by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] U.S. equity futures are trending higher this morning after a mostly flat day yesterday.  The big news is that negotiators have reached a deal to avoid a government shutdown.  Here is what we are watching this morning:

Shutdown averted: Negotiators have reached a deal to avoid a government shutdown which would have occurred Friday night without action.  The deal does not give the president the funding he asked for with regard to a border wall.  Although there are some doubts he will sign the bill, we expect him to sign it and then try to shift funds from other sources or declare a national emergency to get the wall built.[1]

Some commentators are suggesting today’s rally was driven by the budget deal.  Perhaps; however, the shutdown didn’t have a strong negative impact on financial markets so it seems a bit of a stretch to presume the avoidance of a shutdown brought support.  However, avoiding a shutdown does remove a potential negative factor for the economy and thus is good news.

Italy and gold reserves: Matteo Salvini, the head of the League and deputy PM, proposed yesterday that the government should seize gold reserves held at the Bank of Italy and use them for spending.  Italy holds the world’s third largest official gold reserves, around 2,451.8 tonnes, or about $102.5 bn.  It is a sizable amount of money, about 20% of GDP.  The populist government has been attacking the independence of the Bank of Italy,[2] a common action by populists.  In general, populists represent the debtor class which benefits from cheaper money.  It is not clear if such a move is legal but it raises serious questions about the reaction from the EU and Germany; under normal circumstances, a massive gold liquidation such as this would tend to undermine a currency’s exchange rate.  However, because Italy is a member of the Eurozone, it isn’t obvious if the EUR would weaken on the news.  Nevertheless, the psychological threat to the EUR would likely raise German worries about currency stability.  In one sense, such a sale shouldn’t matter.  If it is nothing more than an asset sale, one would not expect the currency to weaken.  After all, if a government privatized a state-owned asset (e.g., government-owned utility) it wouldn’t usually depress the exchange rate.  But, gold sales have the look of selling the family jewels; when I did country risk for an international bank we viewed gold sales as an indicator of future default.  Although the government’s intention to sell looks more like a way to boost government spending, in reality, a gold sale will rattle Eurozone confidence and lower gold prices as well.

Chinese debt worries: It appears that two large Chinese private borrowers missed payments this month, raising fears of more widespread credit problems in China.[3]

Tax refunds fall: Last year, the Trump administration pressed the IRS to adjust withholding tables so that households would see an immediate impact on their weekly paychecks.  Now, that action is having the perverse impact of reducing tax refunds.  Although a tax refund is, in reality, clear evidence of financial mismanagement (it’s an interest-free loan to the government), many households use the tax refund as a form of saving.  A reduction could show up as reduced consumption in Q2 and Q3.  Refunds thus far are down a bit over 8% compared to last year.[4]

Catalan trial begins: Yesterday, we noted that Spain’s PM is facing a crisis over Catalan.  Sanchez indicated he would appoint a mediator between the central government and separatists.   This has triggered a firestorm[5] that threatens to bring down Sanchez’s minority government.[6]  Today, the government begins a trial against leaders of the Catalan separatists, which could bring down the Sanchez government.[7]  For background on this issue, we have footnoted two Weekly Geopolitical Reports.[8]

A Canadian scandal: Canada’s parliamentary ethics commissioner is investigating allegations that PM Trudeau pressed his former attorney general to end a criminal investigation against a large Canadian engineering company, SNC-Lavalin (SNCAF, USD, 25.61).  The allegations include bribery by the company tied to the former regime in Libya.[9]  The company is a major employer in Quebec and an investigation is raising fears in the separatist province.  Canadian elections will be held this autumn and we would expect the opposition to use this against the PM.  The CAD is already under pressure due to fears of a NAFTA breakdown and weakening world growth.  A political crisis could add further pressure on the exchange rate.

Saudi Aramco goes international?  The state oil company of Saudi Arabia announced plans to expand investments into the world.[10]  During its history, Saudi Aramco has focused on the massive oil reserves within the kingdom, although it does own downstream assets around the world.  It is unclear why the Saudis are making this move now.  One possibility is that Saudi Arabia’s oil fields may be depleted to a point that costs are rising.[11]  If the Saudis are facing production constraints it is potentially a very bullish factor for oil.

White House presses Iraq to stop buying Iranian oil: The Trump administration is pushing Iraq to stop buying energy from Iran.  This is unlikely to happen.  Iraq needs Iranian oil products to maintain electric service and transportation and, given Iran’s influence on Baghdad, the odds are low that Iraq would comply with U.S. wishes.  It is uncertain how hard the U.S. will pressure Iraq on its relations with Iran.  However, without a significant increase in American military presence and investment, it is doubtful the U.S. can prevent Iraq from buying Iranian natural gas and oil.[12]

And, finally:A Federal Reserve research report confirms that globalization has flattened the Phillips Curve.[13]  We would tend to agree with that assessment.

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[1] https://www.washingtonpost.com/business/economy/top-lawmakers-meet-to-revive-stalled-border-talks-with-shutdown-days-away/2019/02/11/3cd0fc1a-2dff-11e9-813a-0ab2f17e305b_story.html?utm_term=.f5fb8e10f9b1 and https://www.nytimes.com/2019/02/11/us/politics/shutdown-deal.html

[2] https://www.ft.com/content/949d2c08-2d1d-11e9-8744-e7016697f225

[3] https://www.caixinglobal.com/2019-02-11/two-large-chinese-borrowers-are-said-to-miss-bond-payments-101378392.html

[4] https://finance.yahoo.com/news/the-first-wave-of-tax-refunds-are-down-8-on-average-181001645.html

[5] https://www.politico.eu/article/spains-right-wing-parties-protest-government-talks-with-catalan-nationalists-pedro-sanchez/?utm_source=POLITICO.EU&utm_campaign=31b984c7e7-EMAIL_CAMPAIGN_2019_02_11_05_48&utm_medium=email&utm_term=0_10959edeb5-31b984c7e7-190334489  and https://www.nytimes.com/2019/02/10/world/europe/madrid-protest-spain-catalonia.html?emc=edit_mbe_20190211&nl=morning-briefing-europe&nlid=567726720190211&te=1

[6] https://www.politico.eu/article/spain-pedro-sanchez-faces-backlash-over-catalan-secessionists-concession/?utm_source=POLITICO.EU&utm_campaign=31b984c7e7-EMAIL_CAMPAIGN_2019_02_11_05_48&utm_medium=email&utm_term=0_10959edeb5-31b984c7e7-190334489

[7] https://www.nytimes.com/2019/02/11/world/europe/catalonia-separatists-trial.html?emc=edit_mbe_20190212&nl=morning-briefing-europe&nlid=567726720190212&te=1

[8] See WGRs, The Situation in Catalonia: Part I (11/6/2017) and Part II (11/13/2017).

