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Authored by Steve Watson via Summit News,

A Bloomberg poll has revealed that an overwhelming majority of Americans would be willing to spend more money on products if they are manufactured outside of China, with 40% saying they simply will not buy anything made in China at all.

In addition to these findings, 55% said that they do not believe China can be trusted to fulfil its trade-deal commitment to buy more U.S. products, while 66% said they favor raising import restrictions over the pursuit of free-trade deals as a better way to boost the U.S. economy.

The findings come as President Trump announced that he now feels ‘differently’ about the trade deal he signed with China earlier this year.

”I feel differently now about that deal than I did three months ago,” Trump told reporters Tuesday.

”We will see what all happens, but it’s been a very disappointing situation. Very disappointing thing happened with China because the plague flowed in and that wasn’t supposed to happen and it could have been stopped,” Trump added.

”Once the virus came in, once the plague, as I called it, came in, I said how did they let that happen? And how come it didn’t go into other sections of China? Why did they block it from leaving Wuhan? But they didn’t block it from going to the rest of the world, including the United States. Why is that? Beijing doesn’t have it. Other places don’t have it,” he continued.

The President touted trade deals that the US has with other countries.

“People don’t realize the amount of business that we do with Canada and with Mexico is monumental. It is the biggest trade deal in the world, bigger than the deal we made with China, most people don’t know and the China deal is kicking in.” Trump said.

Earlier this month, Trump tweeted that 100 trade deals with China wouldn’t make up for the ‘plague from China’.

As I have said for a long time, dealing with China is a very expensive thing to do. We just made a great Trade Deal, the ink was barely dry, and the World was hit by the Plague from China. 100 Trade Deals wouldn’t make up the difference – and all those innocent lives lost!

— Donald J. Trump (@realDonaldTrump) May 13, 2020

Existing Home Sales in April plunged 17.8% MoM to the lowest SAAR since September 2011 (at 4.33mm, slightly better than the 4.22mm exp)…

Source: Bloomberg

This is the largest drop since the government’s homebuyer tax credit expired in July 2010 (the two month drop is around 25% SAAR)

Source: Bloomberg

Additionally, the median home price increased 7.4% from a year earlier to $286,800.

“The economic lockdowns – occurring from mid-March through April in most states – have temporarily disrupted home sales,” Lawrence Yun, NAR’s chief economist, said in a statement.

“But the listings that are on the market are still attracting buyers and boosting home prices.”

Inventory was down 19.7% last month from a year ago to 1.47 million units, the lowest on record for any April. The number of homes for sale would last 4.1 months at the current sales pace. Anything below five months is seen as a tight market.

Existing home sales slumped in all U.S. regions in April, led by a 25% drop in the West from a month earlier. Contract closings also fell 17.9% in the South, 12% in the Midwest and 16.9% in the Northeast.

Just after a tweet by Secretary of State Mike Pompeo congragulating Taiwan on its latest presidential election outraged Beijing, later in the day Wednesday the US announced a deal to sell $180 worth of torpedoes to Taiwan.

Specifically the agreement is for transferring 18 heavy Mk-48 torpedoes to the breakaway island-republic’s military.

The US State Department said in announcing the deal: “Supplying Taiwan with these torpedoes serves the economic and security interests of the United States by helping (Taiwan) modernize its armed forces and maintaining a reliable defense capability.”

“This deal will also contribute to maintaining political stability, balance of power and economic progress in the region,” the statement added, in a veiled shot at what Washington considers the ‘destabilizing’ influence of China, which historically sees Taiwan as its own.

“The Defense Security Cooperation Agency delivered the required certification notifying Congress of this possible sale today,” it added.

A Mk-48 torpedo is nearly two feet in diameter and weighs 3,520 pounds; it can destroy targets at ranges of well over 5 miles out and travels at speeds up to 55 knots. Specifically, the “MK-48 Mod 6 Advanced Technology heavyweight torpedoes, which feature advanced sonar targeting for submarines, along with support equipment and related logistics support,” are considered a major upgrade to Taiwan’s submarine arsenal and capabilities.

Crucially the announcement came the same day Taiwan President Tsai Ing-wen was sworn in for her second term in office.

She provocatively verbalized a firm rejection of Chinese sovereignty claims in her speech, emphasizing the triumph of democracy as an affirmation of the island’s sovereignty and independence. 

Meanwhile, China reportedly stepped up military drills in the contested waters near Taiwan in response to the inauguration, which further involved flying PLA fighter jets into Taiwan’s airspace. 

Since its record collapse in April, US economic data has surprised to the upside (admittedly against depression-esque expectations) and stocks have soared as if the pandemic never happened. This has sparked a renaissance in economists’ expectations that Markit’s soft survey data (after Europe’s rebound) will also rebound today in preliminary May data.

