With Mother’s Day, volleyball, and football all weekend, you get an unusually concise newsletter this week. I can hear the disappointment already.
I don’t do social media, which means I have no way of telling people how much they mean to me. Apparently, that’s the only way to convey genuine affection anymore. My wife jokingly gave me a social media caption generator to help me make a proper Mother’s Day post about her magnificence as a mom.
For example, my Happy Mother’s Day post might say (1) I couldn’t live without (2) my rock (3) who deserves the world. Insert cheesy photo. Count “likes”. Or if I am feeling extra thoughtful, maybe even a collage. Cue Husband of the Year Award music. Too easy.
If only there were a similar tool for Jay Powell…
Last Week This Morning
- 10 Year Treasury pushed lower on negative news on China trade deal, closing the week at 2.47%
- German bund at -0.05%
- Japan 10yr at -0.05%
- 2 Year Treasury closed at 2.27%
- LIBOR at 2.45% and SOFR at 2.41%
- Tariffs on $200 billion of Chinese imports were raised from 10% to 25%, and Trump moved towards imposing tariffs on the remaining $300B of Chinese imports
- China sent a message on Wednesday by way of the 10 Year Treasury auction, which came in weaker than a Game of Thrones episode this year (yeah, I said it)
- “Good luck funding that deficit without us” – China probably said
- CPI and PPI both came in soft
- Tensions with Iran are ramping up and Bolton’s involvement suggests this could escalate
- UBER called for an IPO and got a smelly, talkative driver with a dirty back seat
Tariff Time
The US already had 10% tariffs on $200B worth of Chinese imports, and Friday they were increased to 25%. China backtracked entirely on previously negotiated points, apparently in part because of Trump’s calls for rate cuts. The Chinese PM figures the economy must be weaker than it is projecting, otherwise the president wouldn’t be asking for lower rates.
Sure. Or maybe…Trump wants full throttle accommodation to keep the economic train chugging along? He wins in 2020 and lets someone else deal with the economic fallout 7-10 years from now after he’s gone.
Just as importantly, Trump is threatening tariffs on the remaining $300B-ish worth of Chinese goods if no deal is in place within a month. The goods in this $300B is a bit trickier. Cellphones, laptops, tv’s, video game consoles, etc would fall under these new tariffs. Apparently, my kids will be among the most to suffer!
So either American consumers pay the higher price tag or don’t buy the goods. Goods in transit already are exempt, so the impact is probably a few months out. Current consensus forecasts call for about a 0.2% GDP drag over the rest of this year. Not substantial, but not nothing, either.
And we may see some minor upward pressure on inflation, but nothing that would cause the Fed to hike rates. Instead, the odds of a rate cut this year are up to 60%.
Because the Fed is data-dependent, we would not expect a rate cut unless we saw actual weakness creeping into the numbers or market panic. Powell isn’t cutting rates just because Trump is tweeting about tariffs.
And while this news is causing the 10 Year Treasury to swing, volatility is still relatively depressed. That means there is still plenty of room for volatility to push higher.
Powell’s New Social Media Caption Generator
As Powell tries to keep up with Trump’s social media presence, I thought we could help out.
Maybe include a selfie from the steps of the Fed? Or a candid with Board of Governors? And some nice hashtags to finish it off. #softlanding #independent4eva #transitory
This Week
Retail sales, housing data, and inflation data due out this week, but does really anything matter with the ongoing tariff dispute?
