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POSTAL REPORT EXPECTED TODAY — A source tells our Nancy Cook that Treasury on Tuesday is expected to finally release a report ordered by Trump looking into U.S. Postal Service pricing.
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One earlier version of the report, born of Trump’s anger at Jeff Bezos and Amazon, did not conclude that Amazon was getting any kind of special treatment by the Postal Service. Instead it suggested that the USPS had poor pricing on some of its delivery services while recommending potential reforms. Not clear if the final report, which will be around 70 pages long, got toughened up to take more direct aim at Amazon.
Democrats have promised to use their new House majority to investigate Trump’s use of the government to attack political opponents, in this case the Bezos-owned Washington Post. A report that targets Amazon in direct ways could open the White House to more scrutiny. So the findings will be quite interesting.
WHY INVESTORS DON’T TRUST THE CHINA DEAL — As expected, Wall Street initially greeted the Buenos Aires détente with great enthusiasm sending the Dow soaring over 400 points. But the rally lost some altitude as the day wore on for a couple of reasons.
Trump announced that China would end tariffs on U.S. automobiles but the Chinese made no such announcement and senior White House officials could not back up the president’s claim. U.S. Trade Representative Bob Lighthizer took charge of the China trade talks, signaling a potentially hard line. And everyone realized that winning major structural changes from China by the March 1 deadline (more on which below) would be extraordinarily hard.
So the biggest threat that looms over the economy — a full-scale trade war with China — takes something of a holiday break. But it hasn’t gone anywhere and the kind of uncertainty that existed before this weekend and that makes decision making difficult for investors and corporate executives remains firmly in place.
MM spoke with Richard Bernstein of Richard Bernstein Advisors LLC about market reaction to Trump’s meeting with Chinese President Xi Jinping: “It does show that if we stop shooting ourselves in the foot that markets and the economy are going to be very healthy. And this is all a self-inflicted wound. … The magnitude of the drop and the magnitude of the rebound is a pretty straight forward assessment …
“Why couldn’t we hold the gain? There is a certain lack of conviction in markets that we have permanently stopped shooting ourselves in the foot. Maybe we are putting a bandage on right now and saying everything is fine but we could wind up back in the exact same place again.’
IMAGINE THE UNCERTAINTY — “Imagine what kind of uncertainty there still is for chief financial officers. Do I want to start a big new plan now? Do I want to hire new people? How do I plan for 2019? I don’t envy those people at all who have to make those decisions. I get the intellectual property stuff. But it’s a whole different story. Has there ever been a time in economic history when tariffs have benefitted a mature economy? I’m still waiting for someone to show me the time when that worked.”
Manulife chief economist Megan Greene in a client note: “The deal itself … was more of a plan to come up with a plan … I don’t buy into the sustainability of the equity rally that ensued once the markets opened post-deal. For starters, the details are woolly. China agreed to buy more goods from the US last May and never made good on its promises … Most importantly, the deal struck does not get at the heart of the conflict ..
“[T]his reprieve in the trade war may not last 90 days. Last time the US struck a deal with China in May 2018 … Trump announced new tariffs less than two weeks later. … I think it is more likely we get an escalation in trade tensions with China than a de-escalation from here.”
THINGS THAT ARE ALSO TRUE — The new NAFTA is not done yet and smooth passage through Congress is not assured. If Trump dissolves the existing agreement and the new USMCA runs aground on Capitol Hill, markets will tank and the economy will suffer. That uncertainty will remain until Congress votes. Auto tariffs on European imports remain a real possibility. One good weekend at the G-20 doesn’t change any of this.
KUDLOW ON CHINA — In a briefing with reporters, Kudlow could not say whether China would actually drop tariffs on U.S. auto exports to zero, as Trump promised on Twitter: “I believe that commitment was made. And this is an area … where that word ‘immediately’ comes in. Let’s get rolling, folks. Today is Monday. The dinner was Saturday. Feel free to make important steps that would give more credibility. …
“[W]e don’t have — we don’t yet have a specific agreement on that, but I will just tell you, as an involved participant, we expect those tariffs to go to zero.”
KUDLOW ON GEORGE H.W. BUSH — Larry also had this lovely recollection of the 41st president: “And I want to also say that when I was a child, a Cub Scout in Reagan’s first term, I was an economics deputy at OMB. I used to run a lot of errands for the Vice President. One of his offices was across the hall, on the second floor, from OMB.
“And, you know, he’d go on a trip and he might call us … you know, for some talking points on something or other. And we’d give it to him and the really interesting thing was he’d come back and many times he’d actually call you into his office to thank you for the talking point and talk about the talking point. … It’s an anecdote to show you what a class act he was. That’s what I’m getting at.”
KUDLOW CORRECTED — The White House around 6:00 p.m. issued a corrected transcript of Kudlow’s call with reporters saying the China deal clock started Dec. 1, not Jan. 1 as Kudlow said. So time runs out on March 1, not April 1.
LIGHTHIZER THE LEADER — Our Caitlin Oprysko and Megan Cassella:
“Trump has tapped U.S. Trade Representative Robert Lighthizer to lead the talks with China over the next three months to ensure that it makes the structural changes it promised over the weekend. White House trade adviser Peter Navarro told NPR on Monday that Lighthizer would be the point person, calling him ‘the toughest negotiator we’ve ever had at the USTR.’
“‘He is going to go chapter and verse and get tariffs down, non-tariff barriers down and end all these structural practices that prevent market access, and we’ve given away nothing here,’ Navarro said. ‘We’ve just given the Chinese 90 days to do what they should have been doing for the last 20 years.’” Read more.
DID TRUMP GET ROLLED? — Cap Alpha’s Charles Gabriel: “The Chinese wanted time and delay at the Trump-Xi summit, and that’s what they got. Trump has postponed 25% tariffs for three months — well into next year, when he may have a weaker economy, depressed agricultural prices, and his re-election campaign to worry about.
THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Victoria Guida on the Office of the Comptroller of the Currency’s push for banks to keep an eye on their exposure to corporate debt markets. To get Morning Money every day before 6 a.m., please contact Pro Services at (703) 341-4600 or email@example.com.
ADELSON TO GOP DONORS: SHAPE UP! — CNBC’s Brian Schwartz: “Sheldon Adelson, the biggest Republican donor, wants key GOP fundraising groups to shape up after this year’s midterm wipeout in the House or risk losing his support for the 2020 election cycle, CNBC has learned.
“Adelson’s closest advisors are preparing to warn the heads of the GOP congressional fundraising committees that they need to make significant changes to the way they raise money if they want to see the Las Vegas Sands CEO invest in the 2020 congressional elections, according to one of Adelson’s top lieutenants.” Read more.
OCC WARNS ON CORPORATE DEBT — Our Victoria Guida: “The Office of the Comptroller of the Currency … urged banks to keep a close eye on their exposure to corporate debt markets, given the rising amount of leverage there. ‘A deterioration in corporate bond and loan markets may affect supervised institutions more profoundly than in previous periods,’ the OCC said in its semiannual assessment of risks to the banking industry, in a special section on leveraged lending as an emerging risk.
“Comptroller Joseph Otting, on a call with reporters, said loans to heavily indebted companies held on bank balance sheets are largely satisfactory. But there are indirect ways in which stress in that market could flow back to banks, he added. A bank might lend to a company that seems like a solid company, ‘then all of a sudden one of their major suppliers gets disrupted,’ he said. ‘Very quickly that has a contagious impact on the borrower that you’re lending money to.’” Read more.
POWELL RESCHEDULED — Our Zachary Warmbrodt and Katy O’Donnell: “Congress is postponing testimony from Federal Reserve Chairman Jerome Powell and top housing policy officials that had been scheduled for Wednesday as the country observes a national day of mourning for President George H.W. Bush. Powell was slated to testify before the Joint Economic Committee. The hearing has not yet been rescheduled.” Read more.
TRUMP’S CHINA TRUCE CALMS MARKETS — NYT’s Alan Rappeport: “President Trump cast his trade accord with President Xi Jinping of China as a huge win for American farmers, automakers and other key political constituencies — statements that helped send volatile financial markets higher on Monday and seemed intended to calm worries about the economic toll of a protracted trade war.
“Yet 48 hours after the deal was struck, several big areas of contention remained unresolved and Mr. Trump appointed a veteran trade negotiator with deep skepticism toward China to lead the talks for the United States. Mr. Trump’s choice of Robert Lighthizer, the United States trade representative, to lead the negotiations is significant, given that the official statements from Saturday’s meeting included only vague commitments and that deep divisions remain, particularly over China’s treatment of American companies and push to obtain trade secrets and intellectual property.” Read more.
And it sent stocks (slightly) higher — AP’s Alex Veiga: “A welcome truce in the escalating U.S.-China trade dispute put investors in a buying mood Monday, sending U.S. stocks solidly higher and extending the market’s gains from last week. The broad rally, which lost some of its early morning momentum, followed gains in overseas markets as investors welcomed news of the temporary, 90-day stand-down, which was agreed to over dinner between President Donald Trump and his Chinese counterpart Xi Jinping at the G-20 summit over the weekend. …
“Technology stocks, automakers, retailers and industrial companies accounted for much of the market’s gains Monday, offsetting losses in household goods makers. Energy stocks also climbed as U.S. crude oil prices rose sharply.” Read more.
WALL STREET’S APPROACH TO #METOO? AVOID WOMEN. — Bloomberg’s Gillian Tan and Katia Porzecanski: “No more dinners with female colleagues. Don’t sit next to them on flights. Book hotel rooms on different floors. Avoid one-on-one meetings. In fact, as a wealth adviser put it, just hiring a woman these days is ‘an unknown risk.’ What if she took something he said the wrong way?
“Across Wall Street, men are adopting controversial strategies for the #MeToo era and, in the process, making life even harder for women. Call it the Pence Effect, after U.S. Vice President Mike Pence, who has said he avoids dining alone with any woman other than his wife. In finance, the overarching impact can be, in essence, gender segregation. Interviews with more than 30 senior executives suggest many are spooked by #MeToo and struggling to cope.” Read more.
TRUMP PLEASED WITH POWELL’S RATE SPEECH — WSJ’s Kate Davidson: “President Trump was pleased with a speech last week by Federal Reserve Chairman Jerome Powell in which he said interest rates are ‘just below’ a range of neutral estimates, Treasury Secretary Steven Mnuchin said Monday. ‘He liked the speech,’ Mr. Mnuchin said in an interview with CNBC Monday, referring to the president. Mr. Trump has repeatedly criticized the central bank chairman in recent months, complaining that he is raising interest rates too quickly and blaming him for recent stock market volatility.” Read more.
POWELL SAYS ECONOMIC CHALLENGES REMAIN — AP’s Martin Crutsinger: “Federal Reserve Chairman Jerome Powell said Monday that despite solid economic progress, the country still faces a number of challenges ranging from slow wage-growth for lower-income workers to sluggish productivity and an aging population.
“Powell said in remarks at a Fed award ceremony that these challenges remain even though unemployment is near five-decade low and the financial system has been bolstered since the 2008 financial crisis. While there have been recent gains in wage growth, Powell said that wages for lower-income workers have grown quite slowly over the past few decades. He also noted that a decades long decline in economic mobility has made it more difficult for lower-income Americans to move up the economic ladder.” Read more.
BUSH’S ECONOMIC LEGACY — WSJ’s Greg Ip: “Though George H.W. Bush was president for just four years, his economic legacy on taxes, banking and trade reverberate today. Mr. Bush owed his election in 1988 in part to the low inflation and solid growth during the administration of Ronald Reagan, whom Mr. Bush served as vice president. Yet imbalances that took root under Mr. Reagan would haunt his successor’s presidency.
“One imbalance was the budget deficit. In his losing campaign for the presidential nomination in 1980, Mr. Bush famously derided Mr. Reagan’s supply-side tax cuts as ‘voodoo economics.’ Yet as vice president he faithfully defended those tax cuts and in his 1988 campaign declared, ‘Read my lips: no new taxes.’” Read more.
AMAZON BRIEFLY EDGES PAST APPLE — Reuters’ Noel Randewich: “Amazon.com briefly became the most valuable company on Wall Street in intraday trade on Monday, days after Microsoft Corp dethroned long-time leader Apple Inc. Amazon rose by 4.7 percent at one point, putting its market capitalization at $865.0 billion. At the same time, Apple traded up 2.1 percent, giving it a market capitalization of $864.8 billion.” Read more.
WHEREVER DIMON GOES, ACTIVISTS FOLLOW — Bloomberg’s Michelle Davis and Max Abelson: “Jamie Dimon was on stage at a community college in Ohio in November, telling students not to get scared by the snakes and alligators they’ll see in life. A few feet away, an activist named Ruth Breech reminded herself to stay calm: ‘I need to be ready.’ When JPMorgan Chase & Co.’s leader paused a moment and looked to his left, Breech, at 5-foot-2, was standing beside his chair. ‘It’s so good to see you again,’ she said. She and another protester raised a banner: ‘Chase: Stop profiting off dirty energy.’ Dimon adjusted his tie.
“Dimon had just become the only remaining Wall Street boss who led a global bank before the financial crisis. JPMorgan is so big and profitable, and the billionaire has won so much influence, that he’s being followed around the U.S. by a growing crew of critics who want the bank to join their fights against climate change, human-rights abuses, and private prisons. They’ve tried to get his attention by scaling Park Avenue flagpoles, blocking Seattle traffic with tepees, bursting into conferences, and blasting audio of crying children outside his apartment.” Read more.