After 35 days of a nasty Government shutdown, President Donald Trump announced a deal to reopen the government on exactly the same terms that were available to him more than a month ago: A short-term funding bill with continuing negotiations on border security. 

Trump didn’t so much cave as he just plain lost. Not only he didn’t have the votes, but after an extremely volatile December, shutting down the US Government to blackmail parliament was something the American people and American Voters could not accept.

Donald Trump’s popularity collapsed on the recent polls and, more worryingly for him, the largest collapse was in the States that have propelled him to power in 2016.

It is probably the first clear signal to Donald Trump that leading a country is not simply about fulfilling electoral promises and that electoral promises themselves can be devastating. 

Very few Americans are actually bothered about having a Wall at the Southern border and the whole thing evolved from”We will have a wall that will paid for by the Mexicans” to ‘ We are shutting down the US Government for more than a month to get 5 Billion of American taxpayers money to build our wall

How could his advisors not point out to him that this could not go down well with the American People ?

Granted, there will be some negotiations in a House-Senate conference committee over what to do about border security, and Democrats will cut a deal for increased spending that they would
have been willing to agree to in December. But the border wall remains as dead as ever. 

In a rambling Rose Garden statement, Trump still held out the threat of another shutdown when this bill runs out on Feb.

He also suggested he could invoke emergency powers to build his wall if the conference committee doesn’t come up with the funding. Neither is very likely. 

Support for Trump’s position has collapsed among Capitol Hill Republicans after Thursday’s votes
demonstrated his weak position, and as the air traffic control system started more visibly eroding Friday morning. Given that, it is hard to believe that Senate Republicans would shut down the
government again, only to find themselves in exactly the same situation. 

As for emergency powers, if Trump believed they were a good way to get what he wants, he likely would have already invoked them. It is not just that there is a very good chance the courts would reject him. 

The even more immediate problem is that money spent by constitutionally dubious edict by the president without congressional appropriation has to come from someplace, and there are strong
constituencies that will be very upset if he tries to take it from regular military spending or disaster relief. 

Once again, the lesson is that government shutdowns are an extremely dangerous card to play politically as they amount to blackmailing the American institutions themselves. 

Democracy is about compromises, not tyrannic powers. As the third extended shutdown in
U.S. history comes to an end, it’s obvious that whatever the ethics of harming the nation in order to win a policy battle might be, such a maneuver is entirely ineffective as negotiating tactic. 

Once again, Trump’s actions and methods of Governance proved irrational and highly damaging for America at large. Forcing a confrontation that he was almost certain to lose just never made any sense, but Donald Trump’s character shows an inclination for confrontation probably coming form his business career as a real estate dealmaker. 

Donald Trump is proving day after day, to Americans and to the rest of the world that he is an “amateur” and the most powerful job on the planet is no place for amateurs.

This is where the Chinese and their system have a major edge over America : Amateurs cannot get to power and if ever they did, they could never do what Donald Trump can do with executive orders.

Far from being greater, America is going into the third year of the Presidency – usually a good one for US equities – as a weakened nation.

The sharp fall in equities of the fourth quarter of 2018 and the one month shut down of the US Government will take a serious toll on the US economy in the months to come, even if the numbers coming out right now are mixed and clouds are building on the political and legal fronts.

Robert Mueller’s investigation is back !

Special Counsel Robert Mueller’s arrest of Roger Stone could carry serious implications for President Donald Trump with the prosecutor describing how his campaign pursued information about hacked emails concerning his opponent.

The seven-count indictment lays out a series of contacts between Stone and senior campaign officials deep into 2016 concerning the release of hacked information about Hillary Clinton’s campaign by WikiLeaks, a group linked to the Russian government. 

In particular, it alleges that a senior campaign aide initiated those contacts. Mueller’s indictment describes how a “high-ranking Trump campaign official” was in touch with Stone in October 2016
ahead of the release of additional damaging information about Clinton’s campaign by WikiLeaks. An associate of that official texted Stone after the release to say, “Well done.” The high- ranking official was Stephen Bannon, who later served as Trump’s top strategist.

The president has tried in recent months to downplay his connections to Stone, who had a brief role as a top adviser in Trump’s presidential campaign until August 2015 but has been a Trump supporter and adviser for decades.

It was highly likely that with a Democratic Majority in the new House of Representatives the legal problems of Donald Trump would come back to the forefront.  

It did not take more than a week ( The newly-elected representatives took office on Jan 20th and there is certainly more to come….

US economy


US corporate earnings were all over the map last week. On the one hand, you had companies like United Technologies Corp. and United Rentals Inc., which reported strong numbers and gave generally upbeat 2019 outlooks for themselves and their industries (although United Technologies did call out Europe as a region to watch). 

On the other hand, Stanley Black & Decker Inc. saw the biggest-ever plunge in its stock after the company’s weaker-than-expected 2019 earnings guidance and warnings of decelerating growth spooked investors who may have viewed it as a more of a defensive stock in a slowdown.

Economic momentum is clearly waning, but that doesn’t mean there aren’t still pockets of strength, and it’s logical that this slackening would first hit shorter-cycle companies.

Federal Reserve data released Friday showed U.S. factory production expanded in December by the most in 10 months, after a decline in October and a revised modest 0.1 percent climb in November. That contrasts with a December plunge in the Institute for Supply Management’s manufacturing gauge that was the biggest since the recession. And slowdown worries appeared in the Federal Reserve’s Beige Book economic survey released this week.

As we have highlighted in our many posts in 2018, the Trade Wars have dented Investment confidence and the sharp fall in US equities in the 4th quarter is now denting consumption. The University of Michigan’s U.S. consumer sentiment index fell to its lowest level since October 2016, according to a report released Friday that was based on preliminary January data.

