Tariff man crushes markets Presented by U.S. Bank

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TARIFF MAN CRUSHES MARKETS — President Trump on Tuesday issued his most market-moving tweet yet with this gem at 10:03 a.m.: “I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN.”


The tweet helped wipe out any remaining positive feelings from the China truce over the weekend and sent markets spiraling down with the Dow closing off nearly 800 points, or 3 percent. The S&P also fell 3 percent while the Nasdaq dropped almost 4 percent. Investors MM spoke to on Tuesday cited the tweet and general unease over the future direction of the trade war as the main reason for the declines.

Also on investors’ minds: A flattening (and partially inverted) yield curve suggesting worries about slowing growth in the United States, Asia and Europe: “It was a combination of all of the above,” Steve Massocca of Wedbush Equity Management told MM.

“Clearly the disappointment came in that no serious progress was made with China. That really started the ball rolling. … And then computer trading really starts piling on. We see more and more of that these days. This wouldn’t have happened 15 years ago.”

Our Doug Palmer and Katy O’Donnell have more on the sell-off here: "Doubts about … Trump's temporary cease-fire in a trade war with China helped spark a plunge in stocks on Tuesday, as senior administration officials acknowledged it was too early to say if a longer-term deal could be reached."

“‘The market is trying to figure out is there going to be a real deal at the end of 90 days or not,’ Treasury Secretary Steven Mnuchin said Tuesday during an on-stage interview at the Wall Street Journal's CEO summit in Washington. ‘Now, whether we can get that to a real agreement, or at least make a lot of progress, over the 90-day period or not, time will tell.’ …

“Mnuchin tried to explain that the administration had ‘very specific commitments’ by China and Xi himself. But various administration officials have been vague about what comes next, and even when the 90-day clock begins. … Earlier in the day, Commerce Secretary Wilbur Ross also said it was too early to tell if trade talks with China will be a success, despite ‘very good assurances’ Trump had received from Xi.”

Pantheon’s Ian Shepherdson on the “Tariff Man” tweet: “Where to start? The last time we looked, international trade was a mutually beneficial exchange, allowing countries to enjoy the benefits of the single most powerful idea in international economics, namely that exploiting comparative advantage makes both parties to trade better off. …

“China is a high-saving, low-cost producer, mostly of goods, while the U.S. is a low-saving, high-cost producer, mostly of services. It would be remarkable if the U.S. did not run a trade deficit with China.”

MARKETS ARE CLOSED WEDNESDAY — The break to observe a day of mourning for former President George H.W. Bush will give the White House a much needed pause to try to figure out exactly what it’s message really is regarding China. But that might be hard to do given that the president continues to espouse a mercantilist trade policy that would be more at home in the 19 th century. He also continually suggests that the Chinese will pay the tariffs even though they won’t.

TRUMP AFTER DARK — The president came back with two more tweets in the evening after the Wall Street massacre: “We are either going to have a REAL DEAL with China, or no deal at all - at which point we will be charging major Tariffs against Chinese product being shipped into the United States. Ultimately, I believe, we will be making a deal - either now or into the future.... China does not want Tariffs!”

GRASSLEY WANTS TO LESSEN TRUMP TRADE POWER — Our Adam Behsudi and Ryan McCrimmon: “Incoming Senate Finance Chairman Chuck Grassley said he wants to take up legislation that would limit … Trump's ability to impose tariffs for national security reasons. The legislation would be ‘along the lines of the Portman-Ernst bill,’ the Iowa Republican told reporters Tuesday during his weekly press call.

“That bill, introduced earlier this year by Sens. Rob Portman (R-Ohio), Doug Jones (D-Ala.) and Joni Ernst (R-Iowa), would give the Defense Department, instead of the Commerce Department, the responsibility of using national security to justify any new tariffs.” Read more.

TRUMP COULD GET HIS WAY ON RATES — Our Victoria Guida: “Trump has been lashing out at the Federal Reserve for months, pressing the central bank to halt its campaign of interest rate hikes. He could soon get his way. The Fed has been steadily increasing rates over the past couple of years on the belief that the economic recovery finally has enough legs to do without the near-zero rates that persisted for nearly a decade since the financial crisis.

