U.S. and World News
British Prime Minister Theresa May’s last ditch effort to deliver Brexit through a deal filled with compromises with the Labour Party has failed as calls for her resignation only grew louder. The U.K. participated in European elections this week, putting a sour taste into the mouths of British politicians who had originally planned to watch this event from the sidelines. Results of the European Union elections will be announced after 10P.M on Sunday and British Conservatives are expected to suffer a dramatic defeat. Theresa May has announced that she will resign on June 7th and stated that “It is and will always remain a matter of deep regret to me that I have not been able to deliver Brexit”. The British Pound has fallen substantially amid all of the uncertainty and the process to elect a new leader will begin next week.- Chinese President Xi Jinping tone has shifted in regards to the trade war with the United States when he stated on Monday that China is embarking on a “new Long March, and we must start all over again!”. In addition, a propaganda song, titled “Trade War” about the U.S.-China trade war has gone viral in China. Reports say that China is exploring a retaliation move in response to the Huawei ban that will likely include cutting natural gas purchases from the United States. The Trump administration has announced a $16 billion trade aid program for American farmers who have been hurt by the trade war. Soybean farmers have been impacted the most as the value of soybean exports to China fell 74% in 2018.
Markets
- Markets continued to fall this week. The S&P 500 fell 1.14% and closed at 2,826. The Dow Jones fell 0.63% and closed at 25,586. Year to date, the S&P is up 13.66% and the Dow Jones is up 10.78%.
- Yields also fell further this week. The 5 year and 10 year U.S. Treasury Notes are yielding 2.12% and 2.32, respectively.
- The spot price of WTI Crude oil plummeted this week. Prices dropped 6.34% and closed at $58.93 per barrel. Year to date, Oil prices are up 29.77%.
- The spot price of Gold rose 0.56% this week and closed at $1,284.69 per ounce. Year to date, Gold prices are up 0.17%.
Economic Data
- Initial jobless fell to 211,000 this week. The four-week moving average of claims fell by 5,000 to 220,000. Claims fell by 2,000 in California and Illinois.
- Existing home sales fell 0.4% to a seasonally adjusted rate of 5.19 million units versus expectations for a 2.7% increase
- Sales of new single-family homes fell by 6.9% in April to a seasonally-adjusted annualized rate of 673k units versus expectations for 675k units
- Durable goods orders fell by 2.1% versus expectations for a decline of 2.0%
- Durable goods orders ex-transport was unchanged versus expectations for a 0.1% increase
- Core capital goods orders fell 0.9% versus expectations for a 0.3% decline
Fact of the Week
- It would cost about $334 per person per year in Illinois to cover the funding costs for the 5 state pension funds. Illinois law current requires that the pensions funds be 90% funded by 2045. (Source: BTN Research)
Please contact a member of the Wealth Management Department if you have any questions about this information.
Rich Gartelmann, CFP® – (630) 844-5730 – rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Brad Johnson, CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Mike Cava, CFA®, CFP® – (630) 281-4522 mcava@oldsecond.com
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Earlier this week, China announced new tariffs on $60 billion of American imports in response to the tariff increase by the United States. The Trump administration will subsidize U.S. farmers with $15 billion in aid, in addition to the Department of Agriculture’s $12 billion compensation plan that was put into place last year. President Trump has stated his intention to meet Chinese President Xi Jinping at the G20 summit in June. The United States also has banned China’s Huawei Technologies from buying U.S. technology without special approval and has restricted its equipment from being any part of U.S. telecom networks. Equipment produced by Huawei Technologies, the world’s third largest smartphone maker, is allegedly used by the Chinese to spy, however Huawei has denied those allegations.
On Sunday night, just days before a Chinese trade delegation would depart for Washington to wrap up 18 months of trade negotiations, President Trump tweeted that tariffs on $200 billion of Chinese goods would rise to 25% from 10% by the end of the week, accusing China of “reneging” on its trade promises. President Trump also shared his intention to impose a 25% tariff on the remaining $325 billion of Chinese goods that aren’t currently taxed, making virtually all Chinese exports to the United States subject to a 25% tariff. The Chinese trade delegation led by Vice Premier Liu He did travel to the White House on Thursday for negotiations that ended earlier today, and the 10% tariff rate on $200 billion in Chinese goods did increase to 25% at midnight last night. China’s Commerce Ministry has announced that they will be taking countermeasures against the tariff increase, but that specifically has not yet been revealed. There have been numerous statements from officials of both countries regarding trade talk progress or lack thereof while markets respond in volatile fashion and struggle for direction, however, the only things we actually know to be true at this point is the fact that there is no done deal, and the tariff rate on $200 billion of Chinese goods has risen to 25% from 10%.
The sanctions imposed on Iran by the United States in November have cut Iran’s oil exports by roughly 1 million barrels per day, and after Thursday’s waivers have expired to some of Iran’s biggest customers, exports are expected to fall by another several hundred thousand barrels per day. At a time of heightened tensions, Iran’s oil minister warned that OPEC is “likely to collapse” due to unilateralism by certain members. Iran appears to be referring to Saudi Arabia’s and the United Arab Emirates’ cooperation with the United States in offsetting the reduction in supply of oil to stabilize prices, and causing substantial economic damage to Iran. Iranian Oil Minister Bijan Zangeneh told an Iranian news agency that “Iran is an OPEC member just for its interests and if certain OPEC members want to threaten and endanger Iran, Iran will not refrain from responding to them”. The next OPEC meeting is scheduled for June 25-26 in Vienna, where the members will decide whether to keep in place an oil supply limit that was established in January.
United States and Chinese trade officials are set to have two more face-to-face meetings in the next few weeks that could lead to a trade deal being signed in late May. On April 4th, President Trump stated that it might be four weeks before a deal is made and then two more weeks to finalize it. The “trade truce” that was put in place at the beginning of the year, when the United States canceled a planned increase in the tariff rate on $200 billion of Chinese goods from 10% to 25%, negotiations have made significant headway. One issue that the United States has struggled with is the demand for China to implement major change to the level of power that the state has in the economy, and China’s denial of any wrongdoing. Protection of intellectual property is another issue that the United States continues to battle for, as currently any foreign company to China must provide their technology. Meanwhile, the European Union has agreed to start trade talks with the United States on industrial goods, however, France will remain on the sidelines after a French official stated that “France is opposed to the initiation of any trade negotiations with countries outside the Paris climate agreement.” At the heart of the issue of trade between the United States and Europe are subsidies for Airbus and Boeing by their respective governments and the fact that Airbus has received $18 billion in subsidies that the World Trade Organization had deemed illegal.
The European Union granted Theresa May an extension for the deadline to leave until October 31st during an emergency summit in Brussels on Wednesday. Some say, that her days are numbered as Prime Minister of the U.K as attempts to leave the European Union with a deal has been a circus. JPMorgan economist Malcolm Barr stated that “A six-month period is clearly enough for the Conservative party to contemplate a change in leadership while still allowing some time for the incoming PM to seek to negotiate with the EU”. The remaining possible scenarios are “No Brexit”, Theresa May’s deal is approved and she resigns from office, the deal fails again and an election is called, or perhaps the worst scenario, there is a “No-deal Brexit”. Goldman Sachs currently has a 10 percent probability of a no-deal Brexit.
President Trump met with Chinese Vice Premier Liu He at the White House yesterday as the two sides are reportedly coming close to reaching a deal. Reports have also indicated that the United States will keep tariffs on China until a deal is reached. Chinese Vice Premier Liu He said that the two sides have reached a new consensus on a trade agreement, meanwhile, President Trump stated that no meeting with Chinese President Xi Jinping will take place until a deal is reached and that he could see a deal being made within four weeks.
Two years ago today, the United Kingdom asked the European Union for a divorce and today is the day that Brexit was finally supposed to transpire, however, many questions remain about how the whole thing will shake out. The new deadline is now two weeks away and lawmakers are left scrambling to pass a deal to avoid the “no-deal” Brexit, an outcome that no one wants. Theresa May also announced this week that she would resign if the deal was approved in a last ditch effort to save her deal, but was answered by Northern Ireland’s Democratic Unionist Party promising to continue to reject her deal. The withdrawal agreement that was voted on today was rejected, as expected, meaning the hard deadline for Brexit is April 12th. Following the vote today, European Council President Donald Tusk announced a summit for April 10th, raising more questions about the possibility of another extension.
After the French national debates over government policy ended last weekend, 10,000 “Yellow Vest” protestors took to the streets for the 18th weekend, bringing violence and anger. Nearly 100 businesses on the Champs-Elysees were vandalized or torched. Finance Minister Bruno Le Maire stated in late February that the protests have shaved 0.2% off of economic growth. Starting this Saturday, “Yellow Vest” protestors will be banned in the hardest hit neighborhoods and France is forcing its banks to raise capital buffers to protect against any economic downturns.
On Sunday, an Ethiopian Airlines flight transporting 157 people on a Boeing 737 MAX 8 crashed during takeoff, killing all passengers on board. The incident occurred less than five months after another Boeing 737 MAX 8 crashed in Indonesia killing 189 people and investigators have drawn similarities between the two crashes, especially since both took place during the take-off phase. Immediately following the crash, several countries grounded the aircraft and placed a ban on the 737 MAX 8 from flying into and out of the country. On Wednesday, Boeing announced that they would temporarily suspend the entire fleet “out of an abundance of caution and in order to reassure the flying public of the aircraft’s safety”. Boeing is expected to perform a software update on the entire fleet in mid-April.