China Trade Negotiations - America Tries To Diffuse The Trade Skirmish With China
As I mentioned, America is trying to end the trade dispute with China.
There was a report from the Wall Street Journal that America is trying to arrange talks with China before President Trump follows through with the tariff on $200 billion worth of Chinese goods that he has threatened.
It is logical that America is trying to avoid that action because it would be the first major strike in the trade war. Everything up until this point has been relatively small which is why there aren’t any signs of the tariffs affecting American growth numbers or overall inflation.
Specifically, U.S. Treasury Secretary Steve Mnuchin is trying to meet with Liu He, the top Chinese economics official.
Since President Trump has been threatening tariffs for a few weeks, if he doesn’t deliver soon, his negotiating style will lose effectiveness.
China Trade Negotiations - That’s why a deal needs to be worked out very soon.
The $200 billion tariff will likely be announced by the end of the year. The mid-level Chinese delegation meeting with American officials last month failed to spark any agreements.
America might have China in a good spot to negotiate because the Asian markets have been cratering. As you can see from the chart below, the MSCI Asia Pacific index is down 10 days in a row which is the longest negative streak since 2002.
The American tech stocks are outperforming Asian tech stocks by the largest margin since 1998.
The Shanghai Composite index is close to a 4 year low as it is down 20.67% year to date and 25.38% since its peak in January.
China Trade Negotiations - Major Indexes Mixed On Wednesday
The stock market initially popped on the news that America would be trying to diffuse the trade skirmish with China, but it gave back those gains.
The Dow and S&P 500 were only up 0.11% and 0.04%. The Nasdaq fell 0.23% and the Russell 2000 fell 0.16%. The social media stocks were hammered again as Facebook fell 2.37% to its lowest price since April.
Twitter stock fell 3.69% and Snap fell 6.98% because it was downgraded to a price target of $5 by BTIG. Consumer staples and telecom were the biggest winners as they increased 1.25% and 1.42%. This shows it was a ‘risk off’ day.
Tech and the financials were the biggest losers as they fell 0.5% and 0.89%. Micron led the tech stocks lower as it fell 4.27%. It is down 20.89% since August 30th.
The 10 year yield fell one basis point to 2.96% and the 2 year yield increased one basis point to 2.75%. This means the difference dropped to just 21 basis points.
It looks like the 10 year yield might stall at 3% again. That would be a major issue for the prospects of the market avoiding an inversion.
China Trade Negotiations - Hurricane Florence’s Effect On Stocks
Hurricane Florence’s wind speed has fallen to 110 miles per hour which is a modest help for the southeast as it braces for the major hurricane.
The other change in the situation is the expected landfall has shifted south, meaning the principle impacts will be in Wilmington, North Carolina and Myrtle Beach, South Carolina.
There will be severe flooding from rain and storm surge because this is a slow moving storm.
You can trade the storm by looking at individual names. You’ll want to buy Lowe’s and Home Depot if you think the storm will be worse than expected.
You should buy the insurers if you think it will cause less damage than expected. Shorting Lowe’s and Home Depot might not be a good bet. These retailers have already sold extra materials for preparations. Yet they still saw an increase in sales because of the storm.
Secondly, they have been doing well anyway. Since Monday, Lowe’s stock is up 4.33% and Home Depot stock is up 2.79%. They are up 24.8% and 12.74% year to date.
Shorting them would need to be a quick trade and probably won’t bring many profits. Travelers stock is down 4.28% in the past 4 trading days. AIG stock is down 2.93%.
They can be buys if the storm continues to weaken and the damage is less than expected.
China Trade Negotiations - While Apple Unveils New iPhones and Apple Watch Series 4
Apple stock was down 1.24% which makes sense because the stock usually falls after its new products are announced.
That doesn’t invalidate its great performance in the past month as it is still up 5.84%. The stock has been riding the hype over its latest products.
The Apple Watch Series 4 has over a 30% larger screen and is approved by the FDA to do EKG tests. If Apple continues to expand the health capabilities of this product, it will become more popular with baby boomers.
It also can help the elderly if they have fallen and can’t get up. Apple’s destruction of the smartwatch competition can be seen in Fitbit’s stock which was down 6.9% on Wednesday.
We pretty much knew Apple would come out with 3 new phones, with one being a budget phone and the other two being advancements on the iPhone X.
I think Apple did a great job of making the cheaper iPhone XR which starts at $749 not good enough to compete with the iPhone XS and iPhone XS Max which start at $999 and $1099. This will force many consumers to trade up to the higher priced phones which will raise Apple’s ASP.
The expensive phones have an OLED screen, force touch, and duel lens cameras. The cheaper phone has an LCD screen, no force touch, and one camera.
This is different from Samsung which has great OLED screens in its Galaxy S9, Galaxy S9+, and Note 9. The iPhone XR doesn’t compete well with Android phones as the Samsung S9 has a better screen and costs $620.
However, its goal is simply to provide an additional price point for a new phone instead of going with the outdated iPhone 8. Apple has all its bases covered and is going all in on the iPhone XS and XS Max.
I think Samsung’s pricing strategy will generate less profits because the Note’s advantages over the Galaxy aren’t as large as the advantages the more expensive iPhones have over the iPhone XR. Samsung won’t get as many users to trade up.
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