[9] https://www.nytimes.com/2019/02/11/world/canada/justin-trudeau-snc-lavalin-ethics-bribery.html?emc=edit_mbe_20190212&nl=morning-briefing-europe&nlid=567726720190212&te=1

[10] https://www.ft.com/content/e0a6775c-2e4f-11e9-ba00-0251022932c8

[11] The uncertainty surrounding Saudi oil reserves has developed a cottage industry of sorts.  A good book, though a bit dated, is by Matthew Simmons. Simmons, M. (2005). Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Hoboken, NJ: John Wiley & Sons.

[12] https://www.nytimes.com/2019/02/11/us/politics/iraq-buying-energy-iran.html?emc=edit_mbe_20190212&nl=morning-briefing-europe&nlid=567726720190212&te=1

[13] https://www.federalreserve.gov/econres/feds/files/2019007pap.pdf

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] U.S. equity futures are trending higher this morning after a later rally on Friday.  It’s the 40^th anniversary of the Iranian Revolution.[1]  Here is what we are watching today:

Trade: Talks between China and the U.S. will restart next week; the focus on this round will be intellectual property.[2]  Although last week’s dip in equities was tied to reports that Chairman Xi and President Trump wouldn’t meet until after the March 1^st deadline, that fear has been eased as market participants realize the deadline is artificial and can be extended by the U.S.  Reports suggest China is “upbeat” about the talks,[3] although there was another U.S. freedom of navigation exercise in the South China Sea that did upset the Chinese.  There were reports that the two leaders may meet next month at Mar-a-Lago; the report itself is a good sign of progress.[4]  As we have noted before, the president needs a good economic and market year in 2019 to support his re-election chances.

Chinese economy: Spending during the Chinese New Year was the slowest since 2005 as consumers held back due to rising uncertainty.[5]  Foreign reserves were mostly unchanged in January, with little evidence that the PBOC intervened in the forex markets.

Another shutdown?  Negotiations on the budget have broken down mostly over border security issues.[6]  Although there are fears of another government shutdown, we suspect it will be averted.  The president doesn’t have the votes to get a border wall through the House; we think odds favor a declaration of a national emergency followed by months of legal maneuvering.  This action would allow government funding to go forward.  It should be remembered that the U.S. will be facing the debt limit issue by early summer, so the potential for another shutdown looms later this year.

Brexit:  The U.K. economy weakened in Q4, with annualized GDP falling to 0.8%, down from 2.4% in Q3.  This is the slowest growth since 2012.

This chart shows yearly GDP growth.  Worries about Brexit are likely behind the slowing.[7]  Meanwhile, PM May is reaching out to Labour MPs,[8] offering concessions on workers’ rights in a bid to build support for her plan.  We suspect there is a working majority for May’s proposal, just not within her coalition.  The best outcome for May would be that Euroskeptic MPs within the Tories, fearful of an even softer Brexit, would then support her plan.  A less favorable outcome would be that she gets enough Labour votes to pass her bill but splits the Conservatives.  The EU showed a bit of easing as the EU chief negotiator Barnier offered to rework the political declarations.  In an FT op-ed, Wolfgang Münchau warns that negotiations are likely to go down to the wire and both sides will probably make concessions.  He reminds readers that this is normal for negotiations within the EU.[9]

Sanchez in trouble?  Spain’s PM is facing a crisis over Catalan, the province that has made moves to separate from Spain.  Sanchez indicated he would appoint a mediator between the central government and separatists.  This has triggered a firestorm[10] that threatens to bring down Sanchez’s minority government.[11]  For background on this issue, we have footnoted two Weekly Geopolitical Reports.[12]

Are right-wing populists taking control of Italy?  We have been watching Italy closely as its government is made up of populists from both wings.  History suggests that such alignments are difficult to manage, although it remains a goal among notable populist thinkers.[13]  In weekend regional elections, right-wing parties of both the populist variety and center-right overwhelmingly won, taking 48% of the vote, with right-wing populist party The League gaining 28% of the vote.[14]  Although one must be cautious about reading too much into one election, the results may be signaling that Italian voters are more inclined toward right-wing populism compared to its leftist variant.

A Thai crisis: In practice, Thailand is governed by three groups—the monarchy, the military and the legislature.  The three maintain an uneasy relationship.  The military regularly intervenes via coups when the legislature takes a direction it opposes.  The monarchy has traditionally remained above the fray, intervening only to reduce tensions between the military and the legislature.  That delicate balance was disrupted when King Bhumibol Adulyadej died in October 2016.  His son, Vajiralongkorn Bodindradebayavarangkun, succeeded him.  Unlike his father, who lived a modest and dignified life, the new king is considered less dignified.  After a coup in 2014 put the military in charge, the generals are trying to shift back toward a democracy, but only if they can prevent populists led by the Pheu Thai Party (PTP) from gaining control.  In fact, the last two leaders of the PTP have been deposed by coup and live in exile.  In a bombshell, Princess Ubolratana Rajakanya, the eldest child of the late king, aligned with the PTP and agreed to run for prime minister.[15]  This was a shocking development.  There is clearly an uneasy relationship between the military and the PTP; for the royal family to directly support the PTP threatens to undermine the balance in Thai politics.  The king has decided to step in to postpone a crisis by forbidding his sister from running for office.[16]  Although the princess gave up her royal status by marrying a commoner (an American, BTW), the daughter of the late king is still considered a royal in practical terms.  The new king clearly wants to avoid a political crisis.  If the PTP wins upcoming elections, tensions will likely rise further.

Another ECB support package?  German bond yields continue to spiral lower, with the 10-year falling to 11 bps this morning.  The German sovereign yield curve has a negative nominal yield out to nine years as the German and Eurozone economy slows.  There are reports that the ECB is considering another round of long-term refinancing operations,[17] a form of QE.  This news is lifting European stocks this morning.

