April 21 – This is a big earnings week for Wall Street, but it is yet to be seen how much investors will have the opportunity to focus on those reports amid the flood of market-moving headlines that continue to flow out of the White House. Stock futures tumbled along with the dollar overnight as traders reacted to rising fears that President Trump may fire Federal Reserve Chair Jerome Powell. Meanwhile, trade negotiations are ramping up with key trading partners, but China is warning countries against signing agreements with the United States that reduce trade with China – something that I’ve long stated as an objective of President Trump as part of his plan to “contain” China. Gold prices rose to fresh record highs as a result as well. The VIX Is trading near 32 this morning, while the dollar index is at a fresh three-year low near 98.1. Yields on 10-year Treasuries are trading near 4.40%, while yields on 2-year Treasuries are trading near 3.78%. Crude oil prices are 2% lower on the above concerns, while the grain and oilseed sector traded mostly higher overnight on the weaker dollar and its recent resiliency.
Formal negotiations continue between the White House and several key trading partners regarding President Trump’s reciprocal tariffs, but China is not among those negotiating – at least not publicly. China’s Ambassador to the United States, Xie Feng, spoke Sunday urging Washington to seek common ground on trade. China has previously stated its goals of having the number one economy and military in the world, but Xie’s comments spoke of a desired world where China and the United States coexist. China’s economy is export based, while the U.S. economy is consumer based. China is trying to transition its economy to one of being more consumer based, but it’s having trouble doing so when consumer sentiment is near record low levels, and it’s own debt level is rapidly escalating as the Trump tariffs dramatically reduce exports, necessitating more state funding for stimulus projects. China’s fiscal revenue fell 1.1% year-on-year in the first quarter, while fiscal expenditures rose 4.2%, leading to a fiscal deficit of 1.26 trillion yuan for the period, up 41% year-on-year as China continues to battle this trade war with ever-increasing levels of fiscal stimulus. Trump’s trade war is breaking China’s bank.
The U.S. Trade Representative provided greater clarity on its Section 301 investigation and response to China’s efforts to dominate the world shipbuilding industry at the end of last week, concluding a year-long study of the situation. The investigation started during the Biden Administration, carrying over into the Trump Administration, which saw it as a national security issue. As such, the White House announced a two-phased response. The first phase will play out over the next 180 days, during which applicable port fees will be set at $0. Fees on vessel owners and operators of China based fleets will be based on net tonnage per U.S. voyage, increasing incrementally over the following years. Fees charged to operators of Chinese-built ships will be based on net tonnage or containers, increasing incrementally over the following years. In order to incentivize U.S.-built car carrier vessels, fees on foreign-built car carrier vessels will be based on their capacity. The second phase will not fully take place until three years from now. There will be limited restrictions on transporting liquified natural gas on foreign vessels that will increase incrementally over the next 22 years in order to stimulate U.S. shipbuilding for such. The U.S.T.R. is also seeking public comment on tariffs on ship-to-shore cranes and other cargo handling equipment. Bulk exports of coal and grain appear to be exempted from fees, while LNG exports are exempted over the next three years as outlined above. More details are expected to be released in the days and weeks ahead.
White House Economic Advisor Kevin Hassett stated Friday that the Trump Administration continues to study whether they could fire Federal Reserve Chair Jerome Powell. This unsettled Wall Street going into the weekend, as traders generally want to see separation between monetary policy and political leadership. I would agree with that. I’ve made no secret about my frustration with the Federal Reserve’s leadership at times, feeling like they were leading from behind, or too sensitive to the whims of the markets. There are times when I believe that they should be more hawkish when they are dovish, and visa versa. But it’s a dangerous precedent if monetary policy is set based on the desires of the president – whoever that may be. What president would not want lower interest rates to stimulate the economy while they’re in office, even if that may mean more inflation down the road? I may feel that the Federal Reserve has lost touch with Main Street, but I believe that is still better than policy that is influenced by political bias. And the overnight markets suggest that is the view of Wall Street as well.
This afternoon’s USDA weekly crop progress report should show good planting progress for the past week, but that is expected to slow somewhat this week into next, with rains focusing mostly on central and western portions of the Midwest. However, that’s a bit drier than the forecasts looked on Friday. Meanwhile, about a third of Brazil’s corn area is dry as it goes through pollination, while both harvest and farmer selling accelerate in Argentina.