One thing that could increase the chances of a recession is the 35 days government shutdown. Last week, JPMorgan Chase & Co. CEO Jamie Dimon warned that U.S. GDP growth could fall to zero because of the shutdown. Delta Air Lines Inc. highlighted the shutdown as one factor that will weigh on its pricing power in the first quarter. It estimates the decline in travel by federal employees is costing it $25 million a month in sales. 

China’s economy

China’s financial markets were interestingly strong last week as for the first time in a year, the main indexes are giving signs of pulling out of the 2018 bear phase. A decoupling is taking place and it could also be taking place economically.

In an usual move last week, the International Monetary Fund maintained its economic growth forecasts for China while trimming global growth projections for 2019 at the World Economic Forum in Davos, Switzerland.

China’s economic growth is projected to be 6.2 per cent for 2019, the same as the IMF’s previous prediction last October. Domestic demand is also estimated to remain robust, aided by policies to
boost consumption this year, the IMF said in its Global Economic Prospects .

Figures show growth in China remains robust, in part reflecting resilient consumption. However, industrial production and new export orders have moderated, asset prices have experienced
downward pressure, and sovereign bond spreads have risen amid trade tensions.

Prices of newly constructed residential buildings have rebounded, including in first-tier cities after a period of correction, according to the report.

The IMF projects a 3.5 per cent growth rate worldwide for 2019 and 3.6 per cent for 2020, down 0.2 and 0.1 percentage points compared with its forecasts last October, said Gita Gopinath, the
new IMF chief economist, at an Update of the World Economic Outlook press conference.

The reason for the world gloomy forecast is the US-triggered trade tension between China and the US, which could dampen confidence in investment and economic development, said Wang Huiyao, a counsellor of the State Council, China’s cabinet.

China is one of the world’s largest economic engines and the leader of the global value chain, so if the tension hurts both countries’ economies it would definitely harm world economic forecasts, Wang said. He added that China should continue its reform and opening-up, and support the world economy.

China’s year-on-year GDP growth reached 6.6 per cent in 2018,achieving its goal of around 6.5 per cent GDP growth set for the year, the National Bureau of Statistics said.

Wang said that, given the magnitude of the GDP at present, this kind of rate is already very impressive, so it is extremely important for China to maintain its above 6 per cent GDP growth
with continuous reform and opening-up and trade with more countries at a fast pace.

Last week’s economic data

USA

US Home sales collapsed -6.4 % in December, a much weaker showing than expected by the consensus and a clear sign that the negative wealth effect is starting to have an impact on the US economy. Mortgage application were also in negative territory.

The job market was strong and the manufacturing indexes were stronger than expected. The Leading economic index points to weakness ahead.

Europe

Europe’s PPI came out weaker than expected on the back of lower oil prices, this is good news for European inflation. Consumption and Retail sales were weaker than expected and consumer confidence collapsed sharply in January 

Japan

Strong real estate and consumption numbers in Japan but manufacturing and orders are down while confidence is weakening.

Japan

In China, both consumption and industrial production were stronger than expected in December. China ends 2018 with a final 6.6 % GDP growth, a tad better than the 6.5 % target of the Government.

EQUITIES

This week brought something new for equity investors whiplashed by December’s drubbing and subsequent January snap-back: a lull in the action. 

The global markets were clearly upbeat but the MSCI World Index posted a paltry +0.06 %, its smallest weekly move since October. That leaves the gauge up 6.3 percent in January
after the 9.2 percent tumble in December.

But is this the pause that refreshes, or the eye of the hurricane?

The equity rally has lost some of its sparkle as the mood turns slightly more risk-off than a week ago, leaving investors halfway between hope and despair. 

The true question is whether we are going to have a disconnect between the Western markets and the Asian markets ahead

China, Singapore, Thailand, Malaysia, Hong Kong Taiwan and Korea are ALL giving strong BUY signals while the US indexes are clearly showing signs of being tired.

As our readers know, we expect the US markets to lose momentum in the next two weeks and start another bear phase in February, even if the news of the end of the US Government shutdown will be taken positively on Monday.

What to expect next week ?

Quarterly results from tech heavyweights including Apple Inc., Microsoft Corp., Amazon.com Inc. and Facebook Inc.will give the trend of the market. For Choice we are short those stocks. An update from global industrial bellwether Caterpillar Inc. is also due, while reports from Mastercard Inc. and Visa Inc. will shed light on the state of the American consumer. 

A Chinese delegation will arrive in Washington Monday to talk trade ahead of Vice Premier Liu He’s arrival later in the week.

A Federal Reserve meeting is scheduled and January’s non-farm payrolls will be reported as well.
Add it all up, and it’s little wonder that investors are wagering on bigger price swings over the next week than the next month, creating a so-called term structure for S&P 500 volatility that resembles the big dipper.

About a quarter of the way through the reporting season, earnings have been a mixed bag. About 70 percent of companies have beaten earnings estimates and 58 percent surpassed sales forecasts, but the average revenue surprise has been negative.

COMMODITIES

A sharp move in Gold took the precious metal above the 1300 level as we expected and the next target is 1375. Metals are strong save for Palladium that has clearly marked a peak. We have been recommending to go Short Palladium and long Platinum.

Oil is having another roller-coaster ride and is up + 17 % in January, we are soon reaching the level where it will be worth shorting it again.

BONDS

Not much to report in Bonds. Turkey and Russia are probably the best place to be and the markets are anticipating a rapid change of regime in Venezuela where the UK blocked the Gold reserves of the country after the recognition by the USA that the head of Parliament should be leading the country . Maduro’s regime is on the verge of collapsing and Venezuela has a lot of potential considering its oil reserves.

CURRENCIES