“But with global growth slowing, trade tensions simmering and the effects of the Fed’s own policies starting to take hold, the central bank is increasingly taking a cautious approach to forecasting rate hikes beyond the one that's widely expected later this month. In other words, the Fed will stop if U.S. economic growth cools — probably not the scenario envisioned by Trump, who once suggested the central bank was raising rates because ‘they think our economy is too good.’” Read more.

CANADA TO U.S.: APPROVE NEW NAFTA OR FEEL THE PAIN — If Congress does not approve the renegotiated U.S.-Mexico-Canada free trade deal, Americans will feel serious pain, according to a top Canadian official.

“We think the right conclusion is for the deal to be ratified,” Bill Morneau, Canada’s Finance Minister told me on the latest edition of the POLITICO Money podcast. “There are about 9 million American jobs that rely on trade with Canada. There’s almost a $700 billion trade relationship between the two countries, so $2 billion per day or so going back and fourth,” Morneau said. “Any disruptions around those jobs or any disruptions around that trade are by definition not positive, not positive for Americans and not positive for Canada.

WHY THEY STILL CALL IT NAFTA — The Canadians, including Prime Minister Justin Trudeau, have largely refused to adopt Trump’s rebranding of the deal. Some also dispute how different the USMCA is from NAFTA, with most analysts viewing it as updated but not fundamentally transformed, as Trump has claimed. “We can all debate on what a lot different or a little different means,” Morneau said. “There are clearly differences and there are differences that the United States sought.”

Morneau attributed Trudeau’s refusal to use the “USMCA” nomenclature to domestic concerns. “The reality is that we all have our own domestic situation. The average Canadian has an understanding of what the agreement is with the United States that’s been in place for a long time,” he said. “We don’t in any way dispute how President Trump wants to communicate. That’s absolutely up to him, to his discretion.”

TRUMP WANTS TO OVERHAUL USPS — Our Steven Overly: “Trump's task force scrutinizing U.S. Postal Service operations is proposing an overhaul of the financially distressed agency, including changes to how it prices packages shipped by retailers like Amazon, a frequent target of the president's attacks.

“In a report released on Tuesday, the Treasury-led task force says the Postal Service should price packages ‘with profitability in mind’ and impose higher rates on general e-commerce goods and other non-essential items sent through the mail. … The report's recommendations are broad and sweeping. They call for stronger oversight by the Postal Service board of governors — which sat empty for much of Trump's presidency.” Read more.

The report did not directly target Amazon but the subtext was clear. Amazon shares closed down nearly 6 percent at $1,668.40.

GOOD WEDNESDAY MORNING — Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.

DRIVING THE DAY — Markets and much of the federal government are closed to observe the day of mourning for former President George H.W. Bush. The state funeral will take place at 11:00 a.m. at the Washington National Cathedral.

BUSH SERVICE DETAILS — Our Matthew Choi: “After lying in state for the public to observe and mourn, George H.W. Bush’s casket will leave the Capitol on Wednesday for his state funeral service in … The funeral will take place at Washington National Cathedral at 11 a.m. on Wednesday … Bush’s casket will leave the cathedral at 12:30 p.m. for Joint Base Andrews and eventually make its way back to Texas for additional services and burial at Bush’s presidential library in College Station.

“The funeral route from the Capitol to the cathedral will follow Constitution and Pennsylvania avenues, turn up 22nd Street and continue up Massachusetts Avenue, according to D.C. police. Those roads will be closed from 9:15 until 11:00 a.m. The route from the cathedral to Joint Base Andrews will be closed from 11:00 a.m. until about 1:30 p.m.” Read more.

FINCEN CHIEF SLAMS LEAKS — Our Victoria Guida: “The director of the Treasury Department's Financial Crimes Enforcement Network … said his top priority is protecting confidential information it receives from banks, following leaks of financial records about individuals connected to … Trump.

“‘I suspect that everybody in this room is aware of an ongoing investigation into the unlawful disclosure of suspicious activity reports by a FinCEN employee," Director Kenneth Blanco said at the American Bankers Association's financial crimes enforcement conference.” Read more.

TRUMP’S ‘TARIFF MAN’ SPOOKS INVESTORS — NYT’s Matt Phillips and Alan Rappeport: “The trade war is back on — at least as far as investors are concerned. Stocks sank on Tuesday, as President Trump threatened China with further tariffs, just days after the two countries agreed to a cease-fire in their escalating economic conflict. Referring to himself as a ‘Tariff Man,’ Mr. Trump, in a series of tweets, deepened the murkiness surrounding the trade agreement, while members of his economic team talked down the prospects of a broad deal.

