Coming off an unusually agitated weekend dominated by the latest bombshell from the Russia investigation and the student-led critique of his response to the Parkland, Fla., school shooting, President Trump could use a change of topic.
His administration teased one option amid the Friday din when the Commerce Department called out steel and aluminum imports as national security threats and recommended potentially sweeping new restrictions on them.
The Commerce reports on the two metals lays out a range of options for the president. On steel, for example, Secretary Wilbur Ross pitched a 24 percent tariff on imports from all over the globe as one possibility, or Trump could choose to slap a 53 percent tariff on steel from 12 countries — a list that includes China, Brazil, India, Russia and Turkey — while limiting imports from the rest of the world to their 2017 levels (the steel report is here, and the aluminum report is here). And he’s got until mid-April to make up his mind. Considering his political straits, Trump may decide to move much faster.
Investors aren’t waiting for Trump to act. American steel stocks spiked Friday on the Commerce Department's announcement, with U.S. Steel and AK Steel gaining more than 10 percent each; aluminum stocks gained, too, while domestic manufacturers that could face higher costs for their materials, including General Motors and Ford, saw their share prices dip.
The Trump team's tension with China over trade, meanwhile, has been heating up. In part thanks to fears of tougher deal scrutiny, Chinese acquisitions of U.S. companies plummeted last year, dropping 56 percent by volume. There’s evidence the cold feet are justified: Last month, Alibaba chief Jack Ma saw his fintech giant Ant Financial’s $1.2 billion bid for MoneyGram, the American money transfer company, slapped down over national security concerns. Last week, the SEC blocked a Chinese group of investors from buying the Chicago Stock Exchange.
Trump’s team last month imposed steep tariffs on imports of solar panels and washing machines — a move that prompted China to retaliate by launching an anti-dumping probe into U.S. sorghum exports, and, as of last week, new measures against American-made styrene monomer, a plastics component.
Does the president know what sorghum is? Could he spell “styrene monomer” if he wanted to tweet about it? That matters less than this observation from The Washington Post’s David Lynch about the response to the news Friday out of Commerce: “Reaction to the announcement… reflected the way that Trump has scrambled trade politics, with leading Democrats welcoming the prospect of tough action and Republicans warning against measures they said would invite costly retaliation by U.S. trading partners.”
Trump won’t be litigating the finer points of the trade policy his administration rolls out over the coming weeks. But he will surely be considering its overall direction under pressure from the strong winds buffeting his presidency.
And the steel and aluminum decisions will lay the groundwork for another pending action that more directly targets China. Trade watchers expect U.S. Trade Representative Robert Lighthizer to deliver a report within weeks on Chinese intellectual property theft and forced technology transfers that measures U.S. losses in the trillions of dollars. “These are numbers we’ve never seen before,” one industry official tracking the issue told me last week. Tapping Section 301 of the 1974 Trade Act, the president will be able to move unilaterally to respond.
It remains to be seen what action, if any, Trump will take on all of the above.
|You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington.|
|Not a regular subscriber?|
— JPM: Inflation's actually good for stocks. Bloomberg's Eric Lam: "Investors rattled by the recent bout of equity selling take heart: the fears about rising inflation and wage growth crimping corporate profits are way overblown, according to JPMorgan Securities Plc strategists. Mislav Matejka, global equity strategist with the firm, argues it is the outlook for both production and sales volumes rather than higher wages that determine the impact on profitability. 'Cyclicals and the broader equity market do not tend to fall when costs start to shoot up, as these increased cost pressures are typically a sign of a healthy economic backdrop,' Matejka and other JPMorgan strategists said in a report. Investors should consider selling when production and revenue growth begin to disappoint, at which point concerns about wages and input costs will disappear."
Morgan Stanley: More pain ahead. Bloomberg's Chris Antsey: "The U.S. stock market only had a taste of the potential damage from higher bond yields earlier this year, with the biggest test yet to come, according to Morgan Stanley. 'Appetizer, not the main course,' is how the bank’s strategists led by London-based Andrew Sheets described the correction of late January to early February. Although higher bond yields proved tough for equity investors to digest, the key metric of inflation-adjusted yields didn’t break out of their range for the past five years, they said in a note Monday."
