by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] So far, it’s a quiet morning with a bit of a “risk-off” tone.  Here is what we are watching today:

An EU trade proposal?  EU Commission President Juncker came to Washington this summer and convinced President Trump that the EU and the U.S. should negotiate on trade.  Since then, not too much has happened.  It is pretty clear that Juncker’s plan was to delay any agreement through the midterms and hope that a change of power in at least part of Congress would distract the White House and mostly maintain the status quo.  At least, that’s what it looked like to us.  However, to our surprise, the EU trade minister, Cecilia Malmström, has made a preliminary offer to end all tariffs on industrial products, including cars.[1]  In the original discussions between Presidents Trump and Juncker, the scope of products discussed was only non-auto industrial goods.  The EU currently applies a 10% tariff on imported U.S. vehicles compared to a 2.5% tariff on European cars imported to the U.S.  However, the U.S. has a 25% tax on foreign light trucks.  It will be interesting to see how the Trump administration responds.  If the goal is to simply reduce tariffs, then this looks like an interesting offer.  However, this deal would threaten U.S. automakers’ strength in light trucks.  Although we don’t have year-to-date data since some of the automakers stopped reporting monthly sales, the latest data available through April show that U.S. automakers only hold a 25% share of the car market but a 55% share of light trucks.  We would expect U.S. automakers to be cool to the change the EU is offering.  In order to show that the U.S. really wants low tariffs but doesn’t want to hurt the U.S. automakers, the Trump administration could push to include agricultural products, which is a non-starter for the EU.  European carmaker equities have risen on the news, but we would be surprised to see the U.S. accept this offer.  However, we would not be surprised to see a tariff reduction on non-auto industrial goods.

The key to this proposal is that the U.S. does appear to be isolating China.  If the EU and U.S. can ease trade tensions and, as we note below, NAFTA is renegotiated, then China will be left out.  As we have noted before, this was the aim of TPP/TTIP.

So, you’re saying there’s a chance?  Both President Trump and Canadian PM Trudeau[2] said yesterday that there is a chance a deal could be reached by Friday.  Canadian dairy subsidies remain a sticking point but it does appear that Canada realizes the value of NAFTA to its economy.  The PM will lose a lot of political capital to make this deal; politically, it never looks good for a nation to accept a fait accompli.  We will be watching to see how the Canadians “spin” the agreement if one is reached.

Argentina’s woes: Despite central bank intervention, the Argentine peso plunged yesterday after President Macri asked the IMF to accelerate its aid disbursements.[3]  The IMF indicated it would examine Macri’s request.

As this chart shows, the ARS has declined to new lows.  A deepening current account and concerns about debt repayment have raised fears among investors.

The famous “century bond,” issued last year, is now trading at 70.5 cents on the dollar.  Argentina will need to pay $50 bn in debt service this year and apparently needs the IMF’s support to ensure it can meet its obligations.  Crises like what we are seeing in Turkey and Argentina have weighed on emerging markets in general.

China in Afghanistan: China is building training camps in the Wakhan Corridor, a small land strip that connects China and Afghanistan.[4]  This is the first time in modern history that China has had a military presence in Afghanistan.  However, as China attempts to build out its “one belt, one road” system for trade and infrastructure, Afghanistan’s role as a potential land bridge makes China’s influence there increasingly important.  China is likely worried that Uyghur separatists in the Xinjiang region of western China could use the area around China to base operations.  Thus, the move into Afghanistan makes sense.  At the same time, as the U.S. is learning, Afghanistan’s moniker as the “graveyard of empires” should raise concerns in Beijing that becoming involved in Afghanistan can become a persistent drain on resources.

Energy recap: U.S. crude oil inventories fell 2.6 mb compared to market expectations of a 1.5 mb draw.

This chart shows current crude oil inventories, both over the long term and the last decade.  We have added the estimated level of lease stocks to maintain the consistency of the data.  As the chart shows, inventories remain historically high but have declined significantly since March 2017.  We would consider the overhang closed if stocks fall under 400 mb.  This week’s decline in inventories was in line with seasonal trends.  Refinery utilization did decline, falling 1.8% to 96.3%.  Oil imports were steady but a rise in oil exports helped reduce stockpiles more than forecast.

As the seasonal chart below shows, inventories are late into the seasonal withdrawal period.  This week’s decline in stocks was consistent with seasonal patterns.  If the usual seasonal pattern plays out, mid-September inventories will be 399 mb.  We do note that we are approaching the end of the summer withdrawal season for crude oil inventories.  By mid-September, we will start to see a rebuild in stockpiles; the impact of oil exports will rise in importance in autumn because we may not see the full extent of the usual seasonal build if exports rise.

Based on inventories alone, oil prices are below fair value price at $72.22.  Meanwhile, the EUR/WTI model generates a fair value of $57.96.  Together (which is a more sound methodology), fair value is $62.48, meaning that current prices are well above fair value.   However, the most bearish factor for oil is dollar strength.  It will be difficult for oil prices to move higher without some reversal in the greenback.

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[1] https://www.politico.eu/article/eu-says-it-is-willing-to-scrap-car-tariffs-in-us-trade-deal/

[2] https://www.ft.com/content/9d410eac-abad-11e8-94bd-cba20d67390c

[3] https://www.ft.com/content/042189e0-ab8f-11e8-89a1-e5de165fa619

[4] https://www.scmp.com/news/china/diplomacy-defence/article/2161745/china-building-training-camp-afghanistan-fight?wpisrc=nl_todayworld&wpmm=1

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] It’s a quiet Wednesday, very typical of late summer.  Here is what we are watching today:

Ottawa to Washington: The U.S. has given Canadian negotiators a deadline of Friday to accept the deal negotiated by the U.S. and Mexico.  In response, Canada’s foreign minister, Chrystia Freeland,[1] is in Washington to conduct talks.  It seems almost impossible that Canada would accept terms on such short notice.  If the Canadians join, it would suggest the changes agreed to by Mexico and the U.S. are not different enough to matter.  At the same time, not signing off on the pact could be very damaging to the Canadian economy.  Politically, it will be hard for the Trudeau government to spin that it didn’t cave to the Trump administration if they accept the deal on such a short deadline.  There is also increased grumbling about the deal among U.S. senators.[2]  It isn’t completely clear that this agreement could pass Congress.  So, yesterday’s declaration of victory may be premature.  If the deal fails, it will raise fears surrounding trade and would be bearish for equities and bullish for the dollar.

About last night: A number of primaries were held last night as the primary season winds down for November’s main event.  The key takeaway is that the current political coalition continues to fray and the populist insurgency is still growing.  We are especially taking notice of the choice Florida voters will be facing, which is between a left- and right-wing populist.[3]  The other interesting item of note was the heavy GOP turnout in Florida, which does suggest a higher degree of enthusiasm[4] than would be indicated if a “blue wave” is coming in November.

China and influenza: A new strain of the influenza virus has emerged in China.  This is nothing unusual; nearly every year, a new strain mutates and often originates in China, which has a natural reservoir of swine and fowl that propagate new strains.  The new virus, called H7N9, has been circulating for over a year.  The U.S. would like to get a sample of it to start creating new vaccines for the upcoming flu season.  However, China is refusing to share samples of the virus.  According to reports,[5] some U.S. laboratories have received samples from Hong Kong and Taiwan, but it is unclear if enough material is available to build ample vaccine reserves.  Although neither government is saying much officially, this lack of cooperation appears to be due, in part, to deteriorating relations between China and the U.S.

Russian war games: Russia is conducting the Vostok-2018 war games[6] next month.  Beginning on September 11, the games will be the largest conducted since the fall of the Soviet Union.  China has agreed to participate.  The exercises, held in eastern Russia, used to be designed to prepare for a conflict with China.  Thus, the participation of Chinese military units is unprecedented.  This show of force coincides with a flotilla of Russian Navy vessels that have moved into the Mediterranean.  These ships may be part of a build-up to support Syria in operations against rebel positions in Idlib, Syria.

U.S. war games return: As part of the agreement at the recent U.S./North Korean summit, the U.S. agreed to suspend military exercises with South Korea.  Secretary of Defense Mattis[7] announced yesterday that this suspension would be lifted going forward, most likely due to the lack of denuclearization from Pyongyang.  It is interesting to note that South Korea has been reluctant to say it would also resume war games.

India boosts defense spending: India has approved the acquisition of $6.5 bn of military hardware, including 111 naval helicopters.  There has been an arms race escalation across Asia; current spending is $450 bn, with 44% coming from China alone.[8]  This spending is due, in part, to fears that the U.S. is withdrawing from its postwar role of protecting the region.  This spending is really not a surprise, but the mounting increase in spending and the arms build-up could lead regional powers to use this military hardware to either project power or resist incursions.  What we are seeing in Asia will likely be seen in Europe over time.

A German bailout of Turkey?  There are reports that the Merkel government is considering providing emergency economic aid to Turkey, fearful that an economic collapse could destabilize the Middle East and Europe.[9]  In our most recent WGR,[10] we speculated that Ankara might use the threat of a migrant overflow into Europe to encourage support from EU leaders.  These recent reports may indicate that Turkey is using backchannels to warn Germany and the EU that it might make good on this negative outcome.  If so, the odds that Turkey stabilizes would improve, to some degree.

Richard Clarida to the FOMC: At long last, Richard Clarida made it over the final hurdle and will join the FOMC for the September meeting.  We expect Clarida to vote as a moderate governor. 

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[1] https://www.nytimes.com/2018/08/28/business/canada-and-us-meet-as-trump-moves-ahead-with-mexico-trade-deal.html?emc=edit_mbe_20180829&nl=morning-briefing-europe&nlid=567726720180829&te=1

[2] https://www.ft.com/content/0923fd48-aa8a-11e8-94bd-cba20d67390c?emailId=5b861cc11fdcec0004aca586&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[3] https://apnews.com/4046fb95237e43cbb450e02c8e61484d/Primary-takeaways:-Establishment-fails-and-diversity-grows?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top-stories

[4] Ibid.

[5] https://www.nytimes.com/2018/08/27/health/china-flu-virus-samples.html

[6] https://www.nytimes.com/2018/08/28/world/europe/russia-military-drills.html?emc=edit_mbe_20180829&nl=morning-briefing-europe&nlid=567726720180829&te=1

[7] https://www.ft.com/content/373e31e6-aae2-11e8-89a1-e5de165fa619?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[8] https://www.ft.com/content/4492a134-9687-11e8-b67b-b8205561c3fe

[9] https://www.wsj.com/articles/as-turkey-teeters-germany-considers-offering-a-financial-lifeline-1535459427

[10] See WGRs, The Turkey Crisis: Part I (8/20/18) and Part II (8/27/18).

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] It’s a quiet Tuesday.  Here is what we are watching today:

A deal with Mexico: Although it wasn’t a huge surprise, it does appear the U.S. and Mexico have a trade agreement.  The overall details are as follows:[1]

1. 75% of content in autos must be sourced in North America to be tariff-free, up from 62.5%. Impact—modestly inflationary.
2. Between 40% and 45% of auto content must be produced by workers earning at least $16 per hour, which shifts production to the U.S. and potentially Canada, or raises wages in Mexico. Impact—initially inflationary, but will likely spur increased automation.
3. Steel and aluminum inputs must be sourced in North America. Impact—inflationary.
4. Broad rules for nation of origin in other industries to qualify for tariff-free treatment. Impact—will shift investment into North America, likely inflationary.
5. Copyright holders will have full protection in markets of member nations; intent is for this to become a global model (this was actually a goal of TPP). Impact—bullish for North American tech and entertainment, modestly inflationary.
6. All digital products distributed electronically will be tariff-free. This was an area that clearly needed an update.  Impact—modestly deflationary.
7. Although full details have not been released, Mexico will need to take specific steps to recognize collective bargaining agreements. Impact—uncertain.
8. The “sunset clause” was eased significantly; this new agreement is a 16-year program with a review after six years. Originally, the Trump administration wanted a new agreement every five years.  That outcome would have seriously undermined cross-border investment due to the uncertainty caused by frequent renegotiation.  Impact—negligible.
9. The international tribunal dispute mechanism was curtailed. Energy and infrastructure industries will continue to use the current system but other industries will need to create new mechanisms that will be more beholden to sovereignty.  Impact—potentially inflationary as it will allow nations to implement barriers and reduce investment.
10. Agriculture will remain tariff-free. Impact—deflationary.

Perhaps the best way to frame this agreement is to think about the economy differently.  One of the most powerful concepts in economics is supply and demand.  Because it’s so powerful, it tends to shape broader thinking about the economy and markets.  Thus, there is a tendency to separate consumers from capital and labor, the idea being that the latter two represent the supply side while the consumers represent the demand side.  In reality, we are usually either capital or labor, depending on how we get paid, but we are all consumers.  Throughout history, there is an interplay between the three that tends to be unrecognized by economics.  In our estimation, capital tends to get its due share in capitalist economies, to a greater or lesser extent.  Only under socialist or communist structures is capital at a disadvantage and history tells us that capital tends to suffer the “tragedy of the commons[2]” in these systems because of social ownership.  In other words, if no one has complete ownership of capital, it tends to be neglected and thus deteriorates.  In capitalist economies, capital always gets a share and the real vacillation of power is between labor and consumers.  If a society wants to support labor under capitalism, consumers usually suffer.  As the 1960s and 1970s often showed, creating high-paying, low-skilled jobs (which required protection through collective bargaining and from foreign competition) led to consumers paying a lot for shabby products.  But, globalization and improving the lot of consumers by reducing labor’s power hurt labor, who were also the bulk of consumers.  It appears to us that the administration is trying to redress the relative weakness of labor with this agreement with Mexico, which we assume will become the blueprint for negotiations with most other nations.  That will likely lead to higher wages in some industries and bring higher inflation.  This is a trade-off we have been anticipating for some time; the rise of the populist left and right is directly related to the policies of deregulation and globalization of the late 1970s that favored capital and consumers.  These policies clearly led to lower inflation but the relative impoverishment of the working classes.  The last two presidents won by offering voters the idea that they would reverse this trend.  This new trade agreement is part of this goal.

So, what happens now?  Canadian negotiators are coming to Washington to start talks.  The most likely outcome is that Canada and the U.S. will strike a similar agreement.  It should be remembered that NAFTA was never really a North American agreement—it was a U.S./Canada and U.S./Mexico agreement.  A simple observation of Mexican/Canadian trade relative to the U.S. makes this clear.

As this chart shows, trade between Canada and Mexico is dwarfed by each nation’s trade with the U.S.  Thus, negotiating two separate agreements, even if they are called NAFTA, makes sense.  We expect Canada to come to a deal with U.S. negotiators.

The bigger question is what does this mean for Trump’s future trade policy?  If this agreement does become a negotiating blueprint, it is good news because it means the U.S. isn’t necessarily embarking on blowing up the global trading system.  This is why equities treated the news of a deal so warmly yesterday.  Instead, the president appears to be trying to tip the scales for American industrial workers.  This is tricky because sometimes helping some industries disadvantages others.  But, some correction from what has been in place for nearly 30 years should not be a huge surprise.  We would expect the EU to observe what has transpired with Mexico and the U.S. and shape an agreement with the administration.  The greatest uncertainty surrounds China.  It isn’t clear if the U.S. simply wants a deal with China or if the goal is to use trade as a tool of geopolitical dominance.  We would lean toward the latter; keep in mind that TPP was designed to isolate China and force it to comply with TPP rules.  Thus, we would be a bit surprised by a deal with China; instead, we look for increasing tensions.

An attack on social media and search engines: In a tweet[3] this morning, President Trump accused Google (GOOGL, 1256.27) of bias.  Concern over bias is nothing new; other social media firms have faced similar accusations.  Social media firms are scheduled for hearings on September 5.[4]  This isn’t a position the tech media firms wanted to find themselves in; for years, they argued they were merely platforms and not journalists or media firms, and thus didn’t deserve scrutiny.  This position has become increasingly difficult to defend as various actors, including foreign ones, have “weaponized” social media for their own ends.  Although we don’t expect anything to happen in the near term, eventually these firms will face increasing regulation that could undermine their business models.  The best book on this issue is The Four by Scott Galloway, which we have reviewed.[5]

The next ECB president: Mario Draghi’s term in office ends on Halloween 2019.  Although that is still a ways off, there has been some position jockeying for some time.  A leading candidate has been the head of the Bundesbank, Jens Weidmann.  Weidmann has been critical of the ECB’s actions to stabilize the Eurozone economy, including QE.[6]  According to reports, Chancellor Merkel is leaning toward supporting a German for European Commission president.[7]  Since it would be likely impossible to get the EU to support a German for two of the top posts in the EU, it looks increasingly like Weidmann will be sidelined.  If this trend continues, the ECB leadership post is wide open.  According to reports, a number of potential candidates have emerged.[8]  However, it should be noted that none of the projected candidates are from the southern tier nations and most are considered rather hawkish.  We would bet on the Finns getting the nod.

North Korea: We have seen relations move from hope to concern.  Last week, President Trump announced that his secretary of state would not be traveling to Pyongyang after all, blaming the lack of progress in talks.  Although this nation has been on the backburner of our attention recently, conditions are deteriorating again.  North Korea is still negotiating with South Korean President Moon, raising the potential for “daylight” between U.S. and South Korean policy.  North Korea has also accused the U.S. Special Forces and Japan of conducting exercises in the Philippine island of Luzon, which is roughly like launching attacks on North Korea from Okinawa.[9]  At the same time, there are other reports coming from North Korea suggesting the recent deterioration in relations isn’t because of President Trump or Secretary of State Pompeo; instead, the blame is being assigned to John Bolton and Congress.[10]  The reports about dissention within the U.S. as the cause of tensions with North Korea may be due, in part, to uncertainty about the future path of talks.  If Kim were purely “playing” the U.S., he would do something aggressive, like launch a missile, and go back to the pre-summit situation.  The fact that this discussion is out in the open may mean that North Korea does want negotiations to move forward but doesn’t want to look foolish if nothing comes of them.  At this point, we don’t really know, but a personal gesture toward Trump might be required if Kim wants something to happen.

The king killed the IPO:The crown prince of Saudi Arabia was working on the Saudi Aramco IPO not only to raise revenue for economic restructuring but also to open up Saudi society.  According to reports, his father, King Salman, decided that too much transparency could lead to trouble.  Thus, he killed the deal.[11]  This development bears watching.  Since becoming king, there have been reports that King Salman wasn’t quite “all there” and his son, the crown prince, was really in control.  And, up until this point, all signs supported that idea.  Crown Prince Muhammad bin Salman (MbS) acted with what appeared to be complete freedom, conducting a war, cracking down on “corruption” and announcing long-term investment plans.  That isn’t to say that MbS didn’t face corrections from his father.  The king opposed the U.S. recognition of Jerusalem as Israel’s capital after MbS had seemingly approved the plan.  But, as noted, the king gave his son a lot of leeway in policy.  According to Reuters, the king may have become concerned about public scrutiny of Saudi Aramco and how that would reflect on the royal family.  We will be watching for more evidence that MbS may be slipping from the king’s favor.

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[1] https://www.wsj.com/articles/what-the-u-s-mexico-trade-pact-says-1535403635

[2] http://science.sciencemag.org/content/162/3859/1243

[3] https://twitter.com/realDonaldTrump?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor

[4] https://www.axios.com/tech-giants-tighten-their-act-before-congressional-testimony-1535413676-e4121feb-88c0-4749-9b95-99ccaca08e83.html

[5] https://www.confluenceinvestment.com/research-news/reading-list/

[6] https://www.ft.com/content/485e1d66-bb13-11e7-9bfb-4a9c83ffa852

[7] https://www.ft.com/content/8118238a-a6b4-11e8-8ecf-a7ae1beff35b

[8] https://www.ft.com/content/97008006-a78c-11e8-926a-7342fe5e173f

[9] https://www.washingtonpost.com/world/north-korea-accuses-us-of-plotting-invasion-while-talking-with-smile-on-its-face/2018/08/26/a241993c-a917-11e8-8f4b-aee063e14538_story.html?utm_term=.fd0b369513a9

[10] https://www.38north.org/2018/08/rcarlin082118/

[11] https://www.reuters.com/article/us-saudi-aramco-ipo-king-exclusive/exclusive-saudi-king-tipped-the-scale-against-aramco-ipo-plans-idUSKCN1LC1MX

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] It’s a solemn Monday as the nation mourns the passing of Sen. John McCain.  It is dominating the media’s focus.  It is also the last week of summer and it is clear that trading desks are thin and quiet.  Here is what we are watching today:

Steadying the CNY: The PBOC took steps today to stabilize the CNY in the face of a stronger dollar.  In January, the PBOC stopped using an adjustment factor that took the stronger dollar into account.  Thus, as it priced the CNY against a currency basket, overall dollar strength was leading to a weaker CNY.  By reintroducing this adjustment factor, the CNY should be less prone to weakness when the dollar rallies.  The CNY’s stabilization boosted emerging market equities this morning, offsetting continued worries in Turkey.

Turkey: As Turkey returns from a weak off of vacation, the TRY has resumed its downtrend.

Over the past several sessions, the TRY had stabilized.  However, we are seeing weakness return this morning.  President Erdogan announced a visit to Tehran on September 7.[1]  We note that Iran’s finance minister was fired by the legislature over the weekend due to the poor performance of the economy.

Is Powell a dove?  The Jackson Hole speech was taken as more dovish than expected.  His comment that “there does not seem to be an elevated risk of overheating” is being seen as evidence that he does not see a reason to accelerate the path of tightening, even though there will be a press conference after each meeting next year.  We caution that, as is often the case, this dovishness was offset by expressed worries about inflation and overheating financial markets.  In our view, nothing has really changed.  We note that the fed funds futures market is still expecting a 60% chance of a 25 bps rate hike after an almost certain rate hike in September.

We also note that the two-year deferred Eurodollar futures market is still projecting a terminal rate of 3.00% for fed funds.  The market reaction, which was bullish for gold and equities and bearish for the dollar, suggests that the financial markets were somewhat fearful of a more hawkish speech, perhaps in response to recent comments from the White House.  In other words, financial markets may have been worried that Powell would overreact to Trump’s criticism by signaling that he was going to push rates higher to prove Fed independence.  Instead, we got a fairly straightforward reiteration of the current approach that suggests policy will continue to gradually tighten; in other words, White House criticism against the Fed is being ignored.  The lack of reaction to criticism appears to have led the financial markets to give Powell’s speech a dovish take.  We don’t see it as dovish as none of the internal factors we monitor have changed.  Instead, the financial markets were discounting a hawkish speech and didn’t get one.

Trade: It appears that we did not get a NAFTA deal on Friday because AMLO, the president-elect of Mexico, opposes restrictions on Mexico’s ability to control foreign sector involvement in its energy sector.[2]  AMLO is an economic nationalist who has consistently opposed opening up the energy sector to foreigners.  Although he has softened this view recently, it appears he is not comfortable with the current structure of the agreement.  Talks continue but there is a real push to get the deal done before September 1.  NAFTA rules say that any new deal must have a 90-day waiting period before it can be approved.  If discussions extend past the end of August, the new Mexican administration will be the signatory, which might lead to an entirely new set of negotiations.

A big short: Speculators have built a massive short position in 10-year Treasury futures, likely anticipating mid-September rule changes for pensions that will reduce the attractiveness of these instruments.  However, the level of short positions is contrary to the narrowing of the yield curve.

This chart shows the yield curve (teal) and the level of non-commercial short positions relative to open interest (which is the number of non-offset futures contracts), shown in green.  Note that the green line is unusually high, indicating a large speculative short position.  Speculative short positions are almost always resolved by an offsetting purchase; in futures markets, rarely do speculators take delivery.  If bond yields don’t rise soon (and the narrowness of the yield curve argues against that in the near term), we could see a large short-covering rally in the next couple of weeks.

Italy’s anger: Italy is planning on vetoing the EU budget to express its displeasure with the lack of progress on immigration.  Italy, due to its proximity to North Africa, is a popular landing point for migrants seeking to enter Europe.  Due to EU rules, when migrants disembark on Italian soil, that becomes their new EU nation.  Italy feels it is being unfairly burdened by this rule and wants it changed.  However, the rest of the EU is apparently fine with the current arrangement and has been slow to acknowledge Italy’s predicament.  Unlike many EU rules, budgets do not require unanimity, but Italy has also threatened to withhold its payments to the EU, which would set a dangerous precedent.  We are still early in this process but it is a risk to the EU and the Eurozone.

Broken arrow?  Russia is apparently missing a nuclear powered missile.  Russia claims to have a new nuclear powered hypersonic missile[3] that could reach speeds of up to Mach 20, so fast as to be able to evade U.S. missile defense systems.  However, the technology has had four failures and one of the missiles is apparently lost somewhere in the Barents Sea.[4]  Although there has been no indication that the missile is an environmental threat, the Russians are attempting to recover it.  A missile traveling at those reported speeds is difficult to control because small changes in trajectory can cause large variations in flight.  So far, Russia has not worked out the kinks.

A pig problem: African swine fever has appeared in China;[5] the disease, which is highly contagious and often fatal, affects domestic swine and wild boars.  It is carried by ticks and can be spread by bodily fluids.  The incidence of this disease is the first time it has appeared in Asia. In previous events, large preventative slaughters have been reported.  The Chinese pork industry is decentralized; unlike the U.S., large operations in enclosures exist alongside small farm herds.  Thus, controlling the spread of the disease is difficult.  Food prices make up about 30% of China’s CPI and meat makes up about 3% of the overall index.[6]  China consumes more than half of the world’s pork, although the government is taking steps to reduce meat consumption, in general.[7]  The U.S. provides 13.6% of Chinese pork imports, the fourth largest supplier.[8]

China is very sensitive to inflation and the strong impact of food prices means the leadership will need to take steps to contain a jump in pork prices if culling is necessary.  Pork is so important to China that it has a strategic reserve.[9]  We will be watching to see if China relaxes its recent tariff increases on U.S. pork imports in light of this crisis.[10]

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[1] https://www.reuters.com/article/us-iran-syria-defence-minister/iran-and-syria-sign-deal-for-military-cooperation-idUSKCN1LC0GL

[2] https://www.bloomberg.com/news/articles/2018-08-24/amlo-s-oil-stand-said-to-keep-u-s-mexico-from-nafta-agreement

[3] https://www.livescience.com/62653-russia-hypersonic-weapon.html

[4] https://www.cnbc.com/2018/08/21/russias-nuclear-powered-missile-that-putin-claimed-had-infinite-range-is-currently-lost-at-sea.html?wpisrc=nl_daily202&wpmm=1

[5] http://www.sciencemag.org/news/2018/08/can-china-world-s-biggest-pork-producer-contain-fatal-pig-virus-scientists-fear-worst

[6] https://www.rba.gov.au/publications/bulletin/2017/dec/pdf/bu-1217-4-underlying-consumer-price-inflation-in-china.pdf

[7] https://www.weforum.org/agenda/2016/06/china-consumes-more-than-a-quarter-of-the-worlds-meat-the-government-wants-to-change-that/

[8] http://www.thepigsite.com/articles/5421/an-overview-of-chinas-pork-import-market-2017-forecast-of-2018/

[9]https://www.cnbc.com/id/100795405?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axioschina&stream=top-stories

[10] https://www.cnbc.com/2018/07/04/us-pork-producers-brace-for-new-pork-tariffs-from-china-mexico.html

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] Happy Friday!  Markets are fairly quiet this morning.  Here is what we are watching today:

Powell speaks: The Jackson Hole meeting is underway.  Chair Powell will start speaking around 10:00 EDT.  We don’t expect anything other than “steady as she goes,” meaning at least one more tightening this year and probably two.  We will be watching for White House tweets in response.

Trade: Talks with the U.S. and China ended with a whimper.[1]  We didn’t expect any progress and it doesn’t appear that any was made.  Thus, we are on track for an additional $200 bn in new tariffs in the coming weeks.  Meanwhile, the expected announcement of a NAFTA deal with Mexico did not occur but negotiations have been extended into the weekend, which means a deal is still possible.[2]

China and Taiwan: After Mao captured the Chinese mainland, Chiang Kai-Shek took what remained of his Nationalist government and took control of Taiwan, an island off the coast of mainland China.  For years, the Nationalists maintained that they were the legitimate government of all of China, calling Taiwan the Republic of China (ROC); in fact, its legislature maintained seats for legislators that represented mainland constituencies for years.  Mao called the mainland the People’s Republic of China (PRC).  What both the Nationalists and Communists held in common was that Taiwan is part of China, not a separate nation.  After Nixon normalized relations with the Communists on the mainland, diplomatic strategic ambiguity became the order of the day.  The U.S. defended Taiwan but didn’t dispute whether Taiwan was part of China.  It supported eventual unification.  For the U.S., “eventual” might have meant never.  For China, “eventual” meant soon.  That ambiguity has existed since the early 1970s and all parties have generally benefited.  Taiwan has prospered and increased its links to the mainland.  A hot war has been avoided.  The U.S. can say it protected Taiwan.  But, it should be remembered that this entire diplomatic edifice rests on strategic ambiguity, a condition where all parties say the same words but mean something entirely different.

Over time, the number of nations that have diplomatic relations with the ROC has dwindled.  The following nations currently have diplomatic ties with the island:

Belize (1989); Guatemala (1960); Haiti (1956); Honduras (1965); Kiribati (2003); Marshall Islands (1998); Nauru (1980–2002, 2005); Nicaragua (1990); Palau (1999); Paraguay (1957); Saint Kitts and Nevis (1983); Saint Lucia (1984–1997, 2007); Saint Vincent and the Grenadines (1981); Solomon Islands (1983); Swaziland (1968); Tuvalu (1979); and Vatican City (the Holy See) (1942).

El Salvador is the latest nation to sever relations with Taiwan, the third this year.  However, the White House has criticized the move,[3] indicating the U.S. has “grave concerns” about the PRC using economic inducements to encourage the Central American nation to end its ties with the ROC.  Taiwan and its status is the one issue that could trigger a hot war with China.  Rising tensions over the ROC along with trade disputes are concerns we are watching ever more closely.

A new PM in Australia:[4] PM Turnbull is out—PM Scott Morrison[5] is in.  Morrison, the former treasury minister, is considered “safe” by financial markets.  The AUD did rally modestly on the news.  Morrison is from the moderate end of the Liberal/National Party.  We offer our congratulations but would strongly recommend he not unpack.  It appears conservative members of the party are furious that their candidate, Peter Dutton, didn’t get the PM job.[6]  Although there is great concern over growing partisanship in the U.S. and Europe, Australia is clearly not immune to similar pressures.[7]

Backdoor intervention?  Italy is rapidly becoming the next major threat to Eurozone stability.  Unlike the PIIGS that caused problems earlier in the decade, Italy’s economy is big enough that a major financial crisis could spell the end of the Eurozone.  Italy is fighting EU rules on immigration.[8]  It is also planning a fiscal budget very likely to break Eurozone rules.  In light of these tensions, Italian bond yields have been rising.  The chart below shows the Italian 10-year sovereign.

As this chart shows, since the summer elections, bond yields have been rising.  And, it’s pretty much entirely an Italian issue as German yields have been steady, widening the spread.

Here’s where it gets interesting.  According to the Italian PM, Giuseppe Conte, President Trump has offered to buy Italian bonds to support prices and hold down yields.[9]  It isn’t clear how this would work, exactly.  The Treasury could instruct the NY FRB to buy Italian bonds but it is important to note that this is no different than how currency intervention works.  The U.S. could expand the Fed’s balance sheet and have it buy the bonds or, conceivably it could buy the bonds for the Treasury.  But, in any case, from a currency perspective, it would be buying euros and selling dollars.  The U.S. rarely intervenes in a currency market.  The signal it would send is very strong and would likely trigger a strong reaction in the currency markets.  In addition, it would directly circumvent the Eurozone’s rules on fiscal restraint.

We suspect this was an off-hand comment.  But, it does appear the Italians are taking it seriously.  If implemented, it could not only push the dollar lower, but it would almost certainly cause a major crisis for the Eurozone.  Germany has dominated the Eurozone since its inception; U.S. intervention would represent an outside power “tipping the scales.”

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[1] https://www.ft.com/content/fa72e338-a71c-11e8-926a-7342fe5e173f?emailId=5b7f8649face1c00043303e0&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[2] Ibid.

[3] https://www.reuters.com/article/us-china-usa-taiwan/china-seeks-domination-us-says-after-el-salvador-dumps-taiwan-idUSKCN1L90AA

[4] https://www.ft.com/content/bf7cf842-a729-11e8-8ecf-a7ae1beff35b?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[5] https://www.smh.com.au/lifestyle/scott-morrisons-relentless-rise-to-power-20160418-go8qty.html?utm_source=POLITICO.EU&utm_campaign=4d12a31ebe-EMAIL_CAMPAIGN_2018_08_24_04_40&utm_medium=email&utm_term=0_10959edeb5-4d12a31ebe-190334489

[6] https://www.afr.com/opinion/rightwing-liberals-threaten-to-tear-scott-morrison-apart-20180823-h14e7m?utm_source=POLITICO.EU&utm_campaign=4d12a31ebe-EMAIL_CAMPAIGN_2018_08_24_04_40&utm_medium=email&utm_term=0_10959edeb5-4d12a31ebe-190334489 and https://twitter.com/workmanalice/status/1032822849403142144?utm_source=POLITICO.EU&utm_campaign=4d12a31ebe-EMAIL_CAMPAIGN_2018_08_24_04_40&utm_medium=email&utm_term=0_10959edeb5-4d12a31ebe-190334489

[7] https://www.ft.com/content/6d64dc98-a6b9-11e8-8ecf-a7ae1beff35b?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[8] https://www.politico.eu/article/eu-calls-emergency-migration-meeting-as-italian-interior-minister-matteo-salvini-toys-with-resignation-president-sergio-mattarella/?utm_source=POLITICO.EU&utm_campaign=4d12a31ebe-EMAIL_CAMPAIGN_2018_08_24_04_40&utm_medium=email&utm_term=0_10959edeb5-4d12a31ebe-190334489

[9] https://www.ft.com/content/3b841b10-a765-11e8-8ecf-a7ae1beff35b

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] We are seeing a bit of risk-off this morning on the big political stories from yesterday.  However, the emphasis is on “bit”; equity weakness isn’t excessive, the dollar is modestly weaker, gold is higher but not by a lot and Treasury yields are down but no panic has ensued.  So, let’s dig in:

The political news: As has been well documented, Paul Manafort[1] and Michael Cohen[2] were convicted yesterday.  The former was by a jury, while the latter plead guilty.  The basic charges were fraud.  We have received market-related questions about these events.  Here is our initial take:

1. Equities: We expect the equity market to take the news in stride.  Clearly, political turmoil affects sentiment and thus we could easily see further pressure on P/E multiples.  However, earnings remain robust, the economy is strong and, in what may be the most important factor, the tax cut benefits are probably already in place.  Although the likelihood of further initiatives being passed by this administration is low, those odds were already depressed.  As we have noted before, the most powerful period for a new president is the first 18 months.  After that, midterms loom and political capital has been exhausted.  In addition, if the president faces mounting legal woes, the momentum on trade talks could wane which would be bullish for equities.  As we have shown before, equities were on their way to “melt up” territory in January when the president turned his attention to trade and the P/E has declined since then.  A lessening of trade tensions would likely be bullish for equities, especially large caps.  Our expectation—neutral.
2. Debt: Treasuries will benefit from any flight-to-safety buying.  Legal distractions will likely reduce the White House’s focus on monetary policy tightening.  Our expectation—bullish.
3. Dollar: This is an area where the most impact is possible.  The dollar, on a purchasing power parity basis, is overvalued.  Tightening Fed policy has played a role in boosting the greenback but the potential for trade impediments is the primary reason for the bullish tone of the dollar.  After all, if the reserve currency nation restricts trade, other nations must go to ever greater lengths to gain access to the U.S. market.  The most likely way to do so is to support a weaker currency, boosting the dollar.  Furthermore, exchange rates, in some ways, reflect sentiment.  We note that the correlation between consumer sentiment and the dollar is very high since the late 1990s.

This chart shows the JP Morgan dollar index and the University of Michigan index of consumer sentiment.  Since 1997, the two series are highly correlated with a two-year lag.  Thus, if political turmoil begins to weigh on sentiment, it would probably put pressure on the dollar.  Our expectation—dollar bearish, which would be bullish for commodities, gold and foreign equities.

The political outlook: Yesterday’s news is damaging for the president but it hasn’t reached the level of critical quite yet.  The news highlights the importance of the midterm elections.  If the Democrats take the House, we would expect a drive to bring articles of impeachment against Trump.  As we saw with President Clinton in the late 1990s, that effort will likely fail in the Senate.  Even if the Democrats experience a major wave and take control of the Senate, it seems highly improbable that the threshold of 67 votes to remove the president would be met.

However, as we have noted above, the distraction level will be elevated.  That doesn’t mean that everything else would necessarily stop; President Nixon was able to come to the aid of Israel during the 1973 Yom Kippur War while in the midst of the Watergate investigation.  Nevertheless, it will be hard to maintain focus on other issues.  One subject we will be monitoring, especially if conditions deteriorate, is the power within the cabinet.  For example, if the Mnuchin/Kudlow wing of the administration gains power during the turmoil and overshadows the Lighthizer/Navarro wing, then the tenor of the trade conflict would likely moderate.  Our inclination is that Mnuchin will gain power and thus the trade conflict would be reduced.  Overall, as noted above, we look for increased political distraction; by itself, that won’t be enough to derail equities but it could put downward pressure on the dollar.

Another factor worth noting is that despite talk of Russian collusion the administration and Congress continue to target Russia for additional sanctions.  Earlier in the month, the administration applied additional sanctions on Russia over the U.K. poisoning.[3]  Yesterday, the administration added new sanctions for violating sanctions on North Korea.[4]  And, after we learned yesterday that Russia has hacked various right-wing think tanks, the Senate is preparing further sanctions.[5]  So far, it would be difficult to make a strong case for Russian favoritism, at least given these actions.

Trade: Progress on NAFTA continues as reports suggest that a “handshake deal” could be struck with Mexico by tomorrow.[6]  Talks on auto tariffs appear to be facing delays; as we noted earlier this month, the EU is expected to stall discussions into the midterms, likely hoping that more important issues will occupy the U.S. and thus allow the status quo to continue.[7]  Meanwhile, China and U.S. negotiators continue to talk but neither side appears optimistic about an agreement.[8]

Monetary policy: The Fed minutes will be released later today (see below).  We also note another report indicating that the BOJ is moving to end its aggressive easing stance.[9]

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[1] https://www.ft.com/content/14dc40c4-a22d-11e8-85da-eeb7a9ce36e4?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[2] https://www.ft.com/content/5de0b3fc-a5a4-11e8-8ecf-a7ae1beff35b?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[3] https://www.ft.com/content/0d1d64dc-9b41-11e8-ab77-f854c65a4465?emailId=5b7cdea30b4eba00040e5254&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22

[4] https://www.nytimes.com/2018/08/21/us/politics/new-us-sanctions-target-russia-for-defying-rules-on-north-korea.html?emc=edit_mbe_20180822&nl=morning-briefing-europe&nlid=5677267mbe_20180822&rref=collection%2Fsectioncollection%2Fpolitics&te=1

[5] https://www.nytimes.com/2018/08/21/us/politics/russia-sanctions-microsoft-hacking.html?emc=edit_mbe_20180822&nl=morning-briefing-europe&nlid=567726720180822&te=1

[6] https://www.politico.com/story/2018/08/21/trump-nafta-mexico-746332

[7] https://www.wsj.com/articles/trump-auto-tariff-timetable-likely-to-slip-amid-europe-nafta-talks-1534853144

[8] https://www.ft.com/content/cea76a70-a510-11e8-8ecf-a7ae1beff35b

[9] https://www.reuters.com/article/us-japan-economy-boj/japan-central-bank-may-dial-back-stimulus-before-price-goal-met-ex-boj-ishida-idUSKCN1L707U

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] The big story today is a bit of dollar weakness, which is putting some upward pressure on interest rates and helping precious metals.  Here is what we are watching today:

Trump talks: In a wide-ranging interview,[1] President Trump warned not to expect much from the Chinese trade talks[2] and stated that some trading partners, especially China and the EU, are manipulating their currencies, but the biggest news was another broadside against Chair Powell.  In a recent Asset Allocation Weekly,[3] we discussed the idea of Fed independence and examined the history of how presidents have managed their relations with the U.S. central bank.  Prior to the detente that was in place from 1993 until this year, presidents have refrained from commenting on monetary policy.  President Trump reiterated his desire for easy monetary policy and exhibited his displeasure with the current path of policy.  When the president criticizes the Fed, we tend to see higher long-duration Treasury yields and a weaker dollar.[4]

On the one hand, it’s hard to make the case that the FOMC is too tight.  After all, real fed funds are still below zero.

On the other hand, as we discuss in the current AAW below, the majority, but not all, of the Mankiw Rule variations argue for tighter policy.  However, the rate projection using core CPI and the employment/population ratio does suggest the Fed has achieved policy neutrality.  Although we are “not there yet,” policy is getting close to the point where mistakes have occurred in the past.  Leave rates too low and the risks of a lending and asset market bubble increase.  Tighten too much and a recession occurs.[5]  Powell’s speech at Jackson Hole on Friday will be closely watched for future guidance on policy.

We also note that Powell may be facing some internal dissent.  Atlanta FRB President Bostic[6] is calling for only one more hike this year and expressed concern about raising rates enough to invert the yield curve.  At current 10-year T-note yields, the Fed is clearly limited on how much further it can raise rates without inverting the curve.

Our expectation is that Powell will continue to raise rates despite White House criticism.  At the same time, it should be remembered that central bank independence is only valued when the goal is to contain inflation.  In circumstances where inflation fears have dwindled away, pressure to reduce central bank independence is likely.

In terms of trade, a trend does seem to be developing.  At first, the U.S. seemed to be threatening everyone with tariffs and trade sanctions.  However, the U.S. and EU appear to be trying to negotiate a deal.  As we noted last week, the U.S. and Mexico are close to an agreement.  The focus now appears to be China.  As noted earlier, the president downplayed any chance that upcoming talks with China will bring any breakthroughs.  Chinese officials appear to have concluded that the U.S. is using the trade issue as a way of slowing China’s rise.  China is taking steps to aid its economy,[7] which is slowing,[8] in part due to trade tensions.

Opening for cyberwar?  According to the Washington Post, President Trump is giving the military more discretion in using cyberwar tools against adversaries.[9]  This will give the military the ability to respond to foreign cyberattacks that have become increasingly frequent.  They may be busy soon.  The New York Times is reporting that Russian hacking groups targeted GOP think tanks.[10]

More on the BOJ: Reuters is reporting that the BOJ is becoming less concerned with falling equity prices and may be engaging in “stealth tapering.”[11]  According to reports, the bank has become more tolerant of equity price weakness, suggesting new flexibility at a minimum.   Governor Kuroda has been facing increasing criticism for ultra-accommodative monetary policy from the financial services industry, which is struggling with profitability in a low interest rate, flat yield curve environment.

Some inflation oddities: Our position is that price stability rests on three legs.  The first is globalization.  If firms and consumers have most of the world at their disposal to source goods and services, the breadth of competition should keep prices under control.  The second leg is deregulation, which we define as the ability to introduce new techniques and technologies unfettered by regulation.  So, if a firm decides to create an app that will allow you to rent out the room over your garage without interference or zoning changes, it will expand the supply of motel-style properties and lower prices.  The third leg is central bank independence.  Although difficult to strictly define, if investors and consumers believe the central bank will be able to implement monetary policy without interference, it should foster price stability.

Currently, we view the second leg as alive and well but the first and third are coming under fire.  Not only are trade barriers going up across the world, but the president has reportedly expressed discontent with the path of monetary policy.[12]  Inflation has been creeping higher but is still not at levels that cause us great concern.  However, a couple of anecdotes caught our attention.  First, there are reports that firms are starting to push price increases as their costs rise.[13]  Second, fears of trade impediments on autos are reportedly leading to pre-emptive increases at used car auctions.[14]  These actions, by themselves, are not worrisome.  But, if they begin to expand, it could signal a growing inflation problem that the financial markets are not prepared for.

Swedish elections: Sweden holds elections on September 9; a spate of violence has struck the country recently and migrants are being blamed for the attacks.[15]  Recent polls show the Sweden Democrats, a nationalist, anti-immigrant party, have been fading but they were the strongest polling party in Sweden in mid-June.  At present, the Social Democrats, a center-left party, are leading in the polls at 25.2%.  The Sweden Democrats are polling at 18.7%.  The concern is that if the Sweden Democrats pull 20% of the electorate it may be difficult for the center-left or center-right to form a government.  Thus, even Sweden is facing rising discontent from populist parties.

German current account: The IFO, a German economic think tank, indicated that Germany’s current account surplus will remain the world’s largest compared to the size of its economy.[16]  The IFO forecasts the surplus will represent about 7.8% of GDP, just below last year’s 7.9%.

This surplus began with the onset of the Eurozone and was aided by reforms that curtailed wage growth.  Germany uses the Eurozone in the same way 19^th century imperialists used colonies, a place to force the absorption of excess productive capacity.  We note that President Trump suggested in the aforementioned interview that he believes China and the Eurozone are manipulating their currencies.  The German current account data does bolster than argument.

As Greece ends, Italy begins?  Although we haven’t said much about it, the media is making a big deal out of the fact that Greece is exiting its bailout.  Early career experiences suggest to us that Greece will eventually return to trouble, but probably not until the end of the 2020s.  However, with attention leaving Greece, the financial markets are beginning to notice the persistent problems in Italy.[17]  Italian political leaders say they will fend off these attacks,[18] but the potential for trouble is elevated when a government issues debt in a currency it doesn’t control.

Turkey news: Turkey has ended the travel ban on a German journalist who was being detained on terrorism charges.[19]  We view this as an attempt to gain favor from Germany, who could help Turkey in its current plight.  However, recent comments from EU officials suggest that EU or German help isn’t likely.[20]

And, finally: Be careful with those rented scooters…just sayin’.[21]

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[1] https://www.reuters.com/article/us-usa-trump-fed-exclusive/exclusive-trump-says-not-thrilled-with-feds-powell-for-raising-rates-idUSKCN1L5207

[2] https://www.reuters.com/article/us-usa-trump-china-exclusive/exclusive-trump-doesnt-expect-much-from-china-trade-talks-this-week-idUSKCN1L5226

[3] https://www.confluenceinvestment.com/wp-content/uploads/AAW_July_27_2018.pdf

[4] https://www.ft.com/content/0c5dfdbc-a4e8-11e8-8ecf-a7ae1beff35b?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[5] https://www.ft.com/content/c6d86ad0-a4b4-11e8-8ecf-a7ae1beff35b?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[6] https://www.reuters.com/article/us-usa-fed-bostic-rates/feds-bostic-still-expects-one-more-rate-increase-in-2018-idUSKCN1L51SD

[7] https://money.usnews.com/investing/news/articles/2018-08-21/china-central-bank-says-will-keep-liquidity-reasonably-ample and https://www.ft.com/content/03441782-a37d-11e8-8ecf-a7ae1beff35b

[8] https://www.wsj.com/articles/chinas-economy-cooled-further-in-july-1534214209

[9] https://www.washingtonpost.com/world/national-security/trump-gives-the-military-more-latitude-to-use-offensive-cyber-tools-against-adversaries/2018/08/16/75f7a100-a160-11e8-8e87-c869fe70a721_story.html?utm_term=.d8afa24cddfa

[10] https://www.nytimes.com/2018/08/21/us/politics/russia-cyber-hack.html?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top-stories and https://www.ft.com/content/0ef4d264-a4c8-11e8-8ecf-a7ae1beff35b?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[11] https://www.reuters.com/article/japan-stocks-boj/rpt-boj-may-be-stealth-tapering-in-stock-markets-analysts-say-idUSL4N1V837V

[12] https://www.marketwatch.com/story/trump-ramps-up-criticism-of-powell-reports-2018-08-20

[13] https://www.ft.com/content/500a359c-a369-11e8-8ecf-a7ae1beff35b

[14] https://www.cnbc.com/2018/08/17/used-car-prices-are-weirdly-spiking-and-tariffs-may-be-to-blame.html?__source=twitter%7Ctech

[15] https://www.ft.com/content/5655711c-a389-11e8-8ecf-a7ae1beff35b?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[16] https://www.ft.com/content/07610a3a-a492-11e8-926a-7342fe5e173f?segmentId=a7371401-027d-d8bf-8a7f-2a746e767d56

[17] https://www.wsj.com/articles/as-euro-crisis-ends-italy-stokes-fear-of-a-revival-1534676400

[18] https://uk.reuters.com/article/us-italy-markets-salvini/italys-salvini-says-government-will-stand-up-against-market-attacks-idUKKCN1L512Z?utm_source=POLITICO.EU&utm_campaign=d33dbf1091-EMAIL_CAMPAIGN_2018_08_21_04_24&utm_medium=email&utm_term=0_10959edeb5-d33dbf1091-190334489

[19] https://www.nytimes.com/2018/08/20/world/europe/turkey-germany-mesale-tolu.html?emc=edit_mbe_20180821&nl=morning-briefing-europe&nlid=567726720180821&te=1

[20] https://www.politico.eu/article/europe-turkey-germany-gunther-oettinger-not-job-to-help-financially/?utm_source=POLITICO.EU&utm_campaign=d33dbf1091-EMAIL_CAMPAIGN_2018_08_21_04_24&utm_medium=email&utm_term=0_10959edeb5-d33dbf1091-190334489

[21] https://www.buzzfeednews.com/article/katienotopoulos/e-scooter-injuries-are-becoming-common-in-emergency-rooms