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Morning Commentary

Market Remains Resolute

By Charles Payne, CEO & Principal Analyst
6/19/2018 9:37 AM
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Question of the Week

Some experts say folks that voted for President Trump and currently support the administration's trade stance don't understand prices will go higher during a "trade war." So, if consumer prices go higher, as a Trump voter, you would.....
Continue to Support the Administration's Trade Stance
Stop Supporting the Administration's Trade Stance
Not Sure

The market opened under a fair amount of pressure for the second consecutive session on Monday. Conventional wisdom points to trade war worries. Nonetheless, just like last Friday’s session, major indices climbed off the canvas and closed at or very close to the high point of the day. 

The Russell 2000 closed at the high of the session, establishing another all-time record.

 

Market Session June 18, 2018

Open

Low

High

Close

Dow Jones Industrial Average

24,944

24,825

25,003

24,987

S&P 500

2,765

2,757

2,775

2,774

NASDAQ Composite

7,693

7,677

7,749

7,747

Russell 2000

1,684

1,674

1,692

1,692

 
The Russell 2000 is the equity index most reflective of the U.S. economy, which continues to fire on all cylinders. That action dovetails perfectly with the latest polling from Gallup on “Satisfaction With the way Things Are Going in the United States.”  The 38% level is the highest in 12 years.

The market has become bifurcated with blue-chip names held back, mostly because of global economic growth and trade concerns. The NASDAQ, driven by technology, and the aforementioned Russell, continue to edge higher. 

The next couple of weeks will be huge as investors gear up for another round of earnings, where expectations are high for a resolution on trade.

When to Fight & How to Win a Trade War

Just the Fear of a Trade War Is Straining the Global Economy

NY Times

June 18, 2018

The debate over fighting a trade war is a moot point these days, as President Trump is keeping one of his biggest campaign promises. He is taking the fight directly to America’s trading partners. With that in mind, I find nonstop coverage of the “trade war” by mainstream media to be disingenuous. 

For instance, the reports that tariffs, which haven’t even gone into effect yet, are already slowing the global economy. The source for this reasoning is the World Bank. The problem with these kinds of warnings is they are mostly covering for a slowing economic growth, which has already been modeled for by the World Bank.

In fact, our trading partners, including China, have serious issues from aging populations to massive debt.  Of course, our European friends are in desperate trouble. So, if any media references the World Bank or the International Monetary Fund (IMF) as sources for the “trade war”  suddenly slowing the economy, it is disingenuous.

Global GDP

2015

2018

2020

Euro-Zone

2.9%

2.7%

2.0%

Japan

2.1%

2.1%

1.5%

China

6.9%

6/5%

6.2%

Mexico

3.3%

2.3%

2.7%

Fighting from Position of Strength

President Trump has issued a new warning to China of an additional $200.0 billion in tariffs.  The new levies would add 10% on top of any existing tariffs already in place.   I know the globalists and Trump haters are going to rail, but this is a logical move in a battle that has been joined.

Last year, America imported $505 billion in goods from China, while China only imported $130 billion in goods from the United States.  So, there is no way China can retaliate dollar for dollar even if U.S. service exports were added (China imported $54 billion in services from the United States in 2016).

The administration is intent on using all its leverage and fight from a position of strength.

This is the perfect, and perhaps the last time America will have the opportunity to get better trade deals. Despite what the media has been promoting, the United States economy is not only better positioned than others, including China, but our stock market also underscores that strength. 

Overnight, the China Shanghai Index was off almost 4%, and it is off more than 18% since January 24.  The index is down more than 30% over the past three years.

Country/Exchange

2018

3 Year

China/Shanghai

-12.1%

-30.7%

China/Shenzhen

-16.9%

-49.4%*

France/CAC

+3.6%

+4.5%

Germany/DAX

+0.7%

+5.8%

UK/FTSE 100

-0.7%

+4.4%

Italy

+1.5%

-0.2%

Mexico

-4.9%

+1.9%

Canada

+0.6%

+3.4%

United States/Dow

+1.5%

+39.8%

United States/ NASADAQ

+12.2%

+52.5%

                                                                                                                                                                                                             *from peak 6.12.2015

There are a number of issues weighing on China’s stock market. More than likely, it’s the rapidly expanding debt obligations.  According to a report from Bloomberg economists, the country’s total debt to the Gross Domestic Product (GDP) is set to source to 323%.

