Today’s daily will be a bit different, sort of a links post with a potpourri of different topics hitting the news. So far, earnings season has been relatively good, with Goldman’s worries about volatility not being a big consideration. My understanding is that this is the second quarter in a row with +20% earnings growth. And that’s the best since 2010, when the US economy was climbing out of a deep recession.
This Goldilocks period for the US looks set to continue. And I am keen to see what the Q2 GDP data look like. Even Germany has shown some signs of economic strength recently.
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Chinese Reversing Big U.S. Real Estate Buying Spree That Had Helped Boost Prices – WSJ “Chinese investors sold $1.29 billion worth of U.S. commercial real estate in the second quarter, while purchasing only $126.2 million of property, according to data firm Real Capital Analytics. This marked the first time that these investors were net sellers for a quarter since 2008. The more than $1 billion in net sales reflects how much the Chinese government’s attitude toward investing overseas has changed in recent months.”
- China Targets Economy, Not Trump, With Weaker Yuan – WSJ “China is letting the yuan slide primarily to combat a slackening economy, as the government rolls out more pro-growth measures amid an intensifying trade feud with the U.S. At the same time, government advisers and economists say the nation’s leaders will refrain from actively devaluing the currency to hit back at the Trump administration. “China has no intention to turn the trade war into a currency war,” said an official involved in policy-making. At 6.7784 per dollar at the close of domestic trading on Wednesday, the yuan has lost 6.9% in three months, and isn’t far off one-year lows.
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Apple Vulnerable in U.S.-China Trade Showdown – WSJ ““They should be nervous,” said David Dollar, a China scholar at the Brookings Institution, who was the U.S. Treasury’s top official in Beijing during the Obama administration. Smartphones weren’t included in the levies on $34 billion of Chinese goods imposed on July 6, nor are they targeted in a second round worth $16 billion that is expected in August. They also haven’t been included in a third round of $200 billion in goods that the Trump administration identified earlier this month.”
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Harley-Davidson’s profit beats estimates, shares rally – Reuters “Harley-Davidson Inc’s shares rallied on Tuesday after the motorcycle maker forecast a lower-than-expected hit to profit margins from U.S. President Donald Trump’s trade tariffs and its quarterly earnings topped Wall Street estimates. “
- The German economic boom is alive and well. – Robeco “Manufacturing PMI, probably the most significant bellwether of the German economy, unexpectedly rose to 57.3 in July. It was the first increase this year, after a significant fall, but more importantly it shows that the ongoing trade war between the US and China is so far having little impact on Germany’s manufacturing sector. The current PMI level also indicates growth is likely to remain north of 2%, which is above average. Let’s hope that Mr. Trump doesn’t see this as another reason to take the trade dispute up a notch.”
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Trump administration to freeze fuel-efficiency standards and fight states – WaPo “Trump administration officials are preparing to issue a proposal within days to freeze fuel-efficiency standards for cars and light trucks for six years and challenge the right of California and other states to set their own tailpipe standards, according to four current and former federal officials. The move would amount to one of the biggest regulatory rollbacks of the Trump presidency.”
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Trump Calls FCC’s Move to Block Sinclair Deal ‘Disgraceful’ – WSJ ““So sad and unfair that the FCC wouldn’t approve the Sinclair Broadcast merger with Tribune,” tweeted Mr. Trump. He said the acquisition would have created a “much needed conservative voice by and for the people.” Mr. Trump also referenced the 2011 merger of Comcast Corp. and NBC Universal, which the FCC allowed to go through. NBC is one of the networks Mr. Trump regularly criticizes. Mr. Trump tweeted: “Liberal Fake News NBC and Comcast gets approved, much bigger, but not Sinclair. Disgraceful!””
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Trump calls for quick NAFTA deal in letter to Mexico president-elect – Reuters “In the letter published Tuesday, Trump said he thought a NAFTA deal would lead to more jobs and higher wages on both sides of the border, “but only if it can go quickly, because otherwise I must go a much different route,” he wrote. “
Chart of the Day: EM Currencies
EM currencies are, on average, down more than 40% against the #USD since 2011, but they have not hit a new low since January 2016… pic.twitter.com/nr6ifrYISY
— jeroen blokland (@jsblokland) July 25, 2018
Why this matters: The big hit to emerging markets came from 2011 to 2015. EM currencies have fallen this year but are still well within the channel that formed three years ago. For EM risk to be confirmed, we would have to see EM currencies fall below that channel
Bonus Chart: European Government Debt
Good Morning from #Germany where public debt keeps falling. Debt ratio has dropped on Q1 by another 1.2ppts to 62.9%, while overall Eurozone ratio has risen by 0.1ppt to 86.8%. Especially in Belgium, Greece, France and Italy the debt ratios have risen. https://t.co/RcT74xq7tgpic.twitter.com/x2ClGMeFrR
— Holger Zschaepitz (@Schuldensuehner) July 24, 2018
Why this matters: Germany is still above the Maastricht 60% hurdle. Until it gets there it will be in restrictive mode. The Germans feel they have to lead by example on fiscal policy. And by showing fiscal discipline until they reach 60%, they believe they are sending the right message to the rest of Europe.
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