In other news: The U.S. is reportedly in direct contact with members of the Venezuelan military, trying to weaken the brass’s support for Maduro.[18]  There are reports that Russian oligarchs are pressing Putin to end cooperation with OPEC.[19]

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[1] https://www.washingtonpost.com/opinions/2019/02/10/irans-decaying-islamic-republic-is-showing-its-age/?utm_term=.79648e883e6a

[2] https://www.reuters.com/article/us-usa-trade-china/u-s-china-trade-talks-resume-next-week-focus-on-intellectual-property-idUSKCN1PX1WI

[3] https://www.reuters.com/article/us-usa-trade-china/china-upbeat-on-u-s-trade-talks-but-south-china-sea-tensions-weigh-idUSKCN1Q00KQ

[4] https://www.axios.com/newsletters/axios-sneak-peek-c1216ffb-5529-46db-94ac-f3017e693b8c.html?chunk=0#story0

[5] https://www.ft.com/content/67b9203c-2dd3-11e9-8744-e7016697f225

[6] https://www.nytimes.com/2019/02/10/us/politics/trump-border-wall.html?emc=edit_mbe_20190211&nl=morning-briefing-europe&nlid=567726720190211&te=1

[7] https://uk.finance.yahoo.com/news/brexit-black-friday-helped-punch-hole-uk-economic-growth-093155177.html

[8] https://www.ft.com/content/2c088e3e-2d19-11e9-ba00-0251022932c8?emailId=5c60e8dce4cb920004977dea&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[9] https://www.ft.com/content/2128565a-2ba9-11e9-88a4-c32129756dd8?emailId=5c60e8dce4cb920004977dea&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[10] https://www.politico.eu/article/spains-right-wing-parties-protest-government-talks-with-catalan-nationalists-pedro-sanchez/?utm_source=POLITICO.EU&utm_campaign=31b984c7e7-EMAIL_CAMPAIGN_2019_02_11_05_48&utm_medium=email&utm_term=0_10959edeb5-31b984c7e7-190334489 and https://www.nytimes.com/2019/02/10/world/europe/madrid-protest-spain-catalonia.html?emc=edit_mbe_20190211&nl=morning-briefing-europe&nlid=567726720190211&te=1

[11] https://www.politico.eu/article/spain-pedro-sanchez-faces-backlash-over-catalan-secessionists-concession/?utm_source=POLITICO.EU&utm_campaign=31b984c7e7-EMAIL_CAMPAIGN_2019_02_11_05_48&utm_medium=email&utm_term=0_10959edeb5-31b984c7e7-190334489

[12] See WGRs, The Situation in Catalonia: Part I (11/6/2017) and Part II (11/13/2017).

[13] A union of right- and left-wing populists is the goal of Ralph Nader.  We refer to such alignments as a Nader Coalition.  Nader, R. (2014). Unstoppable: The Emerging Left-Right Alliance to Dismantle the Corporate State. New York, NY: Nation Books.

[14] https://www.politico.eu/article/right-wing-parties-set-to-win-regional-italian-election-projections/?utm_source=POLITICO.EU&utm_campaign=31b984c7e7-EMAIL_CAMPAIGN_2019_02_11_05_48&utm_medium=email&utm_term=0_10959edeb5-31b984c7e7-190334489

[15] https://www.ft.com/content/013f5b92-2d00-11e9-8744-e7016697f225?emailId=5c60e8dce4cb920004977dea&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22  and https://www.ft.com/content/b7219798-2b4a-11e9-a5ab-ff8ef2b976c7?emailId=5c5d05bdd83b3f00042c1d53&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[16] https://asia.nikkei.com/Politics/Turbulent-Thailand/Thai-party-accepts-king-s-edict-barring-princess-as-PM-candidate

[17] https://www.reuters.com/article/us-eurozone-bonds-tltros-analysis/time-to-tltro-markets-home-in-on-details-of-ecbs-potential-new-booster-idUSKCN1Q00FR?il=0

[18] https://www.reuters.com/article/us-venezuela-politics-military-exclusive/exclusive-u-s-in-direct-contact-with-venezuelan-military-urging-defections-source-idUSKCN1PX22L

[19] https://www.reuters.com/article/us-oil-opec-russia-rosneft-exclusive/exclusive-russias-sechin-raises-pressure-on-putin-to-end-opec-deal-idUSKCN1PX1R7?feedType=RSS&feedName=businessNews

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] U.S. equity futures are under pressure again this morning.  Here is what we are watching today:

Trade: Yesterday, we noted that the lack of dollar depreciation was starting to become a problem for equities.  Although the reversal of the FOMC on monetary policy is, by itself, negative for the dollar, in forex, everything is relative and weakening global growth is triggering even easier policy abroad.  It appears dollar concerns, tied to weakening global growth, caused yesterday’s initial drop.  However, the decline was exacerbated by reports that Presidents Xi and Trump will not likely meet before the March 1 deadline for talks.[1]  That news was followed up by an appearance by Larry Kudlow, who suggested the parties are far away from a deal.[2]  The fact that the president’s meeting may be held later than March 1 isn’t by itself a serious problem; both parties could decide to postpone the deadline.  However, Kudlow’s comments are more worrisome.  We pair Kudlow with Mnuchin as part of the establishment wing of the administration.  The former member of the Reagan government and chief economist for Bear Stearns is usually upbeat and normally frames the trade talks in a positive light.  Thus, his caution either (a) reflects his personal concern, or (b) is a signal from the establishment wing of the administration that the talks are stalling and financial markets are being harmed.  In other words, Kudlow may be trying to push the president to intervene and make a deal over the heads of the anti-trade populists.  We would expect a market decline if a trade deal isn’t made and tariffs on China go into effect.  We still expect a trade deal simply because both sides need to reduce tensions in the short run.

There were two other trade items of note.  The recently negotiated USMCA is facing a serious challenge in Congress.  Democrats want additional worker and environmental protections and establishment Republicans are worried that the new treaty has too many impediments to trade.[3]  If the new trade deal fails to pass and NAFTA (which remains in force for now) ends, then it will be a major shock to all three economies but especially Mexico and Canada.  As we noted yesterday, President Trump is expected to issue an executive order which would ban telecom equipment produced by Huawei (002502, Shenzhen, CNY 3.47).  As part of this order, the U.S. will likely consider sanctions on countries that continue to use the equipment.[4]

France v. Italy: In an unusual inter-European spat, France recalled its ambassador to Italy[5] after the leader of the Five-Star Movement, Luigi Di Maio, met with leaders of the “yellow vest” movement.[6]  Di Maio is a deputy PM and his party is a major coalition partner in the government.  For a leader of a European government to meet with opposition leaders of another European government without warning is a serious breach of international protocol.  The meetings highlight the growing establishment/populist divide that is undermining European unity and cooperation.

OPEC and the crown prince: As is common with our news cycle, we move from outrage to outrage.  The horrific assassination of Jamal Khashoggi has mostly slipped from the headlines.  However, we note that two new stories emerged yesterday.  The first is evidence that Crown Prince Mohammed bin Salman had personally threatened Khashoggi more than a year before his murder.[7]  We also note the U.N. issued a report suggesting the Saudis interfered with Turkey’s investigation of the event.[8]

What we find interesting about these news items is that they come closely behind reports that OPEC is wooing Russia and other nations aligned with Moscow to join the oil cartel to increase the group’s market power.  The U.S. would oppose such an arrangement.  We also note that Congress is opening up an old threat to use American anti-trust laws against the cartel.[9]  We suspect the aforementioned reports are the U.S. signaling to Riyadh that Washington is opposed to the combination of OPEC and Russia.  Now we will watch to see the degree of decline of American influence in the Middle East.

Brexit: There are reports that the May government is moving rapidly to create emergency plans for a hard Brexit.[10]  The acknowledgement (or perhaps leak) is a signal that either (a) the government is coming to the conclusion that the likelihood of a hard Brexit is increasing, or (b) the government wants to signal to Parliament that if it wants to avoid a hard Brexit, it will need to accept May’s deal.  A hard Brexit will be difficult for policymakers because the event would be a supply side shock (the aggregate supply curve will move violently toward the origin and steepen), but the best short-term tools are demand side (tax cuts, fiscal spending, easier monetary policy).  If the government implements the latter into the former, a major inflation spike will result.  If the BOE accommodates the spike, the GBP will plunge; if it attacks the rise, the U.K. economy will suffer a nasty decline.

One of the factors we have been investigating lately is that a hard Brexit might actually accelerate the end of the United Kingdom.  Scotland has been holding periodic referendums to leave the kingdom; so far, they have all failed but leaving might be more attractive if the economy collapses after a hard Brexit.  The same problem exists in Northern Ireland.  Demographics are slowly moving toward unification of the island and an economic crisis in the U.K. might accelerate the process.  For now, these scenarios are rather distant but, seeing how the leadership is handling the current situation, it is hard to make a case that Scotland is better off in the U.K. and Northern Ireland could be better off aligned with Dublin.[11]  It should be noted that both areas voted for “Remain” in the referendum.  The irony of all this is that the goal of Brexit was to improve the sovereignty of the U.K.; it would be a bitter outcome if it ends the kingdom altogether.  At some point, we could see a move by moderates within both the Conservatives and Labour to join and prevent a hard Brexit.[12]  But, such a move would likely lead to a split in the Tories and Labour domination for the foreseeable future.

So, with all this uncertainty, why is the GBP holding on so well?  The PredictIt decision markets suggest that the March 29 deadline will be postponed.

Note that in November the odds of exiting at the end of March were at 70%; odds are now down below 40%.  As long as the market believes Brexit will be delayed, the selloff in the GBP will be avoided.

And, now for something completely different:Japan is apparently facing a crime wave led by senior citizens.  Poverty is leading some older people in Japan to opt for arrest.  At least in prison the government will provide basic food and shelter.[13]

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[1] https://www.axios.com/trump-xi-china-trade-war-meeting-401840ad-896f-4569-a569-c43829bf218d.html

[2] https://www.cnbc.com/2019/02/07/kudlow-theres-a-pretty-sizable-difference-before-a-china-trade-deal-happens.html

[3] https://www.nytimes.com/2019/02/06/business/nafta-trump-deal.html

[4] https://www.politico.com/story/2019/02/07/trump-ban-chinese-telecom-1157090

[5] https://www.nytimes.com/2019/02/07/world/europe/france-italy-ambassador-yellow-vests.html?emc=edit_mbe_20190208&nl=morning-briefing-europe&nlid=567726720190208&te=1

[6] https://www.france24.com/en/20190206-france-italy-di-maio-meets-yellow-vest-protesters-unacceptable?wpisrc=nl_todayworld&wpmm=1 and https://twitter.com/GerardAraud/status/1093518723913261056?wpisrc=nl_todayworld&wpmm=1

[7] https://www.nytimes.com/2019/02/07/us/politics/khashoggi-mohammed-bin-salman.html?emc=edit_mbe_20190208&nl=morning-briefing-europe&nlid=567726720190208&te=1

[8] https://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=24143&LangID=E

[9] https://www.wsj.com/articles/congress-moves-to-counter-opecs-pursuit-of-pact-with-russia-11549573722

[10] https://www.ft.com/content/58637ad8-2a31-11e9-a5ab-ff8ef2b976c7?emailId=5c5d05bdd83b3f00042c1d53&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[11] No doubt hardline Protestants in Northern Ireland would blanch at joining the south.  But, their numbers are shrinking and they could always immigrate to Britain.

[12] https://www.politico.eu/article/theresa-may-tory-mps-brexit-prisoners-dilemma/?utm_source=POLITICO.EU&utm_campaign=fe431629fe-EMAIL_CAMPAIGN_2019_02_08_05_46&utm_medium=email&utm_term=0_10959edeb5-fe431629fe-190334489

[13] https://www.bbc.com/news/stories-47033704?utm_source=pocket&utm_medium=email&utm_campaign=pockethits

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] U.S. equity futures are under pressure again this morning.  Here is what we are watching:

What’s eating the market?  We are seeing a series of foreign central bank easing actions or signals thereof.  Yesterday, the Reserve Bank of Australia surprised the markets with a rate cut.  Today, the Reserve Bank of India joined the parade.  The Bank of England didn’t ease at its meeting this morning (as expected) but offered a gloomy view for Brexit,[1] suggesting uncertainty surrounding the deal is undermining the economy.  In light of these actions, we are seeing the dollar move higher this morning.

The relationship between equities and the dollar is not all that straightforward.  There are periods when equities seem bolstered by dollar strength but other periods when dollar weakness is supportive to equities.  The upper lines on the chart below show the yearly change in the JPM dollar index and the S&P 500.  The lower line shows the 10-year rolling correlation.  During the 1980s, the correlation between the series was modestly negative; a stronger dollar tended to be a bearish factor.  In the 1995-2000 stock market boom, the two series were positively correlated.  But, since 2000, the correlation has been steadily weakening and is now quite negative.

One of the first items taught in basic statistics is that “correlation doesn’t equal causality.”  This is an important observation, especially now.  As the cost of computing power falls, it becomes rather easy to data mine and find all sorts of correlations.  In fact, some in the tech world seem to believe that correlations are all that matter.  But, most of us realize that correlations absent theories are not only a waste of time and resources, but they can be dangerous.

So, what’s the theory here?  A stronger currency is a form of monetary policy tightening.  Currency appreciation lowers the cost of imports, easing inflation, and makes exports less competitive, reducing labor demand.  In the 1990s, equities were rising on “new era” beliefs, that technology and the end of the Cold War were game-changers which gave a massive boost to investor confidence.  In addition, the Asian economic crisis occurred then and the resulting dollar appreciation was seen as a sign of strength.  But, outside that period, to a greater or lesser extent, a stronger dollar has been a negative factor for equities.  Usually, it isn’t a huge factor, so the impact either isn’t enough to matter all that much or it can be offset by the Federal Reserve by easing or not tightening.

We are seeing clear signs that the global economy is weakening.  The EU today lowered its growth forecasts.[2]  China’s economy is slowing.  Although the U.S. economy is also slowing, growth remains above trend.  The growth difference may be leading to renewed interest in the dollar.  Another factor is the prevalence of negative yielding debt around the world.

The U.S. doesn’t have such debt and thus the recent increase in negative yielding debt may be helping the dollar as well.

Our base case is that the dollar will depreciate this year.  On a parity basis, it is rich against most currencies at a level that usually leads to a reversal.  But, if the divergence in growth is leading to dollar strength, it will tend to weigh on U.S. equities.  In the face of appreciation, the FOMC should be open to easing; however, in U.S. policy, forex is the mandate of the Treasury (even though it lacks any policy tools to affect exchange rates) so the Fed tends to leave the dollar out of its discussions.  We have seen equities rise on the back of the Fed’s reversal on monetary policy.  Nevertheless, if global growth continues to slow and foreign central banks continue to ease, going neutral may not be enough for further market appreciation.

Brexit: It’s getting a bit nasty this morning.  European Council President Donald Tusk indicated that there is “a special place in hell” for U.K. Euroskeptics.[3]  PM May is trying to reopen talks on the Irish backstop but Tusk’s comments suggest she isn’t likely to get the EU to budge.[4]  What makes this worrisome is that Tusk has been openly encouraging the U.K. to reverse course and stay in the EU.  His comments seem to indicate he has concluded that all is lost and a hard Brexit may be inevitable.  Meanwhile, Labour Party leader Corbyn offered May conditional support for a soft Brexit.  He is demanding May accept a permanent customs union, a pledge to maintain the EU’s worker’s rights, commitments for U.K. participation in EU agencies and unambiguous agreements on EU security arrangements.[5]  Most of these are an anathema to the Brexiteers.  What Corbyn is doing is creating conditions where Labour MPs could vote for May’s plan (or something close to it) that may be enough to overcome Tory opposition.  His goal is to split the Tories permanently and hang what is bound to be an unpopular agreement on May.  As we noted yesterday, it looks like May can either have (a) a soft Brexit and break up the Tory Party, or (b) maintain Tory Party unity and a hard Brexit.  Obviously, she wants to split the horns of that dilemma so her plan seems to be to run out the clock and hope that the Euroskeptics in her own party cave at the last hour rather than suffer a hard Brexit.  In other words, she is risking option (b) in order to avoid being the party leader that will be remembered by history as the one who broke British Conservativism.  Thus, the risks of a hard Brexit are rising.

The farm problem: Chinese tariffs on U.S. grain have been a majorly negative factor for the farm belt.  Despite measures from the administration to lessen the blow from lost sales, economic conditions in the farm belt are deteriorating.  Bankruptcies are rising and debt levels appear unsustainable.[6]  There is no doubt that some farmers likely overexpanded during last decade’s biofuel boom and have taken on too much debt to maintain their operations as grain prices fell.  But, the loss of export markets has put vulnerable operations in grave danger.  This isn’t a new story in American agriculture.  The cycle of expansion and contraction is well known.  However, farmers now have a proximate cause for their woes—administration trade policy.[7]  That may not be completely fair; after all, the administration didn’t force them to overcommit.  But, the tariffs will be seen as the event that triggered the farm downturn.  Given how critical the farm belt is in Trump’s base, we would expect the growing crisis to add an incentive for a short-term trade deal with China.  And, obviously, our cited articles will be known to Chinese trade negotiators.  We would expect them to use this news to maximum leverage.

The government and 5G: The Trump administration is reportedly preparing a plan to expand the government’s role in developing the next generation of technology and artificial intelligence.  The administration is said to be unveiling a series of executive orders[8] to support efforts to gain superiority in these areas.  The U.S. is in a race of sorts with China on these new technologies, which China wants to dominate as part of its “China 2025” policy (which it currently disavows).

European news: A day after Germany unveiled its new industrial policy[9] designed to support large industrial combinations to create national champions, the EU shot down a merger between two large railroad companies on competition concerns.[10]  The U.S. ambassador to the EU, Gordon Sondland, suggested the EU and the U.S. should “lock arms” against a common enemy, China.[11]  There has been increasing commentary about how Europe can keep the U.S. in NATO and maintain America’s support for Europe.  The tradeoff may be that Europe severs its relations with China in return for American support.  Northern Macedonia (reflecting its new name[12]) has formally joined NATO, becoming the 30^th member of the treaty group.[13]

Energy update: Crude oil inventories rose 1.5 mb last week compared to the forecast rise of 1.3 mb.

In the details, estimated U.S. production was unchanged at 11.9 mbpd.  Crude oil imports were steady, while exports rose 0.9%.  Refinery runs unexpectedly rose 0.6%.  Gasoline inventories rose less than forecast.

This is the seasonal pattern chart for commercial crude oil inventories.  We would expect to see a steady increase in inventory levels that will peak in early May.  This week’s increase, like last week, was below the seasonal norm.  If this continues, it would be a bullish factor for oil prices.

Based on oil inventories alone, fair value for crude oil is $58.27.   Based on the EUR, fair value is $55.51.  Using both independent variables, a more complete way of looking at the data, fair value is $55.74.  By all these measures, current oil prices are generally in the neighborhood of fair value.  However, we still expect prices to move toward $60 later this year on rising oil exports. 

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[1] https://www.fxstreet.com/analysis/bank-of-england-lowers-the-growth-forecast-as-brexit-uncertainty-makes-more-damage-201902071239

[2] https://www.cnbc.com/2019/02/07/germany-economy-raises-fears-as-european-commission-lowers-forecasts-.html and https://www.bloomberg.com/news/articles/2019-02-07/italian-bonds-euro-fall-after-eu-cuts-economic-growth-forecasts?srnd=fixed-income

[3] https://www.ft.com/content/5d79d8e6-2a09-11e9-a5ab-ff8ef2b976c7?emailId=5c5bc7a31533c300044fb54e&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[4] https://www.ft.com/content/dddd1d26-295b-11e9-a5ab-ff8ef2b976c7 and https://www.nytimes.com/2019/02/06/world/europe/theresa-may-brexit-tusk-brussels-backstop.html?emc=edit_mbe_20190207&nl=morning-briefing-europe&nlid=567726720190207&te=1

[5] https://www.ft.com/content/11938442-2a66-11e9-a5ab-ff8ef2b976c7?emailId=5c5bc7a31533c300044fb54e&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[6] https://www.wsj.com/articles/this-one-here-is-gonna-kick-my-buttfarm-belt-bankruptcies-are-soaring-11549468759

[7] https://www.politico.com/story/2019/02/06/farm-crisis-trump-trade-policies-1147987

[8] https://www.wsj.com/articles/trump-preparing-plan-to-boost-ai-5g-technology-11549474459

[9] https://www.politico.eu/article/peter-altmaier-railbus-germany-promotes-champions-as-eu-moves-to-kill-railbus/?utm_source=POLITICO.EU&utm_campaign=1f4bc9d6d3-EMAIL_CAMPAIGN_2019_02_06_05_40&utm_medium=email&utm_term=0_10959edeb5-1f4bc9d6d3-190334489

[10] https://www.nytimes.com/2019/02/06/business/eu-siemens-alstom-train.html?emc=edit_mbe_20190207&nl=morning-briefing-europe&nlid=567726720190207&te=1

[11] https://www.politico.eu/article/gordon-sondland-us-ambassador-eu-donald-trump-against-china-trade-influence/?utm_source=POLITICO.EU&utm_campaign=2e1ae2b28b-EMAIL_CAMPAIGN_2019_02_07_05_44&utm_medium=email&utm_term=0_10959edeb5-2e1ae2b28b-190334489

[12] https://www.nytimes.com/2019/02/06/world/europe/macedonia-nato.html?emc=edit_mbe_20190207&nl=morning-briefing-europe&nlid=567726720190207&te=1

[13] https://www.politico.eu/article/macedonia-signs-nato-agreement/?utm_source=POLITICO.EU&utm_campaign=2e1ae2b28b-EMAIL_CAMPAIGN_2019_02_07_05_44&utm_medium=email&utm_term=0_10959edeb5-2e1ae2b28b-190334489

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] U.S. equity futures are a bit lower this morning in a very quiet trade.  Here is what we are watching today:

State of the Union: For financial markets, there wasn’t much in the speech that mattered.  There was nothing on taxes and the potential for any major spending program is low.  For the most part, these speeches have become a political spectacle that usually lack substance.  However, there were two items of note that will bear watching.  First, the president indicated that the U.S. will “never be a socialist nation.”  Although there are some baby boomers attached to the term (Sen. Sanders perhaps the most notable), socialism has become a generational divide.  Those old enough to have seen communism and socialism on a large scale are quite familiar with its failings.  David Hume’s view that the only power that can offset self-interest is self-interest itself is perhaps one of the most radical insights into human behavior.  Accordingly, for baby boomers, it is ludicrous to suggest that socialism is an idea whose time has come.

So, other than the fact that history isn’t taught anymore,[1] why the interest in socialism from millennials?  One of the problems of socialism is that it tends to disadvantage capital.  This tendency leads to underinvestment and, eventually, scarcity and inflation.  Inflation trends likely explain the generational attitude toward socialism.

This chart shows the average experience of inflation from age 16 to the age on the X axis.  In other words, a current 60-year-old’s experience spans from 1974 to 2018.  The line on the chart shows the adult experience of inflation for each year listed on the X axis.  We have calculated the average experience by generation.  Baby boomers have the highest inflation experience, whereas millennials have the lowest.  We would argue that the low inflation experience of millennials means that one of the key negatives to socialism, the tendency toward inflation, is less of an issue for that generation because it hasn’t experienced it.  Instead, that generation has tended to focus more on inequality and slow growth.

Politically, socialism could become a wedge issue that the GOP will use against the Democrats, especially against the left-wing populist constituency within that party.  This could be an effective tool in the short run.  However, demographics will become a problem for the GOP over time if it adopts opposition to socialism as a wedge issue.

Second, the other note from the speech that caught our attention was the comment about no more “endless wars.”  Endless wars are part of being the global hegemon because this role requires global military power projection (in part, the ability to project power globally is one element of how we define hegemony).  The goal of the superpower is to limit interventions and avoid needless conflicts in areas that have little strategic importance.  The U.S. has gotten itself into trouble on this issue when it lacks a clearly defined mission; once the goalpost moves from a specific aim to mission creep, e.g., “fostering democracy,” then the ability to limit involvement is undermined.  So, on the one hand, the president has a good point: we should engage in conflicts with clear goals in mind.  For example, if our goal in Afghanistan was to eliminate the country as a base of operations for al Qaeda and remove the Taliban from power, then we would have been out of the country a long time ago.  But, once we are on the hook to transplant democracy, we could be there forever.  On the other hand, there are some elements of hegemony that require a constant presence of American military power.  Keeping peace in Europe to resolve the German problem and preventing militarism in Japan by securing the country’s trade routes require long-term commitments.  It isn’t obvious that the president sees the difference.  We have no quarrel with his goal of leaving Afghanistan or even Syria (although the shift to a build-up in Iraq doesn’t look like a good idea); leaving NATO, on the other hand, could be a serious mistake.

Brexit: PM May is going to leave the Irish backstop in place in her agreement.  She is negotiating with the EU to either limit the time that the backstop would be in place or adjust it to prevent the open border on the Irish frontier from keeping the U.K. in the EU Customs Union indefinitely.  There is evidence that the DUP, her Unionist coalition partner, is flexible on this issue which is a good sign.  Unfortunately, the hard Brexit groups within the Tories want no backstop at all which would likely lead to border controls on the Ireland/Northern Ireland border.  Instead, this group wants new border technology (which doesn’t currently exist) to allow trade and people to move seamlessly across the frontier.[2]  Increasingly, it looks to us that May can either have (a) soft Brexit and break up the Tory Party, or (b) maintain Tory Party unity and hard Brexit.  Although it’s hard to say how she will lean, our concern is that she will take option (b).

OPEC and Russia: The cartel is seeking a formal arrangement with Russia that would, in effect, expand the cartel.  Russia has some influence on some of the former Soviet states as well, which would broaden OPEC even further.  Some producers within OPEC, such as Iran, oppose adding Russia for fear that cartel policy would effectively be set in Riyadh and Moscow.[3]  If OPEC were to expand to include Russia and other nations, its ability to move prices would be enhanced.  The fact that the Saudis are even contemplating such an arrangement is a clear indication of waning U.S. influence in the Middle East.  At the same time, we doubt Russia would be a reliable coalition partner.  It has a history of breaking promises and would not likely adjust output in a way that would harm its national interests.  If OPEC is able to bring Russia and aligned nations into its fold, it would tend to be bullish for oil prices.

Another dove: Dallas FRB President Kaplan is staking out a clearly dovish position on monetary policy.  In an interesting reversal from his predecessor, who tended to be persistently hawkish, Kaplan has indicated he wants “no further action on rates.”[4]  Although his openly dovish position is supportive of the idea that this tightening cycle may be over, it should be noted that he isn’t a voter this year.

Trade talks: The U.S. negotiating team is off to Beijing next week.  The presidents of the two nations haven’t agreed to a meeting yet; it appears that if such a meeting is held, it will likely be a signal that an agreement has been reached.  We still expect a deal to be made, but not one that includes all the issues on technology that the U.S. wants.  President Trump needs a deal with China to help his reelection effort.  Increasing trade tensions with China would be a significantly negative factor for U.S. equities.[5]  Meanwhile, it appears the Europeans are slow-walking talks to run out the clock[6] and avoid auto tariffs.  Trade positions appear almost impossible to overcome; the U.S. wants open trade in agriculture which would upset the EU’s carefully negotiated Common Agricultural Policy.  The EU wants open trade on industrial goods which the U.S. isn’t likely to give.  The whole point of the Transatlantic Trade and Investment Partnership (TTIP) was designed to overcome these hurdles on a systemic basis.  But, since it and the TPP have been shelved, we are back to talks with little hope of success.  We suspect the Europeans may be hoping that Trump fails to win reelection and the pressure will be relieved.  That will be true only if the Democrats (a) nominate an establishment candidate, and (b) that person wins.  It is quite possible that the Democrats nominate a populist (e.g., Sen. Brown) who would be even tougher on trade than Trump.

German industrial policy:Although the news will likely only excite the most wonky of analysts, Germany is creating a new industrial policy[7] designed to support large industrial combinations to create national champions.  Essentially, Germany wants the EU to support an anti-competitive industrial policy led mostly by Germany and France.  One of the underlying assumptions in Berlin is that when the Germans say “EU” they really mean Berlin and Paris.  It will be interesting to see if the EU will acquiesce to German policy goals or prevent such combinations to maintain competition.

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[1] Yeah, I’m sounding a bit like the grumpy old man… https://www.nbc.com/saturday-night-live/video/weekend-update-segment—dana-carvey-as-grumpy-old-man/n9948 and http://www.nbc.com/saturday-night-live/cast/dana-carvey-14886/character/grumpy-old-man-73276

[2] https://www.ft.com/content/7bd0b65e-2967-11e9-a5ab-ff8ef2b976c7?emailId=5c5a5f749aa9160004850ede&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[3] https://www.wsj.com/articles/opec-pursues-formal-pact-with-russia-11549394604

[4] https://finance.yahoo.com/news/dallas-fed-president-robert-kaplan-interest-rates-180000672.html

[5] https://www.wsj.com/articles/u-s-trade-negotiators-heading-to-beijing-next-week-11549408957

[6] https://www.politico.eu/article/the-great-transatlantic-trade-charade-european-union-us-donald-trump-tariffs-cars/?utm_source=POLITICO.EU&utm_campaign=1f4bc9d6d3-EMAIL_CAMPAIGN_2019_02_06_05_40&utm_medium=email&utm_term=0_10959edeb5-1f4bc9d6d3-190334489

[7] https://www.politico.eu/article/peter-altmaier-railbus-germany-promotes-champions-as-eu-moves-to-kill-railbus/?utm_source=POLITICO.EU&utm_campaign=1f4bc9d6d3-EMAIL_CAMPAIGN_2019_02_06_05_40&utm_medium=email&utm_term=0_10959edeb5-1f4bc9d6d3-190334489

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] U.S. equity futures are modestly higher this morning in a very quiet trade.  Much of Asia remains closed for the New Year.  Here is what we are watching this morning:

The President and the Chair: President Trump, Treasury Secretary Mnuchin, Chair Powell and Vice Chair Clarida met for an informal dinner yesterday.[1]  It doesn’t appear that much new emerged.  Monetary policy has become less of a threat to the economy so the White House had little incentive to create a hostile environment.  The inclusion of Mnuchin and Clarida reduced the odds of confrontation.  If this meeting had been held in November, it could have been tense but the recent change in monetary policy defused the situation.

A warning sign for the economy: Car dealers are reporting high levels of inventory; cars on deal lots are up 3% from last year (January), with nearly 4.0 mm vehicles available.  If inventory levels remain high, automakers will begin slowing production which will tend to depress economic growth.[2]  We also note that the Atlanta FRB’s GDPNow forecast shows growth falling to 2.5%.

The contributions table shows that falling commercial building and declining inventories weighed on growth.

The data flow to calculate this number has been affected by the government shutdown but the overall trend does suggest that GDP is falling back toward the 2.0% to 2.5% growth level.

Thinking about the next recession: Over the past 11 years since the financial crisis, central banks have deployed unconventional policy tools; the two primary ones were balance sheet expansion and negative interest rates.  Both are controversial.  The impact of quantitative easing (QE) on the economy remains in dispute.  In Europe, negative interest rates were used; although there wasn’t a lot of evidence of disintermediation,[3] it wasn’t obvious there was much economic stimulus from the action either.  A new study[4] from the San Francisco FRB suggests the Federal Reserve should have used a negative fed funds target instead of QE.  The report suggests that inflation would have increased faster and growth would have been stronger with negative rates.  Although we doubt this will be the final word on the issue, we would expect the FOMC to consider negative interest rates in the next downturn.

Will the China hawks lose?  Our most recent WGRs[5] discuss the trend of U.S. policy toward China.  The conclusion of the report is that the U.S. and China are likely moving toward an antagonistic geopolitical stance.  Current trade talks reflect this issue.  On the one hand, using trade to change China’s behavior should be the long-term policy of the U.S.  However, in the short run, such a policy might lead to financial market turmoil and undermine the president’s reelection campaign.  Reports suggest that trade hawks are worried the president might be inclined to take a short-term deal to boost financial market sentiment at the cost of delaying the inevitable shift to a more hostile policy stance.[6]

The Bundesbank returns?  ECB President Draghi’s term ends in October.  The race to replace him has been underway for months.  The EU has been developing some informal rules for key positions.  The ECB has had a southerner with Draghi, so a northern European nation should get a “turn.”  The leading candidate is Erkki Liikanen, a Finn and former member of the ECB.  Recently, though, Jens Weidmann’s star has been ascending.[7]  Merkel has been using Weidmann for leverage on other EU issues; most of the southern nations are leery of Weidmann, fearful he will implement Bundesbank-era hard money policies.  We still view Weidmann as a long-shot candidate.  But, if he does get the job, we would expect the EUR to appreciate on the news.

Populism on the rise:Yesterday, we commented on the growing war on capital.  We note the establishment is pushing back against the Jacksonian thrust of the White House.[8]  The president’s instincts are to pull troops out of the Middle East, for example, concluding there is no end to these conflicts.  He isn’t wrong on this assessment; however, enduring never-ending conflicts is part of the hegemonic role.  At the same time, what the establishment doesn’t seem to understand is that the bulk of the nation’s voters are at a loss as to why the U.S. must play the superpower role.  In our opinion, the Truman administration sold hegemony to the American public as necessary to contain communism.  Although it was certainly true, it was only partially true.  To avoid WWIII, the U.S. also needed to contain long-standing geopolitical confrontation zones in Europe, the Middle East and Asia.  The partial truth worked—Americans did get behind the role, but only as long as communism was a threat.  The fall of the Soviet Union signaled to most Americans that the U.S no longer needed to expend the resources to police the world (remember the “peace dividend?”).  From that point forward, Truman’s ruse was exposed.  The establishment knew a withdrawal from the world was fraught with risk but it has been unable to create a new narrative to sell to the American people.  Bush tried to do it with Islamic terrorism, but it didn’t really take.  The establishment runs the risk of further losing the support of the American people unless it can show why the U.S. needs to maintain the role.  From the perspective of most Americans, the superpower role goes hand in hand with globalization.  And that’s because it does!  Unless the establishment can convince the average American that globalization is more than trading a good-paying manufacturing job for cheap imports then the cause will be lost.  So, for now, the establishment is taking advantage of Trump’s missteps to push back against troop withdrawals.  But, it may be losing the broader policy goal.[9]  In a related op-ed, Gideon Rachman of the FT notes that one of the unknowns is whether the current populist uprising is a permanent change or merely a blip on the screen of a Davos-led globalized world.  He concludes that the change is permanent, that Brexit, the yellow vests and Trump represent a multi-decade change in trend.[10]  This reflects our analysis of equality/efficiency cycles.[11]

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[1] https://www.ft.com/content/ef1bc0fe-28e5-11e9-88a4-c32129756dd8 and https://www.ft.com/content/ef1bc0fe-28e5-11e9-88a4-c32129756dd8

[2] https://www.wsj.com/articles/car-dealer-lots-are-flush-with-unsold-cars-as-sales-are-expected-to-drop-11549319709

[3] Disintermediation is when households and firms withdraw money from the banking system for alternatives.  The Eurodollar market in the 1960s and 1970s occurred because economic actors could not get a positive real interest rate from the U.S. banking system due to regulation and moved money into the unregulated Eurodollar market.  In theory, if a bank offers negative nominal rates, households and firms will simply remove money from the banking system to earn a real yield on the cash.

[4] https://www.frbsf.org/economic-research/publications/economic-letter/2019/february/how-much-could-negative-rates-have-helped-recovery/

[5] See WGRs, What to do with China: Part I (1/28/2019) and Part II (2/4/2019).

[6] https://www.bloomberg.com/news/articles/2019-02-04/trade-hawks-quietly-bristle-as-trump-guns-for-deal-with-china

[7] https://www.bloomberg.com/news/articles/2019-02-05/weidmann-comeback-could-yet-jolt-ecb-race-for-draghi-succession

[8] https://www.washingtonpost.com/opinions/global-opinions/congress-is-beginning-to-check-trumps-worst-foreign-policy-impulses/2019/02/04/9d16f970-28a1-11e9-984d-9b8fba003e81_story.html?utm_term=.f3999a15da02

[9] https://www.wsj.com/articles/trumps-foreign-policy-critics-are-losing-11549325062

[10] https://www.ft.com/content/debb6f2c-285c-11e9-a5ab-ff8ef2b976c7?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top

[11] See WGR, Reflections on Trade: Part IV (5/22/2017)