity Barometer has four primary components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators. (…)
Why are used vehicle wholesale prices important?
Yesterday, I posted on the collapse in used car prices. Wolfstreet.com adds this:
For one, they matter to lenders. Used vehicle wholesale prices determine the value of the collateral for $1.11 trillion in auto loans that have boomed on higher prices, higher unit sales, longer maturities (the average hit a new record of 66.5 months in Q4), and higher loan-to-value ratios (negative equity):
Dropping wholesale prices increase loan losses for lenders as recovery is lower. Declining wholesale values of lease turn-ins, if the trend persists, impacts how finance companies structure the lease terms, thus raising the costs for the customers and putting a damper on leasing activity.
All this puts pressure on new vehicle sales, further pushing automakers to pile on even larger incentives in order to move the units, grapple with inventories, and keep plants open. This works for a while – there’s nothing like big-fat incentives to bring out reluctant buyers. But incentives, when everyone is doing them, are front-loading sales. This is ultimately self-defeating and gets very costly even as sales begin to decline. It was a contributor in the collapse of the industry during the Financial Crisis.
And there are well-established patterns of customers switching between new vehicles and late-model used vehicles. Large incentives by automakers put pressure on late-model used vehicles. In turn, falling prices on the used vehicle side cannibalize sales from the new vehicle side. In other words, they compete with each other, often on the same dealer lot. Especially if demand is lackluster despite the incentives, these patterns can trigger a downward spiral that is difficult to get out of.
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BTW: Ally Financial Issues Profit Warning Over Used Car Prices: Jamie Dimon Says “It’s Not Systemic”
More problems at the mall:
The company is initially planning to close 400 to 500 stores as it reorganizes operations, said the people, who asked not to be identified because the deliberations aren’t public. Payless had originally looked to shutter as many as 1,000 locations, and the number may still be in flux, according to one of the people.
Payless’s bankruptcy would add to a tumultuous year in retail, with several bankruptcies and hundreds of store closings — even at companies that aren’t distressed. The industry is racing to try to adapt to more online purchasing and a shift away from mall shopping. (…)
But the next shoe to drop is much bigger:
At the other extreme of the wealth scale:
Global Art Sales Fall 11% to Lowest Point Since Financial Crisis
CANADA
Unlike the U.S., where the majority of the post-election gains have been in the sentiment indicators, Canada is experiencing solid and relatively broad-based increases in its most critical indicators. (…)
Manufacturing sales in January climbed 0.6 percent, exceeding consensus, which called for a 0.3 percent decline. Meanwhile, wholesale trade surged 3.3 percent, blowing out the expectations of a mild 0.5 percent gain, and total sales on the retail level advanced 2.2 percent in January — the strongest monthly increasesince March 2010 (2.6 percent) — bettering the expected 1.5 percent gain. (…)
Other, and perhaps greater, risks to sustainable sales gains are the uncertainties surrounding tax and trade policy with the U.S. Canadians have beenassured that the still unknown trade policywill only be “tweaked” from the present NAFTA agreement, while the potential for a border adjustment tax continues to loomin the markets. The imposition of a bordertax would be economically-compromisingfor both countries, particularly imperiling Canada’s trade and manufacturing activity.
So, before any upgrades to the Canadian economy are made based on the better-than-expected economic reports, it would be wise to see some clarity in those looming risks of policies, energy trends and the sustainability of gains in sales. (Bloomberg Briefs)