• Markit US Manufacturing 39.8 (40.0 exp vs 36.1 prior)

• Markit US Services 36.9 (32.5 exp vs 26.7 prior)

Source: Bloomberg

Although the overall contraction in new business eased in May, it was still the second-steepest in the series history. Firms continued to report significant decreases in client demand as customers further postponed the placement of orders.

Service sector and manufacturing firms registered the second-sharpest reductions in new orders since the global financial crisis. Foreign client demand remained especially muted, with new export orders decreasing substantially and at only a slightly reduced rate compared to April as lockdowns associated with the virus pandemic persisted across key export markets.

Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 36.4 in May, up from 27.0 in April, but nonetheless indicating the second-sharpest decline in business activity since the series began in late-2009.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said:

“The severe drop in business activity in May comes on the heels of a record downturn in April, adding to signs that GDP is set to suffer an unprecedented decline in the second quarter.

“Encouragement comes from the survey indicating that the rate of economic collapse seems to have peaked in April. In the absence of a second wave of COVID-19 infections, the decline should moderate further in coming months as measures taken to contain the coronavirus are steadily lifted.

“However, the sheer scale of the current downturn and associated job losses, and the fact that some restrictions will need to stay in place until an effective treatment or vaccine are found, highlights how a full recovery is unlikely to be swift.

Finally, Williamson comments on GDP:

“We anticipate that GDP will decline at an annualised rate of around 37% in the second quarter…”

 

and, according to Markit’s newly introduced COVID-19 containment index (based on information relating to issues such as closures of schools, non-essential shops and restaurants, as well as restrictions on public gatherings, internal mobility and external borders – We also forecast how these are expected to change in coming months, based primarily on government announcements. A reading of 100 means severe restrictions while a reading of zero indicate no restrictions)… “it will take the economy two years to regain the prepandemic peak.”

“ Businesses remained pessimistic towards the outlook for output over the coming year as the pandemic’s impact was extended. Although some became more confident of a pick-up in the later stages of the year, helping lift the survey’s future expectations index from April’s all-time low, others noted it would take a long time for conditions to normalise. “

Hope springs eternal.

Submitted by Michael Every of Rabobank

The Howl

“I saw the best funds of my generation destroyed by madness, starving hysterical naked, dragging themselves through the negative-yield streets at dawn looking for an angry fix.”

(With apologies to Alan Ginsberg.)

Well, it final happened. Back to the late 17th century, UK gilts had never been issued with negative yield. Until yesterday, the same day the BoE made clearer it is seriously contemplating entering the mirror world of being paid to borrow, which Japan and Europe are already deep into. Who said the UK isn’t European at heart, eh? Marginally lower rates, lower GBP as a result, and a whole host of acronyms to try to keep yield curves from killing the banking sector will now be flowing out of Threadneedle Street.

The Fed still doesn’t want to go negative, but as Philip Marey makes clear their latest minutes show they are prepared for a second wave of the coronavirus outbreak; the FOMC intends to make its forward guidance on rates more explicit; it may also provide more clarity regarding its asset purchases; it remains ready to expand its special lending facilities; and. finally, seems more interested in yield curve control. Don’t expect very high yields for as far as they eye can see – just not sub-zero ones either.

Meanwhile, howls abound in foreign policy and geopolitics.

This week has already seen the Nasdaq limit Chinese IPOs; yesterday saw the US senate pass legislation that would effectively force Chinese firms to delist from US exchanges (do you think the House can’t pass the same, or that Trump would then veto it in an election year?); and Republican senator (and tipped 2024 presidential candidate) Josh Hawley presented a speech as a pillar in the intellectual architecture of what the US actually wants: “The international order as we have known it for thirty years is breaking. Now imperialist China seeks to remake the world in its own image, and to bend the global economy to its will….We must recognise that the economic system designed by Western policy makers at the end of the Cold War does not serve our purposes in this new era.”

Hawley is pushing to leave the WTO outright. That seems unlikely for now – but the US is moving towards the inverse of what happened in the 1930s, when Germany, Italy, and Japan simply left the League of Nations when it no longer fitted their political world view. If the US cannot get institutions that work for it, it can and could walk away: WTO; WHO; UN; open capital markets. Don’t take anything for granted. Recall the US did not even join the League of Nations!

In market terms, we already see Bloomberg noting Chinese firms may shift their listings to Hong Kong to avoid US restrictions; but it isn’t as if Hong Kong is not caught in the eye of this storm itself. China has just accused the US of “blackmail” in its stance towards the Hong Kong government, and potential US policy action still looms in the background as a risk.

