THE TICKER

President Trump is reportedly ready to strike a trade deal with Chinese President Xi Jinping at the G-20 summit in Buenos Aires later this month. The news deserves a healthy dose of caution. 

Bloomberg reports overnight that Trump, after a phone call with Xi, asked key cabinet secretaries “to have their staff draw up a potential deal to signal a ceasefire in an escalating trade conflict.” The outlet, which cited four people close to the matter, reports that “multiple agencies are involved in the drafting of the plan. It was unclear if Trump was easing up on U.S. demands that China has resisted.”

The news is ricocheting through markets around the world. “Global bonds dropped as investors dumped haven assets and turned to stocks on dissipating fears of a U.S. trade war with China,” Bloomberg reports

U.S. stocks already rallied Thursday after Trump posted a tweet following the call with Xi that suggested the two were making progress on trade: 

The tweet — and strong earnings reports from the United States and Europe — lead the S&P 500 to its best three-day performance in two years.  

As Bloomberg noted, analysts offered mixed reactions its report. “I don’t buy the story for a second,” said Michael Every, Rabobank's head of Asia financial markets research. “This seems a perfect way to ensure equities rally into election day, put Xi into a box in terms of what is expected of him and then have someone to blame when the deal then falls through.”

A better signal of where the United States stands in its confrontation with China could come not from what Trump said but what his administration did: Hours after the president’s tweet, the Justice Department unveiled a new plan to counter what it called a building threat of Chinese economic espionage. Prosecutors also unsealed charges against Chinese and Taiwanese companies and individuals for alleged theft of $8.75 billion worth of trade secrets from Micron, an Idaho-based semiconductor maker. 

“Thursday’s actions follow a series of moves meant to put Beijing on notice. The Trump administration has prioritized countering threats to U.S. national and economic security as China seeks to supplant the United States as the world’s dominant economic power,” The Washington Post’s Ellen Nakashima writes. “The administration already has imposed tariffs on $250 billion worth of Chinese goods, and since September federal prosecutors have brought charges in three intellectual property theft cases allegedly involving Chinese spies and hackers.”

Attorney General Jeff Sessions struck a starkly different tone from Trump in announcing the moves. “Enough is enough. We’re not going to take it anymore,” he said. 

That sentiment has characterized the Trump team’s approach to China all year, even as the president personally has interjected with warm words for his Chinese counterpart and attestations to their mutual respect. Earlier this week, Trump restated he is ready to order tariffs on all remaining Chinese imports if the two sides can’t reach a deal — an escalation his administration is reportedly preparing to roll out as early as next month. 

Given that, the developments left China watchers skeptical that the Trump administration and Beijing are on a path toward imminent reconciliation. “What’s playing out is what always does with Trump: Escalating demands, punches in the face, and then a really good conversation, which I suspect was good because they talked in generalities and didn’t try to negotiate over the phone,” William Reinsch, a trade expert at the Center for Strategic and International Studies, said Thursday. “But I just don’t know anybody who’s optimistic they’ll come up with an agreement, given the depth and breadth of what we want the Chinese to do.”

Evercore ISI’s Terry Haines noted in a research report that Trump has both political and tactical reasons to play up progress now. “Politically, Trump is interested in making a volatile market as smooth and positive as possible at least until after the midterm elections are over next Tuesday,” he wrote.

Tactically, the president was deploying some “honey” after a more aggressive approach last week, when he restated that “China come to the negotiating table with a plan to address the US’ core policy and negotiating priorities, which remain IP protections, forced technology transfer, metals overcapacity, transshipping, and use of state capitalism under the China 2025 program to advantage Chinese firms over US competitors.”

Larry Kudlow, the president’s top economic adviser, denied that political considerations inspired Trump’s call with Xi. “It’s about serious international diplomacy,” he told the Wall Street Journal. He pointed to a “thaw” in the relationship.

But he also tempered expectations for the meeting the two heads of state will hold in Buenos Aires. “If they don’t make a satisfactory offer, then the president will continue to aggressively pursue his agenda and I think he’s right to do so,” he said, calling China “the principal culprit.”

(Xi, for his part, told Trump he wants to expand bilateral trade cooperation, state media reported, according to Reuters: “The two countries’ trade teams should strengthen contact and conduct consultations on issues of concern to both sides, and promote a plan that both can accept to reach a consensus on the China-U.S. trade issue,” Xi is quoted as saying.)

