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This Global Week Ahead opens with a new worry to climb over.
Markets everywhere must address fallout from President Trump’s sudden (but not unexpected) decision: Steel and aluminum tariffs shall be set at 25% and 10%, respectively, sometime soon.
Note to traders: We do not (yet) have tariff specifics.
Mr. Trump stated those gritty details could be provided sometime this week. Given his past track record of backtracks and broken promises — and a failure to inform his staff of his plans — there is a very meaningful chance this takes longer. There is also a chance (albeit small) these tariffs never materialize.
However, Commerce Secretary Wilbur Ross has guided us. They will be broadly applied.
Dr. Peter Navarro — the President’s outspoken advisor on these trade matters —participated in the weekend U.S. political talk shows. We got tighter confirmation from him: No country exemptions will be provided. But there could be specific industry exceptions.
Assuming traders get tariff specifics this week, how could equities respond?
I identified two channels to watch for specific economic and political signals.
The U.S. response—
How steel and aluminum tariff duties resonate across the country matters a great deal.
On Tuesday, Texans go to the polls in that state’s primary. This vote will be a fresh test on building momentum for the opposition Democratic Party.
Memories of the Bush steel tariffs of 2002 linger. One study estimated 200K Americans lost their jobs due to those steel tariffs. A quarter of those lost jobs were in the metal manufacturing, machinery and transportation sectors like pipelines that heavily use one of these two metals.
More Americans lost jobs that year — due to the Bush tariffs — than the total number of employees in the U.S. steel industry. 2015 census data showed roughly 140K Americans were employed in steel mills, contributing $36 billion to the economy.
The Global response—
The dominant school of thought here centers on “Tit-for-Tat” counter-measures.
The U.S. imports 30% of its steel. The biggest steel exporters to the U.S.A. are Canada, Brazil, South Korea, Mexico and Russia.
Our top military allies (Canada, South Korea, Japan, and Europe) are among the biggest hit by this, despite this matter being taken up as a “U.S. national security issue.” This could lead to a new source of internal and external divisiveness.
These steel export sovereigns likely react with a set of rising tariffs themselves, and not necessarily tariffs on steel or aluminum. Think Wisconsin Harleys (Paul Ryan) and Kentucky Bourbon (Mitch McConnell) and California Blue Jeans (Kevin McCarthy). That was what the Europeans already announced.
Then, there are the frictions this applies to ongoing NAFTA talks, underway in Mexico this week.
There are already 160 U.S. protections on Chinese steel. So the Chinese are not likely to be the leaders of the counter-response movement.
This means stocks must broadly reckon with retaliatory tariffs, coming from any number of countries simultaneously, but not China.
In sum, “Trade War” worries are likely to be heaped onto equities, from
A variety of metal-using manufacturers
Voters and politicians in the U.S., and
Exporters from abroad
Does that sound good?
This whole steel and aluminum tariff episode recalls the sitcom “King of the Hill.”
Set in Texas, this is an animated series that follows the life of propane salesman Hank Hill, who lives with his substitute-teacher wife Peggy, wannabe comedian son Bobby and deadbeat niece Luanne. Hank has strikingly stereotypical views about God and country, but is unpretentious and sees the world simply. The Best of "King of the Hill"
It’s simple! Yeah. Maybe, it’s too simple?
???The deep simple answer, if you are looking for it, is to close the yawning U.S. Federal budget deficit. That WOULD shrink the huge U.S. trade deficit.???
Top Zacks #1 Rank (STRONG BUY) Stocks—
Watch the trading activity closely on any number of momentum stocks out there, which benefit from ‘Synchronized Global Growth.’ Do they take a hit from this news? We shall see.
Here are three that look very attractive, from a Zacks Rank perspective.
Vale (VALE - Free Report) : This is the top Brazilian miner of iron ore and pellets, nickel, manganese and ferro-alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum and potash. The Stock has a market cap of $69 billion and a long-term Zacks VGM score of F. The share price has been on a momentum run since bottoming with lots of other global growth related stocks in early 2016. The forward P/E is still attractive at 11.6.
Nintendo (NTDOY - Free Report) : Japanese stocks have been on a tear. This $65 billion market cap stock has joined the ride. The long-term Zacks VGM score is F. The momentum run for Japanese stocks started somewhere in early 2016 and this stock went from $15 a share to $57 now. Wow.
Arcelor Mittal (MT - Free Report) : This is a very big global steel producer, with a presence in over 60 countries. It operates a balanced portfolio of cost competitive steel plants across both the developed and developing worlds. The stock is a $34 billion market cap stock. The long-term Zacks VGM score is a terrific A, with an A for both Value and Growth.
