The Greek's Week Ahead - Waging Stealth Trade War With China
The Greek's Week Ahead has been engineered to prepare you for events that could impact your portfolio this week.
Your nation is at war, and I'm not talking about that mess in the desert of the Middle East. That's the obvious guess, but not the kind of thing your favorite Greek uncovers for you. No, look closer, listen more attentively. Do you hear the faint firing of a single rifle, and another, and do you see the distant flash of mortar fire? You have to really pay attention.
The signs are everywhere actually, ever since the well publicized meetings of the economic dream team, headlining Hank Paulson and Ben Bernanke. Since the grand summit of high ranking financial market representatives of the battling nations, the United States and China have been engaged in economic warfare. News flash, we're winning, or at least getting our message across that the days of turning a blind eye are over.
It started with the well-publicized deaths of the adored pets of many Americans. This brings to light the ancillary impact of the economic struggle being strategically waged, the impact to the consumption preferences of American consumers. Americans adore their pets, something not well understood in much of the developing world, and definitely not in most of China, where more basic needs understandably take priority. When news media headlines read, "Chinese Sourced Component Sickens Fido," Americans start looking at the ingredients information and the "made in" label. Hank Paulson, someone I've been maybe too harsh on here in the past, is playing hardball now, and I like it!
And you know what, sometimes people or nations need to have something taken away before they can properly appreciate its contribution. The Chinese government has been treating America like an opponent they want to get the most out of before eventually overcoming, rather than a nation they want to be an honest long-term trading partner with. It's about time we called them on it! Our own greed and goal for expanding profit margin has led us to overlook many troubling issues it seems. I mean, if we only just "discovered" pollutants (perhaps a kind substitute for poisons) in food products, it certainly does not mean they weren't there for years. I guess we previously thought a little anti-freeze in toothpaste might warm folks through cold winters, and with global warming, we wouldn't need that anymore.?..
This quiet trade war does not start or end with foods products, however. Back in February, we filed a dispute through the World Trade Organization alleging that China was providing illegal incentives to exporters. Then, in the spring, the Commerce Department imposed tariffs on imports of Chinese paper. In mid-April, the U.S. filed two more complaints against China through the WTO. That last dispute was concerning the violation of intellectual property rights with books, music and films.
What's behind this new found battle ready mentality from an administration that was dead set on free trade solving all concerns on its own? It might have something to due with the President's trade negotiation rights, set to expire in June. These rights were previously approved by a Republican dominated Congress. The administration must be smoking some funny cigarettes though, if they think the Democrats are going to renew it.
Maybe the President is trying to stave off more drastic Congressional action against China. This doesn't make sense either though, since the Democrats are going to want to take the credit for standing up to the Chinese. That would mean an acceleration of economic warfare, not vice versa.
No, what really makes sense here is actually pretty simple. First, of course we want fair trade rules implemented over the long-term, but we always have, as soon as we run out of the bigger benefits from outsourcing our manufacturing over there.
Meanwhile, we really need Chinese and Russian support to establish harsher sanctions on Iran. The administration is determined to stymie the progress of Iran toward a nuclear weapon, and it may be worthwhile to America to negotiate with the Russians on missile defense and the Chinese on trade. This, once the Chinese see what they could lose in a trade war.
Guess who else loses in a trade war with China, our dear old friend and key to U.S. economic stability, the American consumer. Imagine if core inflation were to rise like the headline figure has. The Fed would be faced with a significant challenge as consumer spending would soften at the same time prices rise. This is a scenario we already expect, but the situation would be exacerbated if trade war escalated.
So, as the news wires are full of rumors of high level administration meetings to discuss just how to paint a plan to withdraw our troops from Iraq, while somehow saving face, we have to wonder what the plans are for Iran. Are we pulling the troops out of the line of fire? After all, in their current position they would be massively outnumbered and surrounded by Iraqi Shiites and the huge Iranian army, not to mention the Syrians. Clearly, this disregards our balance of power winning sea and air support, barring Russian or Chinese submarine intervention. Wall Street Greek certainly agrees it's important to shake up the chess board and force the Iranians to digest a new playing field before we engage, and this means moving the troops from Iraq.