Reinsch, who just returned from a conference in China, predicted a G-20 summit meeting could produce a temporary ceasefire, with both sides naming negotiators for further talks. He said that would likely reassure investors, though he holds little hope for substantive progress.

“The irony is how low the bar has gotten. In previous administrations, the test was, ‘Did we advance the ball?’ Now it’s, ‘Did we make anything worse?’” he says. “It’s depressing if you think about it, but that’s where the market seems to be: He didn’t blow anything up today.”

MARKET MOVERS

— Kudlow: Trump hasn't called Powell. The Wall Street Journal's Vivian Salama: “Trump hasn’t called Federal Reserve Chairman Jerome Powell to directly express his frustration with the central bank’s interest-rate increases and currently has no intention of replacing the Fed chief, the top White House economic adviser said Thursday. Lawrence Kudlow said that the president’s repeated criticism of Mr. Powell’s decision to raise rates three times so far this year is a simple expression of opinion, but that Mr. Trump hasn’t taken any steps to shake up the Fed’s leadership.

"‘A Fed chair can only be removed for cause,’ Mr. Kudlow said at a small-business conference hosted by The Washington Post. He added that to his knowledge, the president hasn’t called Mr. Powell to discuss his views on rates. Mr. Powell ‘and the president share important goals,’ Mr. Kudlow said. ‘President Trump has not made the phone call, but he believes, or he is concerned, that the Fed is moving its target rate up too high and too rapidly. That’s his view.’ ”

Powell: Immigration crackdown could slow growth. Bloomberg's Craig Torres: "Powell, in written responses to a Democratic senator, said reducing immigration could slow the economy over the longer run by limiting growth in the U.S. labor force. The comments came in a written response to Senator Catherine Cortez Masto, a Nevada Democrat who asked Powell if he agreed with pro-immigration comments by Minneapolis Fed President Neel Kashkari... Powell told Cortez Masto that immigration accounts for about one-half of population growth annually, and that it directly affects gains in the labor force and thus economic increases.

— Buybacks are back. The Associated Press's Stan Choe: “The biggest buyers of stocks are coming back. More than any other group, companies themselves are the largest purchasers of their own shares. But they were notably absent from the market the last few weeks, just as stock prices were tumbling on worries about global trade and rising interest rates. Businesses were holding back on repurchases the last few weeks because they were in one of their ‘blackout’ periods for buybacks, a regular occurrence leading up to the release of their quarterly results. . . . 

"Corporations in the S&P 500 index may buy back up to $1 trillion of their own stock this year, some analysts estimate . . . The recent drop in stock prices leaves those shares more attractively valued, which gives even more incentive for companies looking to repurchase their own stock. Analysts at Keefe, Bruyette & Woods say they expect Bank of America, Citigroup and Wells Fargo to be among the most aggressive big banks in repurchasing their shares, for example.”

— Productivity gains disappoint. WSJ's Harriet Torry and Sarah Chaney: “Despite strong economic growth and historically low unemployment, a government report released Thursday pointed to an important missing ingredient so far in the U.S. expansion: Worker productivity improvements. Output per hour for workers in nonfarm businesses rose 1.3% in the third quarter from a year earlier, marking the 32nd straight quarter of yearly growth below 2%, a long and consistent stretch of anemic growth that hasn’t happened before in the post-World War II era . . . 

"‘Since we’re getting slow growth of productivity, and . . . relatively slow growth of the workforce, that means we’re going to get slower growth of gross domestic product,’ said Martin Baily, senior fellow at the Brookings Institution in Washington and former adviser to President Clinton . . . To boost growth for much of the expansion, businesses have been hiring more workers, as opposed to aggressively boosting the output of the workers they have.”

— Factory activity slows. WSJ's Sharon Nunn: “American factory activity decelerated in October, while an underlying gauge of activity in factories that make metal products contracted for the first time in about two years . . . Sales of factory-made products and employment in the manufacturing sector continued to grow, but at a slower pace... Though overall demand remains moderately strong for American-made goods, the Trump administration’s steel and aluminum tariffs and retaliatory tariffs by foreign countries appear to be putting a damper on the manufacturing industry, and more specifically, the companies that make raw metals into intermediate goods.”