Key Global Macro—
Big data and monetary policy events all come towards the end of the week.
On Thursday, no policy changes are expected when the ECB refreshes guidance and President Draghi holds his usual press conference.
Also on Thursday, we get the latest Mainland China trade data (exports and imports).
On Friday, no policy changes are expected from the Bank of Japan. Governor Haruhiko Kuroda, just got nominated to a second term.
Also on Friday, we get the all-important U.S. nonfarm payroll report. Realize that the annualized wage growth figure will be key in this report. Recall it accelerated in Jan. to +2.9% y/y. This was the highest since 2009.
On Monday, the Eurozone composite PMI comes out. The prior was 57.5.
Eurozone retail sales also come out. The prior was 1.9% y/y.
Brazil’s Markit PMI Composite comes out. The prior was 50.7 and the forecast is for 51.9.
On Tuesday, the Reserve Bank of Australia (RBA) should keep its overnight rate at 1.5% again.
Brazil’s industrial production numbers come out. Look for the prior of 4.3% to rise to 5.8% y/y.
On Wednesday, the Central Bank of Malaysia (BNM) overnight rate gets set. The prior reading was 3.25%.
Eurozone GDP growth comes out. The y/y rate has been tracking +2.7% y/y, while the q/q rate was +0.6%.
The Central Bank of Turkey (CBRT) overnight borrowing rate gets set. It has been 7.25%.
The private U.S. ADP payroll survey comes out. Look for 210K.
On Thursday, Mainland China’s export and import figures come out. Exports should move from +11.1% to +15.5% y/y. Imports should go down from +36.8% (not sure what’s going on there) to +10.5% y/y.
The unemployment rate of Greece comes out. It has been 20.9%.
The European Central Bank (ECB) monetary policy meeting breaks up and policy gets set. The main refi rate is 0.0% and the deposit rate is still -0.4%. What of “QE” tapering? We shall see.
On Friday, the Bank of Japan (BoJ) monetary policy committee (MPC) should leave its negative overnight rate -0.1% rate unchanged.
U.S. non-farm payroll hits the tape. The data should go from 200K to 205K, meaning no change is expected. The unemployment rate should stay at 4.1% again.
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King of the Hill: Global Week Ahead
This Global Week Ahead opens with a new worry to climb over.
Markets everywhere must address fallout from President Trump’s sudden (but not unexpected) decision: Steel and aluminum tariffs shall be set at 25% and 10%, respectively, sometime soon.
Note to traders: We do not (yet) have tariff specifics.
Mr. Trump stated those gritty details could be provided sometime this week. Given his past track record of backtracks and broken promises — and a failure to inform his staff of his plans — there is a very meaningful chance this takes longer. There is also a chance (albeit small) these tariffs never materialize.
However, Commerce Secretary Wilbur Ross has guided us. They will be broadly applied.
Dr. Peter Navarro — the President’s outspoken advisor on these trade matters —participated in the weekend U.S. political talk shows. We got tighter confirmation from him: No country exemptions will be provided. But there could be specific industry exceptions.
Assuming traders get tariff specifics this week, how could equities respond?
I identified two channels to watch for specific economic and political signals.
The U.S. response—
How steel and aluminum tariff duties resonate across the country matters a great deal.
On Tuesday, Texans go to the polls in that state’s primary. This vote will be a fresh test on building momentum for the opposition Democratic Party.
Memories of the Bush steel tariffs of 2002 linger. One study estimated 200K Americans lost their jobs due to those steel tariffs. A quarter of those lost jobs were in the metal manufacturing, machinery and transportation sectors like pipelines that heavily use one of these two metals.
More Americans lost jobs that year — due to the Bush tariffs — than the total number of employees in the U.S. steel industry. 2015 census data showed roughly 140K Americans were employed in steel mills, contributing $36 billion to the economy.
The Global response—
The dominant school of thought here centers on “Tit-for-Tat” counter-measures.
The U.S. imports 30% of its steel. The biggest steel exporters to the U.S.A. are Canada, Brazil, South Korea, Mexico and Russia.
Our top military allies (Canada, South Korea, Japan, and Europe) are among the biggest hit by this, despite this matter being taken up as a “U.S. national security issue.” This could lead to a new source of internal and external divisiveness.
These steel export sovereigns likely react with a set of rising tariffs themselves, and not necessarily tariffs on steel or aluminum. Think Wisconsin Harleys (Paul Ryan) and Kentucky Bourbon (Mitch McConnell) and California Blue Jeans (Kevin McCarthy). That was what the Europeans already announced.