Still, even if we've figured out the war plan, the more important question remains, will it work. We think China will call the American bluff here. However, the Chinese are also less likely to stand in the way of American or American/European/Israeli intervention, while the Russians are likely to take the deal. Russia stands to benefit from the likely rocketing oil prices that would ensue, so no matter how much Putin plays the contrarian, he's prepared to benefit from either eventuality. We think the Chinese will stand down. God help us in any other scenario, because world war would loom on the horizon.
Enough prognosticating... let's look at the week ahead...
It's earnings season again, and Alcoa (NYSE: AA) leads things off on Monday in traditional fashion. Also reporting on a relatively light day, expect news from Pepsi Bottling Group (NYSE: PBG), Schnitzer Steel Industries (SCHN), WD-40 (Nasdaq: WDFC) and a few others. The savior of the market's inhibition may have arrived, earnings season, and just in time to temporarily steal the focus from rising interest rates.
In the afternoon, May consumer credit will be reported. The consensus is looking for an increase of $5.6 billion, according to Bloomberg. April's growth of $2.6 billion surprised most, as it was short of expectations for $5.0 billion. I read this as a negative, and possibly a sign that new credit is being restricted thanks to the sins of borrowers' past, so to speak. It's hard to say with certainty since credit card defaults held up well in the latest reading, compared to other debt.
On Tuesday, we'll get the latest news from the ICSC-UBS on same-store sales. We didn't view last week's numbers too bad, despite comments from Bob Pisani at CNBC saying so. Still, let's be clear, we anticipate the metric will trend poorly in the months ahead despite the employment numbers of last week. We have discussed the reasons why in detail in past articles, in case you are a new visitor to the site. Please review those.
The Bank of Canada will announce its decision on key rates at 9:00 a.m. Expectations are for the newly cool and common quarter point increase to 4.5%. Wholesale trade data should be reported Tuesday, though Barron's has it listed for Wednesday. Expectations are for inventories to increase 0.4%, compared to a 0.3% increase last time around.
Reporting earnings, look for Acuity Brands (NYSE: AYI), Audiovox (Nasdaq: VOXX), Chattem, Inc. (Nasdaq: CHTT), Emmis Communications (Nasdaq: EMMS), Helen of Troy (Nasdaq: HELE), International Speedway (Nasdaq: ISCA), Rocky Mountain Chocolate (RMCF) and a few others. Sealy Corp. (NYSE: ZZ) also reports Tuesday, and we wonder if Peter Lynch, famous for using common man logic to choose stocks, would look to the current bed bug epidemic as a sales driver for the mattress maker.
The Mortgage Bankers Association makes its regular report of purchase applications for the week just passed, but Wednesday is all about earnings. With the season moving into full swing, look for earnings from AAR Corp. (NYSE: AIR), Chaparral Steel (Nasdaq: CHAP), Genentech (NYSE: DNA), Mercantile Bank (Nasdaq: MBWM), Ruby Tuesday (NYSE: RT), Wolverine World Wide (NYSE: WWW) and Yum! Brands (NYSE: YUM). We wrote a special pre-earnings piece last week about YUM for another site, and will republish it on our site Monday.
Philadelphia Fed President Charles Plosser is scheduled to speak in London on housing prices and monetary policy. Also, Secretary Paulson will be meeting with Brazilian President Lula da Silva, the central bank governor and others. The Petroleum Status Report and/or anticipation of it could deflate oil prices a bit, after their recent frantic run higher.
The Commerce Department will report on May international trade on Thursday morning, with expectations for the deficit to have widened to $60 billion in May, from $58.5 in April. It will be interesting to see if there has been any notable impact from the stealth trade war and theme of this week's article. Earlier this same morning, news from Asia is expected regarding the Bank of Japan's decision on interest rates. Rates are anticipated to be held steady, but a rise in rates could be bad for U.S. securities. The bank's commentary could indicate signs of a future hike, and this may prove equally damaging for stocks in the U.S., as concerns would rise that borrowers in Japanese currency might reverse investment and loan positions. The European Community will offer its quarterly growth forecast as well.
