China Jabs Back

Aug 9, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

This week was not for the faint of heart.  Accusations of currency manipulation, further interest rate cuts, and more saber-rattling created unease among investors.  Earnings season is still in full-swing, although you wouldn’t know it by the headline news dominated by geopolitical issues.  There are times when company fundamentals matter more than others.  Now is not one of those times.  While still important, the current environment is more consumed with tweets, threats, and forecasts.  The difficulty with the current environment is that it is not terribly predictable nor is it completely logical.  As with most periods of uncertainty, this too shall pass.  It is just a matter of time.

Given the latest trade threat from the United States, it was expected that China would retaliate.  One would assume they’d impose a tit-for-tat type of tariff on U.S. goods.  The surprise was that they did no such thing.  Instead, the Chinese government allowed the Yuan to fall against the U.S. dollar to its lowest level ever, and strengthen the U.S. dollar in the process.  President Trump has recently gone on record against the long-held belief that a stronger U.S. dollar is good for the United States, but instead stating that it is in large part the cause of the current trade imbalance.  Making matters worse, the Chinese government went one step further suspending all U.S. agricultural purchases.  China is one of the largest purchasers of U.S. agriculture.  This escalation is taking our relationship with China into uncharted waters.

So, what started as a “simple” trade war has progressed into a what some are calling a currency war.  The U.S. Treasury officially added China to the list of currency manipulators and will bring a case before the International Monetary Fund (IMF).  China will undoubtedly have some justification for allowing the devaluation of its currency, however the charge is mostly symbolic.  Despite calling China a currency manipulator, there is really no consequence for the action.  It will probably not be the last time China surprises us with an unexpected means of retaliation.  Some others might include dumping U.S. Treasuries (China owns $1.11 trillion) or hitting the U.S. energy sector by banning importation of U.S. oil and natural gas.  What may have seemed like a simple and appropriate negotiating tactic at first blush is a lot more complicated than one might imagine.  There is nothing straightforward about dealing with an economic superpower.

In company news, it seems Fifth Third Bank is making headlines with an announcement to raise it’s starting wage to $18 per hour.  This goes well beyond the $15 per hour minimum wage many are pushing for and suggests the tight labor market may be starting to drive up wages.  It will be interesting to see if other banks follow suit.  We also learned this week that Beyond Meat is not the only player in town.  Privately held Impossible Foods is rolling out it’s Impossible Burger at all Burger King locations across the country.  Also, it is working on a plant-based fish substitute as part of an ambitious mission to create replacements for all animal-based foods by 2035.

In closing, I want to share a study I came across this week that may just change your life.  We’ve all occasionally experienced tossing and turning and a general inability to fall asleep.  Well, according to a new long-term study, the key to a better night’s sleep may be to look on the bright side of life.  Researchers from the University of Illinois say the more optimistic a person is, the more likely they are to enjoy longer, more restful sleep.  Now you’re probably saying, “duh” of course I would sleep better if I wasn’t fretting over problems and worrying about issues small and large.  While the team isn’t exactly sure why a positive mindset leads to better sleep, they hypothesize that positivity likely alleviates the effects of stress.  Perhaps.  But maybe it’s the other way around?  Not having stress allows for better sleep?  Either way, try to alleviate stress, remain optimistic, and get a better night’s sleep.  Now you know.

August 9, 2019

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