by Bill O’Grady and Thomas Wash
[Posted: 9:30 AM EDT] Equity markets are mixed this morning as investors balance expectations of stronger earnings and rising trade tensions. The British pound fell due to political uncertainty and the dollar has strengthened against global currencies. Below are the news stories we are following today:
No U.K.-U.S. trade deal? Yesterday, in an interview with the British tabloid The Sun, President Trump scolded PM Theresa May for attempting to negotiate a “soft” Brexit. In the interview, he stated that the current deal being negotiated with the EU would likely undermine U.K. efforts to secure a bilateral deal with the U.S. He went on to say that her possible challenger for the premiership, Boris Johnson, would be a great choice for prime minister. President Trump’s criticism is likely to add to the political turmoil surrounding PM May as she struggles to maintain her government. Although we still do not expect a leadership challenge in the immediate future, the chances of one happening are slightly elevated, which is the reason for the drop in the pound. As we have mentioned, Tory Eurosceptics can launch a leadership challenge once every twelve months, therefore if they were to challenge and lose they would have less clout in Brexit negotiations as the deadline to secure a Brexit deal expires in eight months. Currently, Tory Eurosceptics have enough support to start the process but still lack the support needed to oust PM May. That being said, President Trump’s ultimatum to PM May on Brexit further supports the belief that he favors bilateral agreements over multilateral agreements, which is a break from prior administrations. Prior to the publication of this report, President Trump in a joint press conference with PM May walked back the idea that the U.S. would not be willing to trade with the U.K. if it pushes for a “soft” Brexit.
Bipartisan tariff backlash: Yesterday, Treasury Secretary Steve Mnuchin testified before the House Financial Services Committee. During his testimony, he was hit with a barrage of questions from Republicans and Democrats alike about the effects trade tariffs will have on the U.S. economy. To date, the U.S. has imposed tariffs on steel and aluminum imports from Mexico, Canada, the European Union and China. In addition, the president has hinted at imposing more tariffs in the future, possibly targeting cars. The various countries have responded to the tariffs in kind. There are growing concerns that trade tariffs are likely to hurt individual states. In response to questions on this issue, Mnuchin stated that the U.S. is not in a trade war but rather in a trade dispute, and the administration is currently monitoring the effects that tariffs are having on the economy.
A letter from North Korea:Yesterday, President Trump sought to counter reports suggesting that little progress is being made on North Korean denuclearization by releasing a letter he received from North Korean Leader Kim Jong-un. In the letter, Kim Jong-un expressed his appreciation for Trump’s efforts to improve relations between the two sides. Despite this letter, recent negotiation have been a bit rocky. Last week, North Korea accused the U.S. of acting “gangster-like” during negotiations and on Monday failed to show up to an agreed upon meeting site in the demilitarized zone. The U.S. has accused China of being responsible for North Korea’s behavior as of late, while China has denied its involvement. We continue to monitor this situation.