Economists expect a pickup in hiring and stronger annual wage growth in the October jobs report.
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J.P. Morgan's chart analyst says if the S&P 500 though can consistently stay above a key level the market has a shot of recovering last month's losses.
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TRUMP TRACKER

TRADE FLY-AROUND:

— Tariff exemptions to face audit. The Hill's Megan Keller: “The Commerce Department's office of inspector general (IG) is planning to audit the process by which firms gain exemptions to U.S. tariffs, according to documents obtained by The Hill. According to an internal letter dated Monday, the IG is investigating how decisions are made to assign exemptions for [Trump's] steel and aluminum tariffs. The IG will review the Bureau of Industry and Security and the International Trade Administration's processes for assigning aluminum and steel tariff exemptions. A spokesman for the IG confirmed to The Hill on Thursday that the audit is taking place.”

— Farmers stick with Trump despite tariffs. Politico's Megan Cassella: “Sitting atop his combine harvester on a clear fall day, Garrett Hawkins can add up just how much [Trump’s] tariffs are hitting his bottom line, from the lower price he’ll get for his soybean crop to the steeper prices he’ll pay for metal grain bins and other equipment. But like many of his fellow farmers in southern Illinois’ sprawling 12th Congressional District, Hawkins, 37, is still planning to vote Republican on Election Day . . . There’s a disconnect between the negative effect of Trump’s policies on his voters in farm country and their unwavering support for him. That could limit the size of the Democratic majority widely expected to take control of the House next year and give Trump cover to prolong his aggressive moves against U.S. trading partners.”

MELTDOWN WATCH:

— Kudlow dismisses federal minimum wage. The Post's Jeff Stein: “[Kudlow] said that he would oppose any attempt to work with Democrats in Congress to lift the federal minimum wage should the party take back the House or Senate in the 2018 midterm elections. . . . ‘My view is a federal minimum wage is a terrible idea. A terrible idea,’ Kudlow said at a Washington Post Live event, adding that raising it would ‘damage’ small businesses by forcing them to face higher payroll costs. Kudlow later called the idea of hiking the federal minimum wage ‘silly.’ . . . 

"‘Idaho is different than New York. Alabama is different than Nebraska. That’s why the federal minimum wage doesn’t work for me,’ Kudlow said. Kudlow appeared to also oppose minimum wages at the state and local levels, citing conservative arguments that it constrains business growth by adding to their costs. But he said the federal government shouldn’t interfere. ‘I would argue against state and local, but that’s up to the states and localities,’  Kudlow said.”

POCKET CHANGE

Goldman faces massive fraud scandal. NYT's Matthew Goldstein, Alexandra Stevenson and Emily Flitter: "Goldman Sachs is facing one of the most significant scandals in its history, a multibillion-dollar international fraud that investigators say was masterminded by a flamboyant financier with a taste for Hollywood and carried out with help from the Wall Street firm’s bankers. Federal prosecutors on Thursday unveiled a guilty plea from one former Goldman Sachs banker and announced bribery and money laundering charges against a second banker, as part of an investigation into the alleged embezzlement of billions of dollars from a state-run investment fund in Malaysia. Prosecutors also brought charges against the Malaysian businessman they believe stole some of the money: Jho Low, who spent millions of dollars on gifts to celebrities like the actor Leonardo DiCaprio and the model Miranda Kerr.

"The money was used to buy a Picasso painting, diamond necklaces and Birkin bags as well as to pay for the Hollywood blockbuster 'The Wolf of Wall Street.' Najib Razak, the Malaysian prime minister who established and oversaw the so-called sovereign wealth fund, lost his re-election bid over the scandal, in which American prosecutors said $731 million of the missing money was deposited into his own bank accounts. The charges against senior employees of a major American bank, a rare move in the decade since the financial crisis, put enormous pressure on Goldman Sachs and its new chief executive, David M. Solomon. American prosecutors are continuing to investigate other bankers and Goldman itself, according to three people with knowledge of the matter."

Googlers walk out. The Post's Taylor Telford and Elizabeth Dwoskin: "Thousands of Google employees walked off the job on Thursday in offices spanning from California to Dublin in protest of the company’s handling of sexual harassment claims -- a powerful demonstration of the impact of the #metoo movement in the hyper-competitive and male-dominated tech industry. The walkout, which took place a week after the New York Times revealed that Google had suppressed allegations of sexual misconduct against several of its executives, took aim at what organizers called a 'culture of complicity, dismissiveness, and support for perpetrators.' Managers, rank-and-file engineers, men and women participating in the walkout said they were demanding broad changes in how the company handles harassment complaints, and that they were protesting in solidarity with colleagues who had been victimized under the current system.

— Businesses back transgender rights. The Washington Post's Tony Romm: “Apple, Facebook, Google and Uber are among 56 companies that told the Trump administration on Thursday that they oppose any change in federal policy that would define gender on the basis of one’s biological sex at birth — the latest clash between tech giants and the White House over civil rights issues. In a letter to [Trump], the businesses said such a policy would be discriminatory and harm their workers. The companies said they ‘stand with the millions of people in America who identify as transgender, gender non-binary, or intersex, and call for all such people to be treated with the respect and dignity everyone deserves.’”

Fink: Khashoggi death a mystery. Bloomberg's Annie Massa: "BlackRock Inc. Chief Executive Officer Larry Fink struck a supportive tone on crisis-torn Saudi Arabia Thursday, saying that he expects to continue to invest in the country and that it’s unclear who killed journalist Jamal Khashoggi. 'We don’t know who is responsible for the murder, as a government they took the responsibility that it was a murder, they are now claiming that it was a heinous act,' Fink said at the New York Times DealBook conference. 'Everybody has their own theories.' He didn’t elaborate, but stressed that 'nothing is black or white.' ... Fink, who runs the world’s largest asset manager, said at the conference that doing business in Saudi Arabia is 'not something I’m ashamed of.' He added, 'We have not lost any business there,' noting that BlackRock has worked in the kingdom for 15 years."

Flashback to this NYT headline from January: "BlackRock's Message: Contribute to Society, or Risk Losing Our Support."

(Meanwhile, Tesla CEO Elon Musk said the electric car maker "probably would not" take Saudi money now.)

—  Some Tesla investors wants more changes. The Post's Jena McGregor: “A group of Tesla investors thinks the electric car maker needs more than just a little new blood -- and that a ban on Elon Musk holding the chairman’s job for three years while also acting as chief executive should become permanent. In a letter to three independent directors of Tesla’s board released Thursday, officials with five state or municipal pension funds and the executive director of an investor group affiliated with unions called for even more comprehensive governance changes than what a recent settlement with the U.S. Securities and Exchange Commission required.”

Data firm Thasos Group compiles and analyzes location data from millions of smartphones. Then hedge funds pay millions of dollars for it.
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MONEY ON THE HILL

Hensarling still hopeful for capital formation bill. Reuters's Michelle Price: "The chair of the House Financial Services Committee said he is still hopeful the Senate will vote on a bill that would make it easier for companies to raise capital and go public, despite a growing likelihood the legislation will stall in the upper chamber. In a statement to Reuters on Thursday, Texas Representative Jeb Hensarling said, without offering a date, he had 'faith' that Senate Majority Leader Mitch McConnell would keep a promise to put the bill to a vote on the Senate floor... The JOBS and Investor Confidence Act of 2018, which aims to cut red tape for listed companies and make it easier for private companies to raise capital, passed the House in July with overwhelming bipartisan support.

The donor clique views wooing new voters in diversifying states across the southern U.S. as the best way to take down President Donald Trump in 2020.
Politico
DAYBOOK

Coming soon

  • Federal Reserve Vice Chairman for Supervision Randal Quarles delivers  a speech on financial regulation at the Brookings Institution on Nov. 9 in Washington.
  • Senate Judiciary Committee hearing titled “Big bank bankruptcy: 10 years after Lehman Brothers” on Nov. 13.
  • Senate Banking Committee hearing on “Oversight of pilot programs at Fannie Mae and Freddie Mac” on Nov. 14.
  • Federal Reserve Vice Chairman for Supervision Randal Quarles appears before the Senate Banking Committee on Nov. 15.
  • The National Economists Club holds an event titled “US Outlook: Exploring the Key Debates” on Nov. 15 in Washington.
THE FUNNIES

— From The Post's Tom Toles: “Trump has gotten through FDR’s fear loophole.”

 

BULL SESSION

A brief history of controversial political ads:

Rep. Steve King (R-Iowa) fires back at Pittsburgh shooting question:

Scenes from Google walkouts across the world: