Trump-Kim Meeting Will Occur On June 12th

June 12th Meeting With South Korea Back On

On Tuesday, the White House announced the Trump-Kim summit on June 12th in Singapore is back on, reversing the claim made last week that it was cancelled. The actual language was that the meeting is “expected.” It seems like it will happen, but the term ‘expected’ implies nothing is certain until it happens. As I mentioned in a previous article, on Tuesday morning, it was announced that the North Korean official General Kim Yong Chol, who is considered Kim’s right hand man, will be meeting with Secretary of State Mike Pompeo. After that was announced, I predicted the summit was back on and I was correct. It’s possible that there are more legitimate negotiations in that meeting than the actual summit which will be filled with pomp and circumstance.

I think it’s highly likely that the June 12th meeting will occur because both sides appear to be on the same page. Kim strayed from wanting the summit after meeting with Xi Jinping a 2nd time, but he got back on track after meeting with South Korean President Moon. There has been a great deal of international negotiations to get this summit to occur. The politicians will want to acquire talking points to explain why the summit was a success after it occurs, so it’s almost certain that there will be agreements made.

In terms of the stock market, I think this is positive news because investors will get to breathe a sigh of relief after the meeting is over and North Korea agrees to curtail its nuclear program. The relative peace which has been in place since WWII is unheralded by most market prognosticators, but it’s at least partially responsible for higher equity multiples. I call it the peace premium. I’d be happy to pay up for a market which has less headline risk coming out of North Korea.

Trump Tech Tariffs

The tariff situation with China is still somewhat uncertain especially because the language and actions from the White House are often inconsistent. Over a week ago, Treasury Secretary Steve Mnuchin stated the trade war with China was “on hold.” Then on Tuesday, the White House announced it will go ahead with its planned tariffs to protect American technology firms’ intellectual property rights. It’s weird to see Trump going through with tariffs as negotiations are still ongoing and the trade war is supposedly at a ceasefire. Hopefully, China doesn’t respond to this action and the negotiations still work out. The deal with North Korea is important to Trump’s trade negotiations. Therefore, the odds of a deal on trade increase if the North Korean summit is a success.

Specifically, the United States will have investment restrictions and export controls on China for what it considers “industrially significant technology.” That’s a pretty vague term, but we’ll get some more details on what this all means when American lists the goods that will be affected by the 25% tariff on $50 billion worth of Chinese tech goods on June 15th. Prior to the official negotiations, which will include President Trump, Commerce Secretary Wilbur Ross will be visiting China this weekend for negotiations on trade. The White House must feel it needs to follow through with its previously announced goals to make its threats believable.

The goal is for America to lower its trade deficit with China by $200 billion by 2020. Realistically, I don’t think such a goal is possible because American production won’t be able to grow that quickly. The deficit depends on a multitude of factors such as the economic strength of both countries, so having such a goal isn’t helpful in my view. Either way, stock market bulls should cheer for China to agree to try to cut the deficit by that amount. Hopefully, Trump doesn’t penalize China if the goals aren’t met in two years.

Great Dallas Fed Manufacturing Report

The regional Fed manufacturing reports have all produced amazing results which suggests the May ISM manufacturing report, which will be released on Friday, will be fantastic. The Dallas Fed report, which came out on Tuesday, was consistent with the other regional Fed reports. As you can see from the chart below, the production index went from 25.3 last month to 35.2 this month which represents a 12 year high. Capacity to utilization was up 13.5 points to 32.2. The general activity index was 26.8 which beat the consensus for 23.2 and last month’s report of 21.8. It was just below the highest estimate of 27.0. Most of the regional Fed reports have beat the highest estimate; relative to those amazing reports, this really great one missed the mark.

The new orders index fell from 27.9 to 27.7, but the growth rate of new orders index increased 7.6 points to 26.5. The shipments index improved the most as it was up 20.2 points to 39.5. There wasn’t much inflation improvement in this report as the prices paid index fell 2.3 points to 44, the prices received index was up 3.5 points to 20.5, and the wages and benefits index fell 5 points to 24.3.

Looking at the 6 months ahead section of the report, the future production index was up 5.7 points to 58. The company outlook index fell 1.9 points to 35.2 and the general business activity index fell 1.9 points to 30. As you can see, the outlook is solid, but slipped slightly from April.

In the special question section, when asked how firms are retaining and recruiting workers, 61.6% said they were increasing wages which is up from 53.3% in February. The percentage offering additional training fell from 38.2% to 27.2% in the same respective periods.

Conclusion

The stock market has a short attention span. One moment it cares about political risk, the next moment it ignores the risk. It’s important to understand the events and key moments before they unfold to anticipate future volatility. I will also always be laser focused on the fundamentals of the economy. The biggest report of the week is the Personal Income and Consumption Outlays which measures consumer spending and inflation. It will be released Thursday morning.

 

 

Spread the love

Comments are closed.