Let’s Buy Only American!

That slogan won’t help the U.S. economy unless the U.S. can improve the product offerings and unless Trump displays some Presidential qualities and enact policies. The U.S. market remains vulnerable because despite the big talk nothing has happened and Trump is almost through his first 100 days and looks increasingly more likely to be a lame duck President despite being President and controlling both the Senate and Congress.

Trump and his team are finding that words are easier than deeds. One constantly hears talk…but without productivity, wages growth and demand increasing, the U.S economy cannot grow. The great tax plan has not been released and any tax changes look more likely to put more pay into CEO’s pockets as they harvest the windfall of lower taxes and repatriated funds being used to buy back shares and increase dividend payouts without the underlying business improving its market position or financial position for that matter. The equity market is built on a straw base and looks very vulnerable and that is possibly what we are seeing now.

Geopolitical risk is certainly playing its hand in the affair but that too would not be as important if the U.S. economy was humming which it is not. The evidence to date is slowing freight rates for trucking, falling advertising revenues and the likes of Fedex and UPS lowering their forecasts and this leads to a heady brew. As I have been saying for a while we need policy and we need a plan to lift wages and lift productivity. Making America great again won’t happen through slogans nor electioneering nor visiting businesses, it will come through policy and creating the environment such that people want to buy American.

The slogan of Buy American could also been seen in other countries as being somewhat anti-trade. For example when Trump complained about the lack of U.S. vehicles in Germany he was promptly told the U.S. should build better cars. That’s the point the U.S. for the last 30 or so years has spent little on innovation but lots on buying patents to prevent competition. That strategy has worked but as technology changes this lack of innovation is starting to bite. Current M&A activity is centering about buying much smaller companies to pick up the IP as for many majors money is not being spent on CAPEX and this is the only way to develop innovation. Factory output fell 0.4% in March the worst result since August. Housing starts also fell.

On the day geopolitical risk won the day. Concerns over Trump and North Korea prevailed and the Dow slipped 0.55%. U.S. treasuries had another strong day as investors increased their weightings to the risk off trades. The U.S. ten year closed at 2.17% (2.60% about 2 weeks ago). The curve flattened however the 10/30 widened a point. The closing spreads were 2/10 closed at 100.4 (-0.03), 10/30 at 66.50 (0.01), and 2/30 closed at 167.10 (0.01).

Equities fell down 0.55% (Dow) . Goldman’s had a poor result with much of the decline attributed to falling revenues from bond trading. UK equities fell 2.46% on Theresa May’s announcement of a snap election. The CAC fell 1.6% as the Trump effects are making the election results somewhat uncertain.

Commodities had bad day. Oil was down 0.57%, Zinc fell 3.8%, and Nickel was down 4.5%. Iron ore has recorded a 6% fall since Monday and this is due to skepticism of China’s growth being maintained.

As the flight to safety has prevailed the Dollar Index fell 0.48%. The euro rose 0.85%.

Aussie Market Today.

Tuesday was very much a risk off day and that sentiment should prevail in the Australian time zone. Expect equities to remain weak and bonds look likely to continue their rally as investors take risk off the table. Also affecting the Aussie equity market will be the increasing skepticism of the Chinese economy. Weak commodity prices especially in base metals (mostly industrial metals) are suggesting that Chinese growth could be slowing as demand is falling.

On the day watch for any announcement regarding North Korea as any developments will see dramatic market moves.