Later in the afternoon, the treasury budget for June is expected to be $30 billion, versus $20.5 billion in May. San Francisco Fed President Janet Yellen is scheduled to speak about the U.S. economic outlook and monetary policy. We'll look for clues as to the tone of the FOMC meeting minutes from last week, which are yet to come. Weekly initial jobless claims are seen right around their four-week moving average, at 315,000. Natural gas inventory will be reported right on schedule Thursday.
Monthly chain-store sales should be reported for many of the nations retailers, and could set off a selling spree if consumer softness is portrayed. If not, buyers may appear, since the shares of many retailers have already factored in concern. Earnings reporters include Electro Scientific Industries (Nasdaq: ESIO), Fastenal (Nasdaq: FAST), Fleetwood Enterprises (NYSE: FLE), M&T Bank (NYSE: MTB), Marriott International (NYSE: MAR), Texas Industries (NYSE: TXI) and a few others.
Friday finishes off the first week of the second quarter earnings season with the important Retail Sales Report for June, with expectations for no change. Excluding automobiles, the consensus is looking for an increase of 0.2%. In May, a relatively strong month, sales increased 1.4% over April, which was impacted by weather. We expect this poor expectation for June is correct, and consumer softness concerns should be the hot topic of the day. In a second early morning report, import and export prices are due out. Bloomberg's consensus is expecting import prices to show a rise of 0.6% in June, versus a 0.9% increase in May. Business inventories are expected to show a 0.3% rise in May, versus a 0.4% increase in April.
The RBC Cash Index should provide even more color on consumer attitudes for the future, and the preliminary Michigan Consumer Sentiment Report for July is expected to show a slight rise from June to 86. The RBC Index has trended lower this year, though with choppy months of spike. Judging by spending, we suspect the consensus is wrong about sentiment, and we look for a lower reading.
Earnings reports include General Electric (NYSE: GE), Shaw Communications (NYSE: SJR) and some others.
Thank you again for your interest. We hope you will continue to support our advertisers and tell your friends about the Wall Street Greek. (disclosure)
Your nation is at war, and I'm not talking about that mess in the desert of the Middle East. That's the obvious guess, but not the kind of thing your favorite Greek uncovers for you. No, look closer, listen more attentively. Do you hear the faint firing of a single rifle, and another, and do you see the distant flash of mortar fire? You have to really pay attention.
The signs are everywhere actually, ever since the well publicized meetings of the economic dream team, headlining Hank Paulson and Ben Bernanke. Since the grand summit of high ranking financial market representatives of the battling nations, the United States and China have been engaged in economic warfare. News flash, we're winning, or at least getting our message across that the days of turning a blind eye are over.
It started with the well-publicized deaths of the adored pets of many Americans. This brings to light the ancillary impact of the economic struggle being strategically waged, the impact to the consumption preferences of American consumers. Americans adore their pets, something not well understood in much of the developing world, and definitely not in most of China, where more basic needs understandably take priority. When news media headlines read, "Chinese Sourced Component Sickens Fido," Americans start looking at the ingredients information and the "made in" label. Hank Paulson, someone I've been maybe too harsh on here in the past, is playing hardball now, and I like it!
And you know what, sometimes people or nations need to have something taken away before they can properly appreciate its contribution. The Chinese government has been treating America like an opponent they want to get the most out of before eventually overcoming, rather than a nation they want to be an honest long-term trading partner with. It's about time we called them on it! Our own greed and goal for expanding profit margin has led us to overlook many troubling issues it seems. I mean, if we only just "discovered" pollutants (perhaps a kind substitute for poisons) in food products, it certainly does not mean they weren't there for years. I guess we previously thought a little anti-freeze in toothpaste might warm folks through cold winters, and with global warming, we wouldn't need that anymore.?..
This quiet trade war does not start or end with foods products, however. Back in February, we filed a dispute through the World Trade Organization alleging that China was providing illegal incentives to exporters. Then, in the spring, the Commerce Department imposed tariffs on imports of Chinese paper. In mid-April, the U.S. filed two more complaints against China through the WTO. That last dispute was concerning the violation of intellectual property rights with books, music and films.
What's behind this new found battle ready mentality from an administration that was dead set on free trade solving all concerns on its own? It might have something to due with the President's trade negotiation rights, set to expire in June. These rights were previously approved by a Republican dominated Congress. The administration must be smoking some funny cigarettes though, if they think the Democrats are going to renew it.
Maybe the President is trying to stave off more drastic Congressional action against China. This doesn't make sense either though, since the Democrats are going to want to take the credit for standing up to the Chinese. That would mean an acceleration of economic warfare, not vice versa.
No, what really makes sense here is actually pretty simple. First, of course we want fair trade rules implemented over the long-term, but we always have, as soon as we run out of the bigger benefits from outsourcing our manufacturing over there.
Meanwhile, we really need Chinese and Russian support to establish harsher sanctions on Iran. The administration is determined to stymie the progress of Iran toward a nuclear weapon, and it may be worthwhile to America to negotiate with the Russians on missile defense and the Chinese on trade. This, once the Chinese see what they could lose in a trade war.
Guess who else loses in a trade war with China, our dear old friend and key to U.S. economic stability, the American consumer. Imagine if core inflation were to rise like the headline figure has. The Fed would be faced with a significant challenge as consumer spending would soften at the same time prices rise. This is a scenario we already expect, but the situation would be exacerbated if trade war escalated.
So, as the news wires are full of rumors of high level administration meetings to discuss just how to paint a plan to withdraw our troops from Iraq, while somehow saving face, we have to wonder what the plans are for Iran. Are we pulling the troops out of the line of fire? After all, in their current position they would be massively outnumbered and surrounded by Iraqi Shiites and the huge Iranian army, not to mention the Syrians. Clearly, this disregards our balance of power winning sea and air support, barring Russian or Chinese submarine intervention. Wall Street Greek certainly agrees it's important to shake up the chess board and force the Iranians to digest a new playing field before we engage, and this means moving the troops from Iraq.
Still, even if we've figured out the war plan, the more important question remains, will it work. We think China will call the American bluff here. However, the Chinese are also less likely to stand in the way of American or American/European/Israeli intervention, while the Russians are likely to take the deal. Russia stands to benefit from the likely rocketing oil prices that would ensue, so no matter how much Putin plays the contrarian, he's prepared to benefit from either eventuality. We think the Chinese will stand down. God help us in any other scenario, because world war would loom on the horizon.
Enough prognosticating... let's look at the week ahead...
It's earnings season again, and Alcoa (NYSE: AA) leads things off on Monday in traditional fashion. Also reporting on a relatively light day, expect news from Pepsi Bottling Group (NYSE: PBG), Schnitzer Steel Industries (SCHN), WD-40 (Nasdaq: WDFC) and a few others. The savior of the market's inhibition may have arrived, earnings season, and just in time to temporarily steal the focus from rising interest rates.
In the afternoon, May consumer credit will be reported. The consensus is looking for an increase of $5.6 billion, according to Bloomberg. April's growth of $2.6 billion surprised most, as it was short of expectations for $5.0 billion. I read this as a negative, and possibly a sign that new credit is being restricted thanks to the sins of borrowers' past, so to speak. It's hard to say with certainty since credit card defaults held up well in the latest reading, compared to other debt.
On Tuesday, we'll get the latest news from the ICSC-UBS on same-store sales. We didn't view last week's numbers too bad, despite comments from Bob Pisani at CNBC saying so. Still, let's be clear, we anticipate the metric will trend poorly in the months ahead despite the employment numbers of last week. We have discussed the reasons why in detail in past articles, in case you are a new visitor to the site. Please review those.
The Bank of Canada will announce its decision on key rates at 9:00 a.m. Expectations are for the newly cool and common quarter point increase to 4.5%. Wholesale trade data should be reported Tuesday, though Barron's has it listed for Wednesday. Expectations are for inventories to increase 0.4%, compared to a 0.3% increase last time around.