This is happening as China’s foreign reserves are at a seven-month low and down almost $1.0 trillion from the June 2014 peak of $3.99 trillion.

Overnight, the People’s Bank of China injected $31.0 billion into its economy making it more than $60 billion this month, the most since December 2016.

Public Relations War

I understand China’s citizens have no voice to push back on their government, but money has ways of fleeing, and that has already been a significant problem for China’s government.  In fact, government run media is trying to calm the waters:

People’s Daily

June 19, 2018

“The steady development of China’s economy has not changed”

"The steady development of China's economy has not changed." Du Fei said that at present, China's sound economic fundamentals have not changed, and the economy has the characteristics of strong resilience and large maneuvering space, and has great potential for maintaining stable growth. A solid foundation and a forward move in the dynamic balance and development is still the main theme of China's economic development.

Summation

I still believe there will be a resolution to the trade disputes because our partners, whether they’re a “friend” or “foe,” cannot afford to give up access to the American consumer.

In addition to the economic risk, it is just not a smart move for China, Canada, Mexico and the EU to want to escalate this situation just to save face.

I don’t think America needs trade surpluses, but that misses the point.  We are losing in trade, with deficits so large, it’s the kind of transfer of wealth that can’t be excused because we got cheaper televisions and steel in return.

I think the administration can win this, so I ask everyone not to panic.

Meanwhile, keep focusing on real developments and real momentum. 


Comments
Spot on, Charles. I wish more of the alphabet media would report like you do!

William Brown on 6/19/2018 10:12:14 AM
I agree with you 100% Charles. It is time that we quit supporting the whole world and paid more attention to our own people. Hopefully we will change their Globalist Domination attitude or pull our funding and/or leave the United Nations also. Globalist be damn.

LYLE HOWELL on 6/19/2018 10:20:06 AM
Charles & FBN. thank you very much indeed. Thank you pres Trump , we are 100% supporting our president Trump. Also illegals who break the law, smuggling children & babies, they the desert , have & do, bern filmed dropping babies, leaving children, in the desert, as they are NOT their children, so the border PATROL has to stop & the babies & children are saved, while illegal adults run off. USA citizens that break the law are seperated from their children, it is consequence of BREAKING OUR LAWS. B.O. seperated babies,&children, but had Full media support propaganda to NOT REPORT ON IT. Also illegals who smuggle drugs,make the children carry them across the desert,methamphetamine, heroin, fentanyl drugs, these are the DEMs praised Hero's breaking out laws trafficking children,endangering their lives. Also illegals who cross illegally into USA are stealing from the real immigrants who have been waiting to legally come to USA , these immigrants have paid money, learned English LANGUAGE, respect our country GREATEST country in the world, and are being robbed by the illegal immigrants, but propaganda news media & democratic politicians NEVER mention that the legal system immigrants are also seeking asylum & are fearful for their lives,children babies. BUT they respect our country & prove their merits, like ALL the immigrants whom made this country, greatest generations in our history.

Ed on 6/19/2018 11:15:22 AM
Prices will go up with or without a trade war. Volatile times worldwide.

Patricia Flynn on 6/19/2018 12:25:42 PM
The President is correct. Trumps tariffs are "RESIPROCAL" They tax us! We tax them!

Alan Underwood on 6/19/2018 12:53:12 PM
Thank you Mr Payne for a thorough and insightful review of current world economic conditions. If a person listened only to most media, they would think the President is leading us toward disaster with his current economic policies. Though we don't want disruption of the global economy, America is currently in a position of strength, concerning trade. Thank you very much. I continue to love your show on Fox Business.

Patrick Dykie on 6/19/2018 1:40:11 PM
 

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