Whether Mr. Trump does so should become clear soon. On June 15, the administration is scheduled to release a final list of $50 billion of Chinese goods subject to tariffs, which would then be imposed shortly thereafter.
Some in the administration have warned that a protectionist trade policy could drag the economy and the stock market. But the longer the economy keeps churning out jobs, and the longer the stock market remains resilient, the harder it will be for those advisers to make their case. Indeed, the U.S. may be less sensitive to trade frictions than economists and investors previously believed.
But that is a very optimistic scenario, and much could still go wrong.
The metals tariffs, alone, are unlikely to crater the markets or hammer the economy. But a full-blown trade war with China, involving $150 billion of tariffs and everything China has promised in retaliation, would almost certainly shake the confidence of investors and businesses. Tomasz Wieladek, an economist at Barclays, in a report on Friday said the metals tariffs and those against China, along with retaliatory actions, could knock nearly a full percentage point off global growth.
The fact that the stock market hasn’t gone anywhere since mid-February,when the trade rhetoric heated up, suggests investors never really shrugged off the prospect of trade wars. Now, as a confrontation with China approaches, markets may become volatile as investors prepare for the fallout.
It’s also important to remember that the strength of the economy is not an unalloyed positive. If the buoyant conditions, and the impact of new tariffs, produce higher inflation, the Federal Reserve will have less leeway to relax monetary policy in response to a big trade shock or a stock market plunge. In other words, investors would have no protection from the Trump administration’s policies.
One way to view the current situation is that Mr. Trump is an opportunist who has astutely ridden an economic expansion that had long been underway – and is now hoping it will carry him through a drawn-out trade battle.
It’s a bold, far from certain, bet.
Trump broke with protocol by tweeting about the jobs report
President Trump broke years of presidential protocol on Friday morning by posting a tweet that signaled a strong jobs report was on its way from the Labor Department an hour before the report was released.
The Bureau of Labor Statistics routinely releases its monthly employment report on the first Friday of the month. The night before, under longstanding tradition, the president and several senior administration officials — including the Treasury secretary and the chairman of the Council of Economic Advisers — are briefed on the numbers, which they are not supposed to disclose until the report is made public at 8:30 a.m. Eastern Time the next morning.
But Mr. Trump, who was briefed on the numbers Thursday evening, appeared to foreshadow the strength of the latest report on Friday morning on Twitter.
Market watchers saw evidence that the tweet was moving markets.
Larry Kudlow, the White House economic adviser, pushed back on whether Mr. Trump broke with protocol.
“I don’t think he gave anything away,” Mr. Kudlow said on CNBC. “I think this is all according to routine, law and custom.”
The jobs numbers are out and, yes, Mr. Trump, they’re good
President Trump tweeted earlier this morning that he was looking forward to the jobs report. We now know why.
The report, from the Bureau of Labor Statistics, said the U.S. economy added 223,000 jobs in May, well above the 188,000 jobs that economists polled by Thomson Reuters were on average expecting. The unemployment rate fell to 3.8 percent.
Average hourly earnings in May were 2.7 percent higher than a year earlier, also in line with consensus expectations. Our colleague Nelson Schwartz has more.
Drew Armstrong, a reporter at Bloomberg, tweeted the strong reaction of the dollar after the report’s release:
— Peter Eavis
Joseph Song and Michelle Meyer, Bank of America Merrill Lynch: “There was little to hate in today’s employment report which should give Fed officials comfort that the economy continues to head in the right direction… Risks are brewing abroad with political tensions in Europe and at home with the latest round of tariffs on aluminum and steel. However, concerns, so far, remain in the periphery and should not materially alter the FOMC’s latest outlook for the economy to run above trend this year.”
Rick Rieder, BlackRock: “It is almost inconceivable that after 18.9 million workers have been hired since the start of 2010 that we could still be making monthly employment gains of well more than 200,000 jobs/month when the replacement rate to keep the economy operating at the now 3.85% unemployment rate and the current participation rate is only about 120,000 jobs/month.”
Ian Shepherdson, Pantheon Macroeconomics: “The big surprise here is average hourly earnings, which managed an above-trend increase despite facing two adverse calendar effects; May had an extra working day compared to normal, and the survey was conducted very early in the month. This suggests that the underlying data were very strong, though one month’s numbers don’t prove anything definitively.”
Paul Ashworth, Capital Economics: “Overall, the U.S. economy looks strong. In that environment, we still expect the Fed to hike interest rates an additional three times this year.”
Aaron Kohli, BMO Capital Markets: “While the president’s early morning tweet that he was eager to see the number he received last night likely primed the market to expect a stronger result, this read was fairly robust on nearly all measures.”
Mark Hamrick, Bankrate.com: “While a modest increase in wages is welcomed, substantial and sustained improvement has yet to be seen.”
Analysts are getting more bullish about second-quarter earnings
Wall Street profit forecasts follow a typical trajectory: Start high and steadily decline until the company reports and usually beats that lowered bar.
Through the first two months of the second quarter, that’s not happening. Analysts have raised second-quarter earnings estimates for S.&P. 500 companies 0.2 percent during April and May, according to FactSet.
That might not seem like much, but over the past 10 years, quarterly earnings estimates have declined, on average, 3.7 percent during the first two months of that quarter.
The gain so far this quarter falls well short of the record set during the first two months of the first quarter of this year. As analysts factored in tax cuts signed into law in late 2017, they raised profit expectations 5.7 percent in January and February.
Jack Lew joins a banking nonprofit
The former Treasury secretary has joined the board of the Financial Services Volunteer Corps, an organization that helps build up the banking systems in developing countries, the group announced on Friday.
Founded in 1990 at the behest of President George H. W. Bush to help Eastern European countries following the collapse of the Soviet Union, the Corps now provides technical assistance to emerging economies worldwide. Its board includes Paul Volcker, Henry Kissinger, the former Goldman Sachs co-president John Thornton and the former U.S. Trade Representative Carla Hills.
Mr. Lew, who served a number of advisory roles in the Obama administration before becoming Treasury secretary in 2013, is taking the board seat that had been held by Randy Quarles, who is now the Fed’s vice chair for supervision.
From Mr. Lew’s statement:
“F.S.V.C. has an exceptional reputation as a leading technical assistance provider in strengthening central banking, commercial banking and capital markets in regions where it is most needed.”
And from a statement by Bill Donaldson, the former banker and S.E.C. chairman, who serves as the Corps’s chairman:
“Jack is an outstanding addition to our Board. His vast experience working at the most senior levels of government will be invaluable to FSVC as we look to position the organization optimally in the coming years.”
Europe is joining the U.S. in challenging China’s intellectual property practices
Cecilia Malmstrom, the E.U.’s trade commissioner, says that the bloc plans to file a complaint about China with the World Trade Organization over a dispute relating to intellectual property. Bloomberg reports that the move is intended to “force changes to Chinese intellectual-property legislation that puts European companies in China at a disadvantage.”
The news appears to align European officials with President Trump over the issue.
The trade dispute between the U.S. and China has centered in part on the way that U.S. intellectual property leaks into the hands of the Chinese. Through licensing arrangements, acquisitions of technology companies, and occasionally even outright theft, that does happen — though the situation is actually rather complex, and sometimes the transfer of knowledge is done more willingly than Mr. Trump suggests.
It will be interesting to see whether pressure from the U.S. and the E.U. on this front can actually affect any change, given China’s burning desire to become a technology powerhouse.
— Jamie Condliffe
The E.U. is through with U.S. trade talks
After the Trump administration imposed tariffs on European steel and aluminum imports, the E.U. is playing hardball. Here’s what the E.U.’s trade commissioner, Cecilia Malmstrom, said about what comes next, according to the FT:
“We are not going to enter into any negotiations.”
