Date: August 26, 2019
United States:
For Baffled Wall Street, Trump Markets Are ‘Weirder’ Than the 2008 Crisis
“Donald Trump’s trying to win a trade war, so don’t talk to him about 600 points in the Dow Jones Industrial Average. But for traders coping with the price impact of his tirades, it’s all they want to talk about. Days like Friday are creating stress in the trenches. A decade ago, Max Gokhman was a 24-year-old at the center of the storm, buying and selling toxifying credit contracts at a hedge fund he founded. Now head of asset allocation at Pacific Life Fund Advisors, he says those days barely compare when it comes to the unpredictability he’s facing daily. “I used to tell people trading credit derivatives through 2008 was crazy, but this is way weirder,” said Gokhman. Back then, “the liquidity is what made it challenging to put on or take off your positions. Now every part of the market has its own idiosyncrasy, and at the top you have Trump, who can wreak havoc in really creative ways nobody’s thought of before.” While the stakes were higher in the financial crisis, with global economies on the brink of a depression, for people in markets it was mostly a one-way trade. The number of parts moving now presents a unique challenge, says Gokhman, with the Federal Reserve inciting hair-trigger swings in banks, bond yields and currency while earnings season knocks stocks like Target Corp. and Macy’s Inc. up and down 10% or 20% a day. Maybe that would be fine if it weren’t for the president, whose Twitter blowups have gotten harder to navigate — somehow — as the summer dragged on. August is often a rough month for traders but this one has already seen the S&P swing at least 1% in nine out of 17 trading sessions, a record of volatility not seen since equities were crashing in December. Turbulence showed no sign of abating Monday. After plunging at the open, S&P 500 futures reversed course and rallied after Trump said prospects for a deal with China are better now than at any time since negotiations began. About half the gain was pared after a top state-media editor in Beijing questioned his version of events. Anticipation made it anything a restful weekend for Donald Selkin, chief market strategist at Newbridge Securities Corp. “I’ve been waiting all day. You anticipate these things. You had the feeling that things would go down because of the announcement of the latest increase in tariffs,” Selkin said. “All weekend long, you figured that they’d go lower — the question was how much.” Friday’s gyrations were a new chapter for many veterans, proof that no blueprint exists. After watching index futures get felled by China’s $75 billion tariff counter-punch, bulls were relieved to see Powell push them back to green with a needle-threading speech at Jackson Hole. Trump summarily lambasted the Fed for doing “NOTHING!,” compared Powell with Xi Jinping and said he’d get back to everyone with a response. Wall Street had no recourse but to sit there as stocks slid almost 3% in the ensuing vacuum. “If I tell you ‘I’m going to punch you,’ that’s not as bad as me telling you, ‘I’m going to hurt you in a way that I’m not even going to tell you about,”’ Steve Chiavarone, a fund manager with Federated Investors, said in an interview. “Hey, something bad’s coming, hold on.” ”
Europe:
Wealth Tax Latest Rift in German Coalition as Recession Looms
“Taxing the wealthy is becoming the latest sign of how Chancellor Angela Merkel’s already-frail coalition is drifting apart, adding to the political turbulence as the economy teeters on the brink of recession. The Social Democrats, Merkel’s junior coalition partner, on Monday are expected to back a proposal that would aim to impose a 1% tax on wealth, a revenue stream that could be worth around $10 billion annually. Finance Minister Olaf Scholz, who comes from the party, last week expressed support for the idea. “Approximately 45 families in Germany own as much wealth as 50% of the citizens,” Thorsten Schaefer-Guembel, an interim SPD leader and one of the main proponents of the proposal, said Monday on state broadcaster ZDF. Taxing the rich is the latest sign of how SPD is seeking to veer the government to the left as it struggles to revert dismal polling numbers ahead of three regional elections this fall. From rent caps in Berlin to proposals for a minimum pension, the party’s push for more social welfare risks straining the coalition to the point of bursting. Merkel’s Christian Democratic-led bloc was quick to shoot down the idea of a wealth tax, arguing that tax payers ought to be given a break at a time of an economic slowdown. “Burdening the economy further with a wealth tax now is insane,” Sebastian Brehm, CDU legislator in Germany’s lower house, said on Twitter. “A wealth tax is utterly out of the question,” added Bavarian Premier Markus Soeder of the CSU, the CDU’s sister party. “It would be the wrong instrument at the wrong time,” said following a meeting of leaders in Dresden on Monday morning. Still, Scholz’s support and the need for Merkel to keep her coalition intact could mean the idea is more than an electoral bargaining chip. Scholz already scored a victory last week when the cabinet slashed the so-called solidarity tax, which helped finance reunification, for all but the rich. Merkel’s CDU had demanded the levy be eliminated across the board. Her government is also mulling whether to abandon its long-standing zero-deficit budget policy, which the SPD and business leaders have spearheaded.”
Asia:
Oil Tariff Hits Just as Six Ships Head to China With U.S. Crude
“Six ships carrying about 12 million barrels of U.S. crude are headed to China just as Beijing prepares to impose its first ever levy on American oil next month. While the cargoes could be diverted, the shipments highlight the growing demand for U.S. crude in Asia even as tensions escalate between the world’s two biggest economies. China, briefly a top buyer of American oil, has scaled back shipments since the trade war began. Now, in a counter move to the Trump Administration’s latest round of tariffs, Beijing plans to tax a host of American goods including crude oil starting September 1. That would make crude from the Permian Basin about $3 a barrel more expensive to Chinese buyers, rendering it less attractive. The six ships, scheduled to dock in China through October, could be rerouted and the cargoes resold for better value. U.S. oil that is sometimes shipped to the Chinese market from transhipment zones in Malaysia and Singapore or the Caribbean also could get directed elsewhere.”