If all this is too highfalutin for you, there is always Twitter. Here are the recent cream of the crop from US President Trump:

“China is on a massive disinformation campaign because they are desperate to have Sleep Joe Biden win the presidential race so they can continue to rip-off the United States, as they have done for decades, until I came along! Spokesman speaks stupidly on behalf of China, trying desperately to deflect the pain and carnage that their country spread throughout the world. Its disinformation and propaganda attack on the United States and Europe is a disgrace…it all comes from the top. They could have easily stopped the plague, but they didn’t!”

That comes dangerously close to finger pointing at Xi Jinping, something Trump has so far not done and which may be a bridge that can only be burned once. Of course, the editor of China’s Global Times is not as restrained in his burns:

“On the contrary, Chinese netizens wish for your reelection because you can make America eccentric and thus hateful for the world. You help promote unity in China and you make intl news as fun as comedy. Chinese netizens call you ‘Jianguo’, meaning ‘help to construct China’.”

Somewhere in here the optimists will tell you that a there is a phase one trade deal trying to get out.

Meanwhile, Bloomberg reports that China is pushing ahead with a $1.4 trillion six-year plan of digital Keynesianism backed by Xi himself, both to boost growth, benefit Chinese tech giants at the expense of US firms, and move away from a reliance on US technology imports completely. If China does this it will ensure that the phase one deal is dead as the US exports the very highest tech and commodities to China – and it both can’t and won’t be just a primary commodity producer. It will also help ensure a Balkanisation of global tech systems and markets. And don’t think this is just a US-China issue. Australia has just been called a “giant kangaroo that serves as a dog of the US” – and there is talk of further threats to Aussie exports, such as dairy, fruit, and seafood.

But there is just one other small problem for China: they don’t have $1.4 trillion – not if they don’t have any exports they don’t. (On which front, Japanese data today saw exports for April -21.9% y/y, and Korea’s first 20-days of May data were -20.3% y/y). China has infinite CNY, as does everybody with a sovereign currency. It just has to hope it can boost state investment by USD1.4 trillion and not see a current-account deficit that pushes CNY off a cliff, especially with no capital inflows if the US hawks get their way.

Logically, the only way that external deficit doesn’t happen is if the US and world does not act as China dumps foreign technology imports and/or if the state investment push is mirrored by higher private-sector saving….in which case there is no GDP boost! Cue howls from those who don’t understand how these balance-sheet dynamics actually work. Or the geopolitics of it.

At least the trend towards negative rates makes more sense against this backdrop. Rates are marching lower and deficits higher everywhere; the RBNZ –who started inflation targeting– is likely to expand QE and is actively leaning on banks to lower their mortgage rates; and the first US 20-year Treasury auction since 1986 flew out the door yesterday. More to come. More to come.

After 16 months of stubbornly refusing any and all plea agreements, even as dozens of other parents arrested during “Operation Varsity Blues” – aka ‘the College Admissions Scandal’ – cut deals with prosecutors involving little to no jail time (though Loughlin co-defendant has already served the brief prison stint to which she was sentenced), actress Lori Loughlin (better known as “Aunt Becky” from the hit 90s sitcom “Full House”) and her fashion designer husband Massimo Giannulli have both agreed to plead cuilty to fraud charges, according to the  LA Times, which cited a new federal court filing.

Loughlin was arrested in March 2019 and charged with conspiring, along with mastermind Rick Singer, a Newport Beach “education consultant” who for years helped the children of celebrities and the wealthy cheat their way into elite colleges, to pass off her two daughters as promising rowing recruits, all but guaranteeing their admission to USC despite sub-standard test scores and academics, despite the fact that neither had ever rowed in their life.

The couple paid Singer $500,000 in all for his “assistance”. Instead of copping a plea, the two insisted for months that Singer misled them into believing the money was for legitimate purposes despite significant evidence to the contrary. Loughlin began meeting with Singer in the Spring of 2016 to hatch a plan for Olivia Jade – her Instagram influencer daughter – to be athletically recruited to USC. Eventually, Singer bribed rowing coach Donna Heinel to designate both daughters as recruited rowers.

In an email to Singer mentioned in the LAT report, Loughlin can be seen asking to “speak” with Singer about “getting my daughter into a school other than ASU!”

Heinel has pleaded not guilty to conspiracy to commit racketeering, bribery and fraud.

Payments to Singer were funneled through his charity, which alleged to help “underprivileged students”, adding a sort of disturbing irony to the whole operation. But this setup allowed authorities to file more serious charges since many of the parents wrote off their “contributions” as charitable contributions, breaking the No. 1 most important rule of living and thriving in America: Don’t screw with the IRS.

For nearly the entire time, legal experts have essentially insisted that Loughlin and Gianulli stood little chance of being acquitted at trial. Though the reasons for the deal aren’t entirely clear, we imagine the couple simply got worn down by the millstone of justice.

The actress is reportedly facing up to 2 months in jail.

Tyson Foods, Inc. is reporting a significant outbreak of COVID-19 at its Wilkesboro, North Carolina poultry plant. It appears the meat processing crisis is far from over, despite President Trump declaring an executive order weeks ago to reopen closed meat processing plants. 

Of the 2,244 workers and contractors at Wilkesboro facility who were recently tested, 570 tested positive for the virus, which equates to about 25% of the staff is infected. Many of the workers “did not show any symptoms,” Tyson says. 

Workers who tested positive were immediately sent home with paid leave and will return to work once they have met specific criteria laid out by both the CDC and Tyson. 

The Wilkesboro facility is among 30 meat processing plants where Tyson has distributed “advanced testing capabilities and enhanced care options on-site to team members in partnership with MATRIX MEDICAL.” 

“We are working closely with local health departments to protect our team members and their families, and to help manage the spread of the virus in our communities,” said Tom Brower, Senior Vice President of Health and Safety for Tyson Foods.

“We are using the most up-to-date data and resources to support our team members, and we are committed to ensuring they feel safe and secure when they come to work.”

Tyson has spent the last several weeks installing new health protocols at its plants that exceed CDC and OSHA guidelines for preventing COVID-19. Some of these new measures include: 

“These include symptom screenings for all team members before every shift, providing mandatory protective face masks to all team members, as well as a range of social distancing measures including physical barriers between workstations and in break rooms.”

Earlier this month, we described how meat processing plants are perfect environments for COVID-19 to thrive. Here are some of the most recent plants to shutter operations due to virus-related issues. 

Here are some of the latest statistics of infected meat processing plant workers 

And it appears the meat processing crisis due to COVID-19 continues through late May. 

Though largely off the mainstream media’s radar amid all things pandemic related, we’ve been closely following the saga of Iran’s provocatively sending five fuel-laden tankers to gasoline-starved Venezuela, despite repeat and growing threats of US intervention against the brazen sanctions-busting mission. 

And now surely escalating matters from Washington’s point of view, the Maduro government has vowed it will provide navy ships and military aircraft to escort the inbound Iranian fuel tankers. 

Defense Minister Vladimir Padrino said on Wednesday that the military escort will be prepared to defend the ships once they enter Venezuela’s Exclusive Economic Zone (EEZ), which extends 200 miles off the coast — this after Trump was previously reported to have ordered a US naval build-up in the Caribbean in order to thwart sanctions-busting and narco-trafficking conducted by the Latin American country.

“When they enter our exclusive economic zone, they will be escorted by Bolivarian National Armed Forces boats and planes to welcome them in and thank the Iranian people for their solidarity and cooperation,” Padrino said on state television.

He underscored that he was closely coordinating with Iran’s defense minister, also after Washington has focused on the sanctioned Iranian airline Mahan Air’s flights in and out of Caracas of late, said to be carrying vital equipment for Venezuela’s derelict fuel refineres, needed for domestic gas consumption. 

Meanwhile, Reuters details that the tankers are expected to arrive within the next weeks:

The tankers – Fortune, Forest, Petunia, Faxon and Clavel – are carrying around 1.5 million barrels of fuel, and passed the Suez Canal in the first two weeks of May, Refinitiv Eikon data show. They are expected to arrive in Venezuela between late May and early June.

To be expected, US-backed opposition leader and self-proclaimed ‘Interim President’ Juan Guaido is focusing outrage on the presence of Iranians in propping up the Maduro regime. 

The Iranian foreign ministry has sent a letter, warning the US against taking any action against the Iranian tankers carrying fuel to Venezuela and says that any threat against them will be met with a ‘firm response’#Venezuela #Iran pic.twitter.com/NWBEQar79T

— CNW (@ConflictsW) May 18, 2020

“We are very concerned for the safety of Venezuelans, and of Latin America as well, due to this attempted Iranian presence on Venezuelan soil,” said Guaido. Echoing Washington accusations, Guaido further said Maduro is paying Tehran “blood gold” which rightfully belongs to the Venezuelan people.

The US has lately accused nefarious outside state actors of helping to facilitate the scheme to ‘smuggle’ gold out of Caracas as payment for the inbound Iranian gasoline as well as refining supplies and support. Pompeo even threw China in the mix in statements made Tuesday.

Meanwhile, many pundits are warning of a clash in the Caribbean, given the presence of US Navy ships.

As five Iranian oil tankers steam toward Venezuela in defiance of U.S. sanctions on both states, @MarkTFitz argues, “There is absolutely no need to consider military interdiction and the resulting potential for larger-scale conflict.” https://t.co/pGlhCQqT1S

— Responsible Statecraft (@RStatecraft) May 21, 2020

Iran has warned that any US attempt at intercepting its fuel tankers “would have serious repercussions for the Trump administration ahead of the November elections” — suggesting the return of a tit-for-tat tanker war scenario such as played out in the gulf last summer.