Registered Investment Adviser Caleb Lawrence
Despite the beginnings of a tit for tat trade war with Canada, Mexico, and Europe, as expected over the weekend. NAFTA or the North American Free Trade Agreement got tossed on the scrap heap of history as well. Trade discussions with China also took a decided turn for the worse with a lack of agreement and considerable finger pointing and more than a few threats. Nonetheless the markets used the news to march higher to begin the week entering the final hour with modest gains on little real economic data, as nothing seems to matter anymore.
The New York Purchasing Managers report fell 7.9 points in May to a still decent 56.4 on weakness in employment and revenues. Price data increased notably hitting a very high 72.9.
Factory orders fell .8% in April on a large drop in durable goods orders. The proxy for business spending non-defense capital goods ex-aircraft slipped .1% for a second month. This sub-component has now been flat or negative for 6-straight months.
Trump famously quipped that trade wars were easy to win. An idea that is about to be put to the test. The Department of Commerce recently released as study showing that tariffs related to the automobile sector alone would cost between 195,000 to 624,000 jobs. The low end is no trading partner retaliation and the high end represents in kind retaliation. Goldman Sachs went on to release a research piece that figured that if Trump actually wants to win this trade war he will have to convince the markets he is serious as well. Goldman went on to note that a market crash being the most likely outcome. Crazy, unpredictable, and illogical behavior might work as a negotiating strategy in some situations. At the global level it’s about brinksmanship, nerve and who blinks first. Time will tell soon enough. From a historical perspective, trade wars have a nasty habit of turning into shooting wars.