Progress on US trade strategy as stocks bounce back
US stocks bounced back overnight as the Dow pushed toward its best day in over four months, NAFTA talks marked their first anniversary and China and the US agreed to low-level trade talks.
Walmart shares jumped 9.6% after it overshot earnings estimates and posted its best sales growth in a decade. The retailer’s success boosted US retail stocks while the S&P 500 retail index was up 0.6%.
Escalating tariff jitters cooled down on news that Beijing will send a delegation to Washington to help resolve the growing conflict between the world’s two largest economies. A Chinese delegation led by Chinese Vice Minister of Commerce Wang Shouwen will meet a US delegation led by Under Secretary of Treasury for International Affairs David Malpass for trade talks in late August.
Although these talks will not occur at the highest level, they could still lead to progress in negotiations on trade between China and the US. However, a resolution is unlikely to come before the US implements further tariffs on Chinese imports. The next round of US tariffs will take effect on August 23, before the new talks. They will target $US16 billion in Chinese goods and will be followed by a new round targeting $US200 billion worth of goods.
The Dow Jones Industrial Average rose 396.32 points, or 1.5%, to 25,558.73, the S&P 500 gained 22.32 points, or 0.79%, to 2,840.69 and the Nasdaq Composite added 32.41 points, or 0.42%, to 7,806.52.
The US second-quarter reporting season is nearly over, with 463 of S&P 500 companies posting earnings, 79.3% of which have exceeded analyst estimates.
Second-quarter earnings growth of 24.8% was the best since 2004 (excluding the post-recession rebound in 2010). The results pushed the S&P 500 1.5% higher since July 12, the day before JPMorgan kicked off earnings season.
In the tech sphere, Cisco Systems Inc stock rallied 3.8% after beating Wall Street revenue and profit targets. Also, cyber-security firm Symantec Corp ended its five-day slide, rising 6.0% after hedge fund Starboard Value LP took a 5.8% stake in the company.
Bucking the upbeat retail trend, shares of J.C. Penney Co Inc dropped below $US2 for the first time, plunging 24.7% after the department store chain posted disappointing results and forecast a worse-than-expected full-year loss.
European stocks were universally higher while Asian markets were all down. Oil futures recovered from the previous session’s tumble to rise 0.6% while gold settled a bit lower and the US dollar was mostly flat.
US President Donald Trump yesterday followed through on threats to strip the security clearance of former CIA director John Brennan.
White House press secretary Sarah Huckabee Sanders announced the decision at a briefing, reading a statement in which the president accused Mr Brennan of making “a series of unfounded and outrageous allegations – wild outbursts on the internet and television – about this Administration.”
Mr Brennan’s “lying and recent conduct, characterised by increasingly frenzied commentary, is wholly inconsistent with access to the nation’s most closely held secrets,” she added.
Ms Sanders says the president is reviewing the clearance status of a series of intelligence, national security and law enforcement officials, all of whom have been critical of Mr Trump or were engaged in investigating possible links between the Trump campaign and Russia.
The officials include James Comey; Andrew McCabe; Peter Strzok; former director of national intelligence James Clapper; former National Security Agency director Michael Hayden; former acting attorney general Sally Yates; former national security adviser Susan Rice; former FBI lawyer Lisa Page; and incumbent Department of Justice official Bruce Ohr.
Mr Brennan has been a vocal critic of the Trump administration. Earlier this year, he claimed Mr Trump’s performance at his July summit with Russian President Vladimir Putin had been “nothing short of treasonous,” while last year he described the investigation into possible collusion between Trump campaign officials and Russia during the 2016 presidential elections as “well-founded.”
“I call it the rigged witch hunt, [it] is a sham … And these people led it!” Mr Trump said in an interview yesterday, drawing a direct connection between special counsel Robert Mueller’s investigation into Russian interference in the 2016 election and his decision to revoke the security clearance.
Mr Brennan called the decision an “abuse of power,” during an interview on MSNBC in which he expressed his belief that “[Mr] Trump decided to take this action, as he’s done with others, to try to intimidate and suppress any criticism of him or his administration.”
One year since trade officials from the US, Mexico and Canada convened in Washington for the first time to reopen NAFTA, US Trade Representative Robert Lighthizer could be nearing a deal.
Incremental progress and good-faith negotiations between the three North American nations offer a sign of hope to US farmers and businesses, who are bearing the brunt of retaliatory tariffs and desperate for some sign of more certainty in global trade.
Significant portions of the negotiation remain unresolved – the sunset clause chief among them, though there are others – and Canada still needs to be wooed back once US-Mexico bilateral issues are worked out. But the political situation in each country means they are more eager than ever to make a deal.
For Mexico, the pressure is coming from the incoming administration of President-elect Andrés Manuel López Obrador, who wants NAFTA wrapped up and signed before he takes office December 1. And for the US, reaching even a bare-bones agreement before the November midterms would hand Mr Trump a political victory to tout on the campaign trail, placate Republicans who have been calling for stability and bring much-needed relief to American farmers.
Mexican Economy Secretary Ildefonso Guajardo reiterated yesterday that negotiators from the US and Mexico are focusing on the remaining issues and continue "advancing well." The list of remaining bilateral issues to resolve is "no longer a question of chapters. It's now a question of paragraphs and points," Mr Guajardo says.
Mr Guajardo wouldn't offer assurances that a deal could be reached before the end of the month but says, "That's why we're here. We're fully engaged. We don't know if it will be a successful conclusion. We're trying."
USTR Robert Lighthizer expressed hope a breakthrough could be made in the coming days in efforts to rework the NAFTA trade deal.
“I’m hopeful that in the next several days we’ll have a breakthrough,” Mr Lighthizer says.
Mr Trump himself says he was in “no rush” to conclude the talks, repeating his oft-stated complaint that the 24-year-old trade agreement had been a “disaster” for the US.
“We have much better alternatives than that. So, if you can’t make the right deal, don’t make it,” he told Mr Lighthizer.
New track on cyber
Mr Trump reversed an Obama-era memorandum dictating how and when the US government can deploy cyberweapons against its adversaries to loosen restrictions on such operations.
He signed an order reversing the classified rules, known as Presidential Policy Directive 20, that had mapped out an elaborate interagency process that must be followed before US use of cyber-attacks, particularly those geared at foreign adversaries.
It is not clear what rules the Trump administration is adopting to replace the policy and while the reversal was confirmed by a number of current US officials, they declined to comment further, citing the classified nature of the process.
One administration official commented that the order was an “offensive step forward,” geared to enable the US to present a more aggressive response when faced with foreign election interference and other threats, in addition to buttressing military moves. National security adviser John Bolton allegedly had sought to reverse the rules when he joined the administration earlier in 2018.