The E.U. has said that it will apply its own tariffs on 2.8 billion euros, or about $3.3 billion, worth of American imports. Among the items on the list: Harley-Davidson motorcycles (from Wisconsin, the home of House Speaker Paul Ryan) and bourbon (much of which comes from Kentucky, which Senate Majority Leader Mitch McConnell represents).
Ms. Malmstrom also said that Europe was “not in a trade war,” butconceded that it was “in a very difficult situation caused by the U.S.”
— Jamie Condliffe
How did insurers react to the health care partnership between Berkshire, JPMorgan and Amazon?
“Quite a bit of them were pissed off, which kind of pissed me off,” Jamie Dimon, the C.E.O. of JPMorgan, said at a conference. “They’re going to tell me I can’t do a better job for my employees? Isn’t that what they’re supposed to help me do anyway? That’s all we’re trying to do, is do a better job for the health of our employees.”
Petrobras shares tumble, as its president is said to have resigned
The Brazilian oil giant’s stock fell dramatically on Friday amid word that the company’s president, Pedro Parente, had tendered his resignation and met with government officials to discuss his exit.
More from a translation of an article from Estadão:
Petrobras announces the resignation of President Pedro Parente on the morning of Friday, 1st. The executive is in a meeting with the President of the Republic Michel Temer at the moment, in the Palace of the Planalto. The meeting comes after the government launches measures costing $ 13.5 billion to lower the price of diesel and help close the truckers’ strike.
The problem with America punishing its trade allies
The White House followed through on its threat: It will slap tariffs on imported metals from the E.U., Canada and Mexico, after they failed to offer enough trade concessions for Mr. Trump’s liking. Responses are already in. The E.U. plans $7.5 billion worth of retaliatory levies and Canada is threatening nearly $13 billion worth. This could get messy.
The big danger now? Neil Irwin of the Upshot argues it’s that erratic trade policies make life difficult for American companies who rely on predictability to run their businesses. (In fact, the only companies that seem happy right now are American steel producers.)
Even allies of President Trump are protesting his latest trade move. “ ‘Make America Great Again’ shouldn’t mean ‘Make America 1929 Again,’ ” Senator Ben Sasse, Republican of Nebraska, said. And a spokesman for the Koch political network told CNBC: “Trade wars hurt everyone.”
Critics’ corner: “So much for Donald Trump as genius deal-maker,” the WSJ editorial board writes. “This trade war will actually be a job-killer, not a job-creator,” Paul Krugman argues. And the E.U.’s targeting of Republican lawmakers in its retaliatory measures is a smart move, Gina Chon of Breakingviews writes.
Trade extra: Daimler and Volkswagen shares took a hit yesterday after the German business magazine WirtschaftesWoche reported that Mr. Trump wants to block German car imports.
The cost of making driverless cars a reality? $2.25 billion, maybe
Why did SoftBank’s Vision Fund take a nearly 20 percent stake in G.M.’s autonomous car unit, at a valuation of $11.5 billion? Because the business, G.M. Cruise, appears to be the best of the rest.
G.M. Cruise gets less attention than rivals like Uber, or Alphabet’s Waymo. But only Waymo is ahead of it on technology, going by California’s self-driving test numbers.
Waymo has seemingly limitless cash from its parent company. Until yesterday, G.M. Cruise did not: G.M.’s president, Daniel Ammann, said that the deal means its efforts are funded “well into commercialization.”
The big question: The race for autonomous cars is crowded. Is second place good enough for SoftBank?
Elsewhere in autonomous cars: Waymo is buying 62,000 Chrysler minivans to create its commercial robo-taxi fleet.
Deutsche Bank can’t catch a break
A new C.E.O., Christian Sewing, is trying to turn around the embattled lender. But the task might be even more difficult than he thought. The WSJ reported that the Fed has deemed its U.S. unit “troublesome,” while the FT reported that it’s on the Federal Deposit Insurance Corporation’s list of “problem banks.”
Peter Eavis notes that Deutsche Bank also has two upcoming challenges: a public stress test of its U.S. division’s capital levels, and the submission of a plan for how it would wind down its American operations in a bankruptcy-type situation.
Investors don’t appear confident: Shares in Deutsche Bank fell 7 percent yesterday. Ratings agencies aren’t comforted either, with S.&P. downgrading its outlook on the bank, citing “non-negligible execution risks.”
In a message to employees today, Mr. Sewing acknowledged that “the newsflow is not good.” But he insists the bank’s turnaround efforts will succeed.
More bad news for banks: Shares of Italian, French and Spanish lenders have dropped amid political turmoil in Rome.
The political flyaround
• Italy’s populist parties won approval to form a government. That ends one political crisis, but potentially threatens the E.U.’s stability. (NYT)
• President Trump said he might pardon Martha Stewart, who was convicted of lying to investigators about stock trades. (NYT)
• Think the Justice Department will lose its bid to block AT&T’s proposed takeover of Time Warner? Don’t be so sure. (NYT)
• The E.P.A. is moving to limit California’s ability to set its own clean-car rules. (Bloomberg)
Investors compare Facebook’s actions to human rights violations
“A lot has happened since last year when we were here,” Mark Zuckerberg said yesterday as he opened his social network’s annual investor meeting. Attendees agreed — and didn’t hold back in telling him so.
More from Sarah Frier of Bloomberg:
One investor compared the social network’s poor stewardship of user data to a human rights violation. Another warned that scandal is not good for Facebook’s bottom line. And one advised chief executive officer Mark Zuckerberg to emulate George Washington, not Vladimir Putin, and avoid turning Facebook into a “corporate dictatorship.”
Mr. Zuckerberg told investors that the company was spending heavily to solve its problems. But he added that shareholder proposals for fixing them had been shot down — partly by his supervoting stock.
Elsewhere in Facebook news: Russian lawmakers want Mr. Zuckerberg to testify to them, too. And the social network will reportedly announce a deal to stream news shows, including from Fox News and CNN.
The tech flyaround
• It isn’t just Silicon Valley companies that are tussling over top tech talent. (WSJ)
• China’s digital surveillance is well-documented. The West isn’t quite there — yet. (Economist)
• A.I. hype might be starting to fade. (Filip Piekniewski)
• Walmart is taking on Amazon with a concierge shopping service. (Bloomberg)
• The Chinese tech giants Tencent and Alibaba are even more powerful than Google or Amazon. (NYT)
Is it time to treat Chinese investments with caution?
Today, roughly 230 Chinese A stocks made their debut on MSCI’s emerging markets index. It’s an important, if symbolic, step in opening up China’s stock market to the rest of the world.
But investors need to think differently about those stocks. The WSJ points out that, rather than moving purely on supply and demand, the prices of those Chinese shares are often controlled by the state.
Investors at the Sohn Investment Conference in Hong Kong also questioned whether Chinese tech stocks can keep soaring, according to the WSJ. Some are hedging on the social media giant Tencent; others are shorting the online retailer JD.com.
Goldman’s consumer finance plans are bigger than you thought
It wants to get into mortgages, credit cards, insurance and more. Here’s what David Solomon, the firm’s heir apparent, said yesterday, according to Will Mathis of Bloomberg:
“We don’t have to be one of the big leading consumer banks — we can have a narrow slice of share and have a very big, very profitable, very differentiated business over a period of time.”
• At least 10 HSBC bankers are said to have left in recent months despite significant M.&A. activity, after the bank failed to overhaul its investment banking unit. (Reuters)
• Alexandra Court, the Guggenheim Partners executive whose tenure created rifts within the investment firm, has departed after a nearly yearlong leave. (WSJ)
The speed read
• Here’s why British firms say their boards lack women. Prepare to cringe. (NYT)
• Why did Spotify choose a direct listing rather than a conventional I.P.O.? Its C.E.O. explains. (Recode)
• ValueAct has taken a $600 million stake in Olympus of Japan, underscoring activist investors’ push into Asia. (FT)
• What Starbucks employees thought of their racial bias training. (WSJ)
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