— Goldman sees surging debt costs. Bloomberg's Chris Antsey: "An historic expansion in U.S. borrowing during a period of economic growth, alongside rising bond yields, will cause a surge in the cost of servicing American debt, according to Goldman Sachs Group Inc. 'Federal fiscal policy is entering uncharted territory,' Goldman analysts including Alec Phillips in Washington wrote in a Feb. 18 note to clients. 'In the past, as the economy strengthens and the debt burden increases, Congress has responded by raising taxes and cutting spending. This time around, the opposite has occurred.' Because the average maturity of U.S. debt is almost six years, rising yields will take some time before they send the interest rate the Treasury pays to borrow above the growth rate of gross domestic product, Goldman estimates. When that does happen, it will send the ratio of debt to GDP, which is already elevated, climbing further from about 77 percent now."
As bond traders shrug. FT's Matthew Klein: "The famed 'bond vigilantes' are clearly unconcerned about the government’s ability to fund its debt issuance. The US government’s real long-term borrowing costs are lower now than they were at the beginning of 2016. That is not what you would expect if traders were exercised by the prospect of large future budget deficits, nor is it what you would expect if traders were optimistic about the growth outlook."
— Tax cuts turn popular. NYT's Ben Casselman and Jim Tankersley: "The tax overhaul that President Trump signed into law now has more supporters than opponents, buoying Republican hopes for this year’s congressional elections. The growing public support for the law coincides with an eroding Democratic lead when voters are asked which party they would like to see control Congress. And it follows an aggressive effort by Republicans, backed by millions of dollars of advertising from conservative groups, to persuade voters of the law’s benefits. That campaign has rallied support from Republicans, in particular. But in contrast with many other issues — including Mr. Trump’s job approval rating — it also appears to be winning over some Democrats. Support for the law remains low among Democrats, but it has doubled over the past two months and is twice as strong as their approval of Mr. Trump today."
Turf battle over implementation. WSJ's Richard Rubin writes the GOP is divided "over which agencies should have a say in writing new regulations stemming from last year’s landmark tax legislation. Some Republican senators are pressuring the Office of Management and Budget to get involved in reviewing tax regulations, breaking a 35-year-old practice where tax regulatory work is handled by the U.S. Treasury Department and the Internal Revenue Service and doesn’t get a full OMB review.
— Another GOP retirement. The Post's Paul Kane: "Five-term Rep. Thomas J. Rooney (R-Fla.) announced Monday that he plans to retire at the end of the year rather than stand for reelection, leaving behind a deeply conservative district in central Florida. Rooney, 47, was considered a rising star among Florida Republicans, but he never hid his frustration with the gridlock that gripped Congress for most of his decade in office. He becomes the 28th House Republican to quit politics — at least for now — this election season."
— Mueller probes Kushner. CNN's Shimon Prokupecz and co.: "Special counsel Robert Mueller's interest in Jared Kushner has expanded beyond his contacts with Russia and now includes his efforts to secure financing for his company from foreign investors during the presidential transition, according to people familiar with the inquiry. This is the first indication that Mueller is exploring Kushner's discussions with potential non-Russian foreign investors, including in China."
— Facebook feels heat. WSJ's Georgia Wells and Robert McMillan: "Facebook Inc. is contending with a new wave of criticism prompted by the U.S. indictment alleging that Russia manipulated social-media platforms—and by a Facebook executive’s attempts to address the issue. The indictment against Russian companies and individuals described how an organization called the Internet Research Agency allegedly used Facebook, Twitter Inc., and... YouTube... to sow discord in the U.S. starting in 2014. The document’s description of events showed that Facebook and its Instagram photo-sharing unit were particularly central to the alleged Russian attempts to influence U.S. public opinion...
Comments by Facebook’s head of advertising, Rob Goldman, after the indictment was handed up Friday fueled further criticism. Mr. Goldman, writing on Twitter, said there are 'easy ways to fight' the Russian campaign, starting with having a 'well educated citizenry.' He also tweeted that the Russians’ main goal wasn’t to sway the 2016 election, but more broadly to sow division in the U.S. Mr. Goldman’s series of eight tweets provoked more than 9,000 responses on Twitter, many of them angry."
— Financial storm forecaster struggles. WSJ's Ryan Tracy: "Congress created a brand new agency after the 2008 financial crisis with a gargantuan mission: Serve as the finance world’s version of the National Weather Service. The new Office of Financial Research wasn’t expected to prevent economic storms, but it was supposed to anticipate them and issue warnings to help authorities contain the damage. Almost a decade and nearly $500 million later, the agency has struggled to establish a place for itself in Washington. Major projects have been delayed or scaled back. Morale has suffered amid turf battles with other regulators and opposition from Republicans. And one of its most ambitious initiatives—developing a database for recording financial contracts—has progressed no further than a 16-page paper calling for “information gathering sessions” among constituents."
