Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: President Trump imposes additional tariffs. Treasuries breakout out, gold firms, silver recoups losses, Stocks pull back, copper and oil weak, strong likelihood of additional easing following this development, high yield spread remain contained. 

President Donald Trump abruptly escalated his trade war with China, announcing that he would impose a 10% tariff on $300 billion in Chinese imports that aren’t yet subject to U.S. duties.

The new tariff will be imposed beginning Sept. 1, Trump said in a tweet Thursday that broke a tentative trade cease-fire between the world’s two biggest economies. The 25% tariff already imposed on $250 billion in Chinese goods will remain in place, he said.

A draft list of $300 billion worth of targets published by the Trump administration in May included a raft of consumer and technology goods, including most of Apple Inc.’s major products such the IPhone, along with toys, footwear and clothing. The final list hasn’t yet been released.

“These are the tariffs on many of the consumer goods that were spared in the previous tariff rounds,” said Neil Dutta, head of economics at Renaissance Macro Research in New York, in a note. “This is a small hit to growth but will likely be more obvious to consumers. Keep in mind that margins have come in somewhat already, not sure firms can simply eat the cost.”

Eoin Treacy's view

Jay Powell’s statement yesterday that the cut to interest rates was more of a mid-cycle insurance cut than a response to the end of the credit cycle led to some unwinding of bets on a 50-basis point but. As the news was digested this morning the majority of markets were in positive territory and at one point has almost completely unwound yesterday’s decline. That was until President Trump announced additional tariffs. That is going to set off a scramble for inventory ahead of the busy fourth quarter retail period.

The fact that foreign money managers are delving into Canadian municipal bonds -- which account for just 1% of trading in the country’s C$2 trillion public sector fixed-income market -- is a testament to how hungry they’ve become for high quality, higher-paying assets in a world where at least $13.8 trillion of debt is now in negative-yield territory. Throw in the fact Canada has given little indication it will follow the global move toward easier monetary policy, and the market is fast becoming a magnet for sophisticated investors seeking to boost returns.

“If you’re sitting in the Middle East, Asia or Europe and you’ve got all this negative yielding debt, it makes a lot of sense to look for the hidden gems such as these excellent quality municipals,” said Avi Hooper, a portfolio manager at Invesco, which has $1.2 trillion under management, including bonds issued by the city of Montreal. “One has always to be careful with the liquidity of course. Big institutional investors are not going to get involved with $50 million deals.”

Eoin Treacy's view

The paradox of the bond markets is the biggest debtors tend to have the most liquid bonds. Better credits don’t tend to borrow as much and therefore lend to have less liquid issues. Ahead of the credit crisis companies like General Motors and Hypovereinsbank had their own yield curves because they had outstanding debt at every maturity that was highly liquid. At the time no one seemed to pay much attention to the fact that they had so much debt it represented a threat to repayment of principal.

Samsung has since closed all but one of its smartphone plants in China. It now assembles around half of the handsets it sells worldwide in Vietnam. Samsung’s subsidiaries in the country, which employ around 100,000 people, accounted for nearly a third of the company’s $220 billion in sales last year.

A Samsung spokeswoman said about 90 percent of those sales involved goods shipped from Vietnam to other countries. That implies Samsung alone accounted for a quarter of Vietnam’s exports in 2018, although even that might not fully capture the company’s effect on the wider economy. Samsung’s success in Vietnam helped convince many of its South Korean suppliers that they needed to be here, too.

“When you are a big company and you move to a place, everything follows you,” said Filippo Bortoletti, the deputy manager in Hanoi at the business advisory firm Dezan Shira.

Some Vietnamese business owners say the blessings are mixed, though. Foreign giants, they say, come to Vietnam and work largely with vendors they already use elsewhere, leaving little room in their supply chains for local upstarts.

Samsung has 35 Vietnamese suppliers, the spokeswoman said. Apple declined to comment.

When Samsung first set up in the country, it bought some of the metal fixtures used on its assembly lines from a local firm, Vietnam Precision Mechanical Service & Trading, or VPMS. But then more of Samsung’s South Korean partners started coming into the country, and after a year, Samsung and VPMS stopped working together, said Nguyen Xuan Hoang, one of the Vietnamese company’s founders.

Price and quality were not the issue, Mr. Hoang said, over the hissing and clanging of machinery at his factory near Bac Ninh. The problem was scale: Samsung needed many more fixtures than VPMS could deliver.

Eoin Treacy's view

The sheer scale of China’s manufacturing operations is not going to be easily repeated elsewhere. However, no one ever thought China would achieve the manufacturing might it now possesses either. The history of major manufacturing hubs is they evolve where labour, land, transportation and electricity are cheapest and where the tax and regulations are most lax.

Eoin Treacy's view

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided. 

Eoin Treacy's view

There will be a memorial concert for David at the Royal Festival Hall on October 5th. It looks like we will have a room at the Royal Festival Hall for an hour before the concert for a memorial. Wine and canapes will be served. Afterward we will retire to the Benefactor's Lounge where Tim Walker, Chairman of the LPO will dedicate the concert in David's memory. The concert will be from 7:30 to 10pm. If anyone would like to attend the concert in addition to the memorial there will be a box to tick on the booking form which I will provide as soon as I have it.   

Since this is the 50th year of The Chart Seminar we will be conducting the event on October 3rd and 4th to coincide with the memorial on the Saturday.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at [email protected].  

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.