Then, there are the frictions this applies to ongoing NAFTA talks, underway in Mexico this week.
There are already 160 U.S. protections on Chinese steel. So the Chinese are not likely to be the leaders of the counter-response movement.
This means stocks must broadly reckon with retaliatory tariffs, coming from any number of countries simultaneously, but not China.
In sum, “Trade War” worries are likely to be heaped onto equities, from
Does that sound good?
This whole steel and aluminum tariff episode recalls the sitcom “King of the Hill.”
Set in Texas, this is an animated series that follows the life of propane salesman Hank Hill, who lives with his substitute-teacher wife Peggy, wannabe comedian son Bobby and deadbeat niece Luanne. Hank has strikingly stereotypical views about God and country, but is unpretentious and sees the world simply.
The Best of "King of the Hill"
It’s simple! Yeah. Maybe, it’s too simple?
???The deep simple answer, if you are looking for it, is to close the yawning U.S. Federal budget deficit. That WOULD shrink the huge U.S. trade deficit.???
Top Zacks #1 Rank (STRONG BUY) Stocks—
Watch the trading activity closely on any number of momentum stocks out there, which benefit from ‘Synchronized Global Growth.’ Do they take a hit from this news? We shall see.
Here are three that look very attractive, from a Zacks Rank perspective.
Vale (VALE - Free Report) : This is the top Brazilian miner of iron ore and pellets, nickel, manganese and ferro-alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum and potash. The Stock has a market cap of $69 billion and a long-term Zacks VGM score of F. The share price has been on a momentum run since bottoming with lots of other global growth related stocks in early 2016. The forward P/E is still attractive at 11.6.
Nintendo (NTDOY - Free Report) : Japanese stocks have been on a tear. This $65 billion market cap stock has joined the ride. The long-term Zacks VGM score is F. The momentum run for Japanese stocks started somewhere in early 2016 and this stock went from $15 a share to $57 now. Wow.
Arcelor Mittal (MT - Free Report) : This is a very big global steel producer, with a presence in over 60 countries. It operates a balanced portfolio of cost competitive steel plants across both the developed and developing worlds. The stock is a $34 billion market cap stock. The long-term Zacks VGM score is a terrific A, with an A for both Value and Growth.
Key Global Macro—
Big data and monetary policy events all come towards the end of the week.
On Thursday, no policy changes are expected when the ECB refreshes guidance and President Draghi holds his usual press conference.
Also on Thursday, we get the latest Mainland China trade data (exports and imports).
On Friday, no policy changes are expected from the Bank of Japan. Governor Haruhiko Kuroda, just got nominated to a second term.
Also on Friday, we get the all-important U.S. nonfarm payroll report. Realize that the annualized wage growth figure will be key in this report. Recall it accelerated in Jan. to +2.9% y/y. This was the highest since 2009.
On Monday, the Eurozone composite PMI comes out. The prior was 57.5.
Eurozone retail sales also come out. The prior was 1.9% y/y.
Brazil’s Markit PMI Composite comes out. The prior was 50.7 and the forecast is for 51.9.
On Tuesday, the Reserve Bank of Australia (RBA) should keep its overnight rate at 1.5% again.
Brazil’s industrial production numbers come out. Look for the prior of 4.3% to rise to 5.8% y/y.
On Wednesday, the Central Bank of Malaysia (BNM) overnight rate gets set. The prior reading was 3.25%.
Eurozone GDP growth comes out. The y/y rate has been tracking +2.7% y/y, while the q/q rate was +0.6%.
The Central Bank of Turkey (CBRT) overnight borrowing rate gets set. It has been 7.25%.
The private U.S. ADP payroll survey comes out. Look for 210K.
On Thursday, Mainland China’s export and import figures come out. Exports should move from +11.1% to +15.5% y/y. Imports should go down from +36.8% (not sure what’s going on there) to +10.5% y/y.
The unemployment rate of Greece comes out. It has been 20.9%.
The European Central Bank (ECB) monetary policy meeting breaks up and policy gets set. The main refi rate is 0.0% and the deposit rate is still -0.4%. What of “QE” tapering? We shall see.
On Friday, the Bank of Japan (BoJ) monetary policy committee (MPC) should leave its negative overnight rate -0.1% rate unchanged.
U.S. non-farm payroll hits the tape. The data should go from 200K to 205K, meaning no change is expected. The unemployment rate should stay at 4.1% again.