“The fear is that a lasting trade war will undermine the global growth at a time when some of the world’s largest economies are already slowing down, and the United States, a standout performer, is also expected to slow.” Read more.

STOCKS, BOND YIELDS DROP ON TRADE JITTERS — AP’s Alex Veiga: “Stocks tanked Tuesday as the goodwill generated by a truce between the U.S. and China over trade evaporated over confusion about what the two sides had actually agreed upon. The Dow Jones Industrial Average fell nearly 800 points. The yield on the benchmark 10-year Treasury note declined to its lowest level in three months, a signal that the bond market is worried about long-term economic growth.

“The sell-off short-circuited a recent rally on Wall Street. The market gained Monday after the Trump administration said U.S. and China agreed to a temporary cease-fire in a trade dispute. Last week, stocks jumped when the Federal Reserve’s chairman indicated the central bank could slow the pace of interest rate increases.” Read more.

And the misery runs deeper than Trump and the Fed — Bloomberg’s Sarah Ponczek, Luke Kawa and Vildana Hajric: “At first glance, investors got what they wanted: a less aggressive Federal Reserve and calming words on trade. That they still aren’t pleased suggests a bigger issue is underscoring their anxiety.

“That issue is the possibility economic and earnings growth will slow down or stop next year, a scenario that unlike the trade war and interest-rate policy defies any obvious human solution. The S&P 500 plunged 3.2 percent, the Dow Jones Industrial Average sank almost 800 points and bond yields tumbled.” Read more.

INVESTORS HEAR 3 WORDS THEY FEAR: INVERTED YIELD CURVE — AP’s Stan Choe: “One of the most reliable warning signals for a recession just got a bit brighter. The signal is called the ‘yield curve,’ and it shows how the bond market is feeling about the U.S. economy’s long-term prospects. On Tuesday the yield curve signaled caution and, along with worries about global trade and interest rates, it helped send the stock market to one of its worst days of the year.

“WHAT JUST HAPPENED? The yield on the five-year Treasury dropped below the two-year and three-year Treasury yields on Monday. By Tuesday afternoon, the five-year yield was at 2.78 percent, 0.01 percentage points lower than a two-year Treasury and 0.02 points lower than a three-year Treasury. It’s the first time any part of the yield curve has inverted since 2007, before the start of the Great Recession.” Read more.

The yield curve isn’t a crystal ball though — WSJ’s Jon Sindreu: “For starters, the inversion between two-year and five-year Treasury yields could be a temporary kink. In 1998, the gap turned negative without the rest of the curve following suit, and no recession followed. The most common measure of yield curve steepness is the difference between two-year and 10-year yields. This has also flattened but remains positive. A flattening curve itself has shown no predictive power.

“Even if the full curve does flip, investors shouldn’t confuse cause for effect: Inverted yield curves don’t cause recessions, nor provide new information about the economy. They simply reflect a market assumption that growth will slow, based on how long the expansion has been going on and what data is available.” Read more.

GOLDMAN CLOSE TO ERASING THE TRUMP BUMP — Bloomberg’s David Scheer: “Goldman Sachs Group Inc. soared in the months after … Trump’s election in 2016, enriching shareholders and its staff. That so-called Trump Bump is now almost gone. The stock has tumbled 33 percent from a record high in mid-March, eroded by a broader market slump and troubles specific to the firm. About half of the decline occurred in the past month, as investors worried about the costs and reputational damage the investment bank may incur over its involvement in Malaysia’s 1MDB corruption scandal.” Read more.

NEW INSURANCE TECH REPORT— The Milken Institute Center for Financial Markets published a new report covering the global InsurTech ecosystem: “The report profiles more than 100 InsurTech platforms operating in the U.S. and around the globe, relevant policy and regulatory developments in the space, and the increasing influence and activity of BigTech platforms in the insurance sector, among other topics.” Read more.

TRANSITIONS — Andrew Shult has joined the American Investment Council as digital director. He previously was digital director in Vice President Pence’s office. … Jon Selib will be SVP of global policy at Pfizer. He previously was a partner at Hakluyt & Company and served as chief of staff to former Sen. Max Baucus (D-Mont.).

Follow us on Twitter Mark McQuillian @mcqdc



Ben White @morningmoneyben



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Katy O'Donnell @katyodonnell_



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