— Powell taps two. WSJ's Nick Timiraos: "Federal Reserve Chairman Jerome Powell has tapped two monetary policy specialists to serve as senior advisers, according to people familiar with the matter. Jon Faust, a professor of economics at Johns Hopkins University, will return to the Fed to advise Mr. Powell on a part-time basis. He served as a senior adviser to Mr. Powell’s predecessors, Ben Bernanke and Janet Yellen, from 2012 to 2014. Mr. Faust will spend one day a week at the Fed until completing his teaching duties for the current academic term. His role after that hasn’t been determined. Antulio Bomfim, an economist in the Fed’s monetary affairs division, also will serve Mr. Powell as a special adviser. Mr. Bomfim served as an economist at the Fed from 1992 to 2003 and returned to the central bank as a senior adviser in 2016. In between his stints at the Fed, he worked at Macroeconomic Advisers, a research firm, including in the latter years as co-head of monetary-policy insights."
— How banks could impose gun control. NYT's Andrew Ross Sorkin: "What if the finance industry — credit card companies like Visa, Mastercard and American Express; credit card processors like First Data; and banks like JPMorgan Chase and Wells Fargo — were to effectively set new rules for the sales of guns in America? Collectively, they have more leverage over the gun industry than any lawmaker. And it wouldn’t be hard for them to take a stand. PayPal, Square, Stripe and Apple Pay announced years ago that they would not allow their services to be used for the sale of firearms... Visa, which published a 71-page paper in 2016 espousing its 'corporate responsibility,' could easily change its terms of service to say that it won’t do business with retailers that sell assault weapons, high-capacity magazines and bump stocks, which make semiautomatic rifles fire faster. "
— BlackRock bulks up on AI. FT's Robin Wigglesworth and Chris Flood: "BlackRock is setting up a new centre dedicated to research in artificial intelligence, underscoring the heightened interest among asset managers in how machine learning can revolutionise many facets of the investment industry. The world’s biggest investment group, with $6.3tn of assets under management, is establishing a 'BlackRock Lab for Artificial Intelligence' in Palo Alto, California, according to an internal memo... The memo, sent by Rob Goldstein — BlackRock’s chief operating officer who is in charge of the company’s technology group — said that the lab will 'augment our current teams and accelerate our efforts to bring the benefits of these technologies to the entirety of the firm and to our clients'."
— Elliott Management slams cryptocurrencies. BusinessInsider's Rachel Levy: Elliott Management, a $34 billion hedge fund founded by billionaire Paul Singer, has an acronym to describe the folly surrounding cryptocurrencies - WTHIT, or what the hell is this? 'FOMO (fear of missing out) has solidly trumped WTHIT (what the hell is this??),' Elliott told clients in a January 26 letter seen by Business Insider. 'When the history is written, cryptocurrencies will likely be described as one of the most brilliant scams in history.'"
Crypto exchange confronts cascade of problems. Bloomberg's Julie Verhage: "Coinbase Inc. is one of the most popular online exchanges for digital currencies. But last year, it started seeing complaints soar on the U.S. Consumer Financial Protection Bureau’s website. Unfortunately for the San Francisco business and its customers, things have only gotten worse. From January to August 2017, Coinbase had received at least 293 complaints on the site. So far in 2018, the total is more than 900. Some customers have also taken to Reddit to express dismay over multiple unauthorized charges to their credit cards, money disappearing and bank accounts drained to nothing."
- The National Economists Club holds a discussion on bitcoin.
- The Center for Strategic and International Studies holds an event on the economic impact of cybercrime on Wednesday.
- The Council on Foreign Relations’s World Economic Update is scheduled for Wednesday.
- The Securities and Exchange Commission holds a meeting on Wednesday.
- The Washington International Trade Association holds an event on tax, trade and investment on Thursday.
- The Council on Foreign Relations holds an event on “Human Capital and the Future of Economic Growth and Security” on Friday.
- The Brookings Institution holds an event with former Fed chairs Janet Yellen and Ben Bernanke on Feb. 27.
- The Senate, Health, Education, Labor and Pensions committee holds a hearing on the nomination of John F. Ring to be a member of the National Labor Relations Board on March 1.
"Here’s how Trump rigged his budget numbers," from The Post's Tom Toles:
No, 40 percent of firearms aren't purchased without a background check:
It's official. Former Massachusetts Gov. Mitt Romney (R) announced he will run for Senate in Utah:
Here's a brief history of Trump and Oprah: