Arguably one of the worst things that could happen to the stock market just did: It closed at a record high.
The S&P 500 climbed 0.9 percent to close at 2954.18, its first new high since April, while the Dow Jones industrial average surged a similar amount to come within 0.3 percent of its all-time high. Stocks appeared to be rallying on news out of this week’s Fed meeting that the central bank is primed to cut interest rates to protect an economic expansion menaced by, among other things, President Trump’s trade war.
But a surging market and a newly dovish Fed might be unwittingly conspiring to intensify Trump’s trade confrontation with China. That’s because, armed with the confidence that stocks are rising and the Fed is moving his way, the president will feel less pressure to negotiate a cease-fire when he meets with Chinese President Xi Jinping on the sidelines of the G-20 summit in Osaka, Japan, next week.
Trump on Thursday made clear via his Twitter account that he is keeping a close eye on the market’s action:
S&P closes at Record High! https://t.co/C5nOXIQ7EJ— Donald J. Trump (@realDonaldTrump) June 20, 2019
And he took a victory lap of sorts over the news the Fed looks ready to cut its benchmark interest rate later this year, saying he was encouraged by what he saw. “They should have done it sooner, but what are you going to do?” he told reporters Thursday.
The twin developments spell bad news for investors, business interests and others rooting for the administration to settle its trade hostilities with Beijing — or at least put them on pause before imposing 25 percent tariffs on the remaining $300 billion in Chinese imports, which Trump has threatened barring major concessions from Xi.
“Both Trump and Xi feel they’re in the stronger position, which doesn’t usually get you to a deal,” says Bill Reinsch, a trade expert at the Center for Strategic and International Studies. “Trump believes he’s in an economically stronger position at home, and we’re hurting them more than they’re hurting us. Xi knows he doesn’t have to have an election, and we do. And he probably thinks Trump needs a victory on trade, because he doesn’t have many, despite making it a signature issue, and probably feels Trump will not go to the next tranche of tariffs because of the terrible consumer impact it would have.”
Other trade watchers are similarly bearish about prospects for a breakthrough in Japan. “Both presidents are under pressure to get a deal, but both are under pressure to get a good deal,” Doug Barry of the U.S.-China Business Council writes in an email. “So at this point we have building pressure but no clarity on when and how it will be released.”
Or as Bloomberg Economics chief economist Tom Orlik writes, after noting the market and Fed moves reduce pressure on Trump to make a deal, “At the same time, the incentives for Trump, who officially launched his reelection bid this week, to stand tough on China are rising. The lesson of past presidential elections is that bashing Beijing is a vote-winning strategy with few downsides, politically speaking. By contrast, the concessions required to get a deal done would open up Trump to criticism that he’d gone soft at the last minute.”
And at least one White House adviser on China issues said a tariff escalation may be necessary. Michael Pillsbury, a Hudson Institute senior fellow who consults with the administration, gave even odds to the two sides agreeing to restart talks next week. But in a Monday appearance on Fox Business, he said, “I’m afraid the president may need to go to the full 25 percent on all Chinese exports to America, because they just seem to feel the pain in China in a subjective sense. They should. But they just don’t see it that way.”
Investors evidently appraise the situation differently.
“Trade tensions and uncertainty over central-bank policy had rattled investors last month, with stocks posting their worst May since 2010,” The Wall Street Journal’s Jessica Menton writes. "But the potential for thawing trade relations between Washington and Beijing has helped lift share prices this month, putting the S&P 500 on pace for its best June since 1955.”
Or as Jonathan Corpina of Meridian Equity Partners told her, “Investors are now really banking on the G-20 summit.”
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— Stumbling factory output highlights global slowdown. WSJ's Paul Hannon: "Factory output is faltering in a number of key economies, darkening the outlook for the global economy and increasing the likelihood that leading central banks will respond with fresh stimulus. Global industrial production has been weakening since the start of 2018, around the same time that [Trump] announced the first in a series of fresh tariffs on imports from a number of countries, including China. Europe has suffered the sharpest turnaround, and there is little relief in sight, according to a June survey of purchasing managers conducted by data firm IHS Markit that was released Friday...
"Economists are divided on whether the factory slowdown is largely a consequence of disruptions to trade and investment as a result of higher tariffs and uncertainty about where they will settle, or a more short-lived pause after a long expansion and some setbacks in particular sectors, such as automobiles."
— Gold surges. Bloomberg's Ranjeetha Pakiam: "Gold’s firmly back in favor. Prices have taken off after a lackluster few months, passing $1,400 an ounce for the first time since September 2013 on Friday. Investors have piled back into exchange-traded funds and the U.S. Federal Reserve gave bulls a major boost this week when it opened the door to reducing interest rates, weakening the dollar and adding to gold’s appeal.
"Central banks in Europe and Australia have added to the positive narrative, signaling they’re also ready to do more for economic growth. And gold’s traditional role as a haven asset has provided further impetus amid increased tensions between the U.S. and Iran following the downing of an American drone."
— Chinese companies go on K Street hiring spree. Politico's Theodoric Meyer: "Trump has done everything he can to squeeze Huawei over the past year, bringing criminal charges against the Chinese telecommunications company, moving to block it from buying American technology and trying to convince foreign governments to crack down on the company. Now other Chinese companies are turning to K Street to keep the same thing from happening to them.
"Eight other Chinese companies have spent at least $7.9 million hiring Washington lobbying and public relations firms since last spring, right before Trump cracked down on a different Chinese telecom company, ZTE, according to a POLITICO analysis of disclosure filings. That’s nearly eight times what the same companies spent in the same period a year earlier."
— Apple eyes moving some production out of China. WSJ's Yoko Kubota and Tripp Mickle: "Apple Inc. is asking suppliers to study shifting final assembly of some products out of China, people familiar with the matter said, as trade tensions prompt the company to consider diversifying its supply chain. While any major changes would be difficult and could take months to years to implement, Apple is looking into the feasibility of shifting up to about a third of the production for some devices, some of the people said. Destinations under consideration include Southeast Asia, the people said."
The company is also pressing the Trump administration for tariff relief. FT's Tim Bradshaw: "Apple has warned the Trump administration that proposed tariffs on imports of iPhones made in China would 'tilt the playing field' in favour of the company’s overseas rivals and dent its multibillion-dollar contribution to the US economy... In a letter that was made public on Thursday, Apple pressed the White House to abandon tariffs of up to 25 per cent on its products including iPhones, iPads and Apple Watches , as well as parts used in device repairs. The extra duty, if passed on to consumers, could add hundreds of dollars to the cost of Apple’s high-end products."
More broadly, the trade war already looks to be severing the tech linkage between the U.S. and China, as these charts demonstrate, via Ely Ratner of the Center for a New American Security:
Striking data. U.S.-China decoupling in action:— Ely Ratner (@elyratner) June 20, 2019
Sharp decrease in IT imports from China, with substantial increases from Vietnam, Taiwan, Korea, and the Philippines. h/t @KennedyCSIS pic.twitter.com/F8B2QlN3EO
— Trump's challenge: Voters who are satisfied with the economy but not him. The Atlantic's Ron Brownstein identifies what he calls the biggest obstacle to Trump's reelection: "His polarizing approach to the presidency is alienating an unusually large number of voters satisfied with the economy... Trump attracts much less support than his predecessors did—in terms of approval rating and potential support for reelection—among voters who say they are satisfied with the economy.
"Long-term comparisons from the NBC/Wall Street Journal poll quantify the shortfall. In a 2006 survey, then-President George W. Bush drew positive job-approval ratings from 71 percent of Americans who said they were satisfied with the economy... Likewise, in 2013 and 2015, just over 75 percent of economically satisfied voters said they approved of Barack Obama’s performance as president... But in an NBC/WSJ poll last September, only 55 percent of voters in that category said they approved of Trump’s performance."
— BofA chief: No recession looming. CNN Business's Matt Egan: "The soft patch in the US economy is unlikely to morph into a full-blown recession, Bank of America CEO Brian Moynihan told CNN Business. 'The economy was predicted by everybody to slow down ... That's coming true,' Moynihan said in an exclusive interview from the sidelines of the Fortune Brainstorm Finance Conference in Montauk, New York. 'The reality is we feel good about the economy.' The Bank of America CEO's optimism is based on his bank's view into consumer spending — the central driver of the American economy."
— Facebook assembles rapid response team to avoid contributing to another genocide. NBC's David Ingram: "The driving force behind the team is the company’s blotted legacy in Myanmar, the southeast Asian nation where, according to United Nations researchers, Facebook became the go-to tool for spreading propaganda that helped drive a genocide of a religious minority, the Rohingya, that is estimated to have killed more than 10,000 people since the beginning of 2017.
"Called Strategic Response, the team is a mix of the kind of people who have typically been found in either governments or multinational corporations with far-reaching interests. The team’s formation, which started in spring of last year and recently ramped up hiring, represents the latest evolution in the Silicon Valley’s culture: less 'move fast and break things,' and more thinking through the harm they are adding to half a world away."
— Waters: Congress will aggressively examine Facebook currency. CNBC's Kate Rooney: "Top lawmakers are not hesitating to examine Facebook’s ambitious new cryptocurrency project. 'We’re going to move aggressively and very quickly to deal with what is going on with this new cryptocurrency,' Rep. Maxine Waters, D-Calif., chairwoman of the House Financial Services Committee, told CNBC’s 'Closing Bell' Thursday. 'I think it’s very important for them to stop right now what they’re doing so that we can get a handle on this.' ... In a statement Tuesday, Waters asked Facebook to delay the project, which she said was a continuation of its “unchecked expansion and extending its reach into the lives of its users.”
— Pelosi: Mulvaney has no cred in debt ceiling debate. The Post's Colby Itkowitz and Damian Paletta: "House Speaker Nancy Pelosi accused acting White House chief of staff Mick Mulvaney of misrepresenting her position on the debt ceiling, illustrating the lack of trust between key policymakers over an issue that could imperil the global economy later this year.
"Mulvaney said that during a meeting Wednesday between congressional leaders and White House staff, Pelosi (D-Calif.) had insisted that she would increase the debt ceiling only if the Trump administration agreed to boost spending levels. Asked to respond to this, Pelosi said Mulvaney had 'no credibility' on the debt ceiling after his role in the 2011 and 2013 budget fights and had misrepresented her remarks."
— Trump appointee who wrote racist posts joins HUD. The Post's Renae Merle: "Eric Blankenstein, a senior Trump appointee, announced he was leaving the Consumer Financial Protection Bureau last month after he was forced to apologize for online posts he wrote years ago questioning whether the n-word was racist. But Blankenstein won’t be leaving the Trump administration altogether. The former private-sector lawyer is joining the Department of Housing and Urban Development, according to a person familiar with the matter. The news was first reported by Politico. Blankenstein will join HUD’s Office of General Counsel as a senior counsel starting Monday, said the person, who spoke on the condition of anonymity to discuss personnel matters."
— Walmart settles bribery case with the feds. NYT's Michael Corkery: "For more than a decade, Walmart used middlemen to make dubious payments to governments around the globe in order to open new locations, United States prosecutors and securities regulators said in a settlement agreement on Thursday. But even as employees frequently raised alarm, the company’s top leaders did little to prevent Walmart from being involved in bribery and corruption schemes.
"That lack of internal control led to a seven-year inquiry that culminated on Thursday with Walmart’s Brazilian subsidiary pleading guilty to a federal crime. The guilty plea, and the $282 million in fines that Walmart has agreed to pay, capped one of the biggest investigations ever under the Foreign Corrupt Practices Act, which makes it illegal for American corporations to bribe overseas officials."
From The Post's Tom Toles: