The major averages struggled at the open on little real news but recovered late entering the final hour with modest gains. With an additional 200 billion in tariffs set to be applied to Chinese imports any day now, and Trump threatening another 257 billion, essentially all Chinese imports. Negotiation seems to be off the table for now. That said the Chinese are not content to sit on their hands and have asked the World Trade Organization or WTO to apply sanctions on US trade starting what will no doubt be a protracted legal battel.
Here at home various companies with international exposure have begun an inventory building process in an attempt to mitigate the tariff impacts. July wholesale trade advanced .6%, a 5-month high on a large jump in inventories as expected. Sales were flat after falling .2% last month.
A recent Boston Federal Reserve simulation showed that absent the ability to cut interest rates the usual 5% in the face of a recession risks a significantly greater economic impact at the state level. The report went on to list the 5 states most likely to suffer the most and they include Illinois, Arizona, Nevada, California, and Michigan. But the larger problem here is macroeconomic policy that has been predicated on ever higher levels of debt and lower interest rates for nearly 40-years. A strategy that works quite well until you can no longer cut rates, as the Boston Fed study suggests. It is also backed up by basic math and considerable economic history related to asset prices and interest rates, particularly real estate.
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