Reporting earnings, look for Acuity Brands (NYSE: AYI), Audiovox (Nasdaq: VOXX), Chattem, Inc. (Nasdaq: CHTT), Emmis Communications (Nasdaq: EMMS), Helen of Troy (Nasdaq: HELE), International Speedway (Nasdaq: ISCA), Rocky Mountain Chocolate (RMCF) and a few others. Sealy Corp. (NYSE: ZZ) also reports Tuesday, and we wonder if Peter Lynch, famous for using common man logic to choose stocks, would look to the current bed bug epidemic as a sales driver for the mattress maker.
The Mortgage Bankers Association makes its regular report of purchase applications for the week just passed, but Wednesday is all about earnings. With the season moving into full swing, look for earnings from AAR Corp. (NYSE: AIR), Chaparral Steel (Nasdaq: CHAP), Genentech (NYSE: DNA), Mercantile Bank (Nasdaq: MBWM), Ruby Tuesday (NYSE: RT), Wolverine World Wide (NYSE: WWW) and Yum! Brands (NYSE: YUM). We wrote a special pre-earnings piece last week about YUM for another site, and will republish it on our site Monday.
Philadelphia Fed President Charles Plosser is scheduled to speak in London on housing prices and monetary policy. Also, Secretary Paulson will be meeting with Brazilian President Lula da Silva, the central bank governor and others. The Petroleum Status Report and/or anticipation of it could deflate oil prices a bit, after their recent frantic run higher.
The Commerce Department will report on May international trade on Thursday morning, with expectations for the deficit to have widened to $60 billion in May, from $58.5 in April. It will be interesting to see if there has been any notable impact from the stealth trade war and theme of this week's article. Earlier this same morning, news from Asia is expected regarding the Bank of Japan's decision on interest rates. Rates are anticipated to be held steady, but a rise in rates could be bad for U.S. securities. The bank's commentary could indicate signs of a future hike, and this may prove equally damaging for stocks in the U.S., as concerns would rise that borrowers in Japanese currency might reverse investment and loan positions. The European Community will offer its quarterly growth forecast as well.
Later in the afternoon, the treasury budget for June is expected to be $30 billion, versus $20.5 billion in May. San Francisco Fed President Janet Yellen is scheduled to speak about the U.S. economic outlook and monetary policy. We'll look for clues as to the tone of the FOMC meeting minutes from last week, which are yet to come. Weekly initial jobless claims are seen right around their four-week moving average, at 315,000. Natural gas inventory will be reported right on schedule Thursday.
Monthly chain-store sales should be reported for many of the nations retailers, and could set off a selling spree if consumer softness is portrayed. If not, buyers may appear, since the shares of many retailers have already factored in concern. Earnings reporters include Electro Scientific Industries (Nasdaq: ESIO), Fastenal (Nasdaq: FAST), Fleetwood Enterprises (NYSE: FLE), M&T Bank (NYSE: MTB), Marriott International (NYSE: MAR), Texas Industries (NYSE: TXI) and a few others.
Friday finishes off the first week of the second quarter earnings season with the important Retail Sales Report for June, with expectations for no change. Excluding automobiles, the consensus is looking for an increase of 0.2%. In May, a relatively strong month, sales increased 1.4% over April, which was impacted by weather. We expect this poor expectation for June is correct, and consumer softness concerns should be the hot topic of the day. In a second early morning report, import and export prices are due out. Bloomberg's consensus is expecting import prices to show a rise of 0.6% in June, versus a 0.9% increase in May. Business inventories are expected to show a 0.3% rise in May, versus a 0.4% increase in April.
The RBC Cash Index should provide even more color on consumer attitudes for the future, and the preliminary Michigan Consumer Sentiment Report for July is expected to show a slight rise from June to 86. The RBC Index has trended lower this year, though with choppy months of spike. Judging by spending, we suspect the consensus is wrong about sentiment, and we look for a lower reading.
Earnings reports include General Electric (NYSE: GE), Shaw Communications (NYSE: SJR) and some others.
Thank you again for your interest. We hope you will continue to support our advertisers and tell your friends about the Wall Street Greek. (disclosure)
Labels: Week Ahead
posted by The Greek | 10:15 PM
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