“Sometimes the best trade is no trade.” – Anonymous

1. G20 Finance Ministers Release Communique — world financial leaders called for stepped-up dialogue at a G20 meeting last Saturday, but ended the gathering with little consensus on how to resolve multiple disputes over U.S. tariff actions. The communique noted while growth is strong, it’s becoming less synchronized amid downside risks, including financial vulnerabilities, and heightened trade and geopolitical tensions. Ahead of the summit, Treasury Secretary Steven Mnuchin said he “wouldn’t minimize” the possibility that the U.S. will impose tariffs on all $500B worth of goods that the U.S. imports from China. He also discussed trade tensions with the EU. “If Europe believes in free trade, we’re ready to sign a free-trade agreement,” adding that any deal would have to eliminate tariffs, along with other barriers and subsidies.
2. U.S. Economy Grew at 4.1% Rate in Second Quarter — gross domestic product (GDP) — the value of all goods and services produced across the economy—rose at a seasonally and inflation-adjusted annual rate of 4.1% from April through June, the Commerce Department reported last Friday. The Commerce Department said U.S. soybean exports surged in the second quarter, delivering an outsize boon to economic growth even as China shifted much of its sourcing to Brazil in response to its worsening trade relations with the U.S. The export rally likely reflected efforts by buyers to get their soybeans before China’s 25% retaliatory tariffs on U.S. soybeans, which hit in July.
3. Venezuela To Lop Five Zeros Off Currency — Venezuela is delaying its planned currency re-denomination by two weeks to Aug. 20, lopping five zeroes off the refurbished bolivar (instead of three) and linking it to the country’s Petro cryptocurrency. It comes in response to Venezuela’s hyperinflation, which the IMF has said will soar to 1,000,000% this year, throwing the OPEC nation’s already battered economy into a deeper tailspin.
4. Trump Reportedly Wins EU Trade Concessions — President Trump announced at a press conference late last week with the EU’s Jean-Claude Juncker “We agreed today to work together towards zero tariffs, zero non-tariff barriers and zero subsidies for the non-auto industrial goods,”. The U.S. secured further trade concessions, including the import of more soybeans and possibly some liquefied natural gas, while potential auto tariffs will be sidelined as the two sides launch negotiations to cut other trade barriers.
5. AAII Weekly Sentiment — courtesy of BIG, according to this week’s report, bullish sentiment declined for the second week in a row, falling from 34.66% down to 31.52%.

As bullish sentiment declined, bearish sentiment ticked up from just under 25% to just under 27%.

The week ahead — Economic data from Econoday.com:

“Where you want to be is always in control, never wishing, always trading, and always first and foremost protecting your butt.” – Paul Tudor Jones

1. Farnborough Airshow — the most important aviation trade show of the year has begun, attracting about 100,000 trade visitors from 100 countries. Alternating every year with the Paris Air Show in France, the Farnborough International Air Show runs until July 22. Boeing (NYSE:BA) kickstarted the exhibition with a $4.7B deal for freight planes with delivery company DHL and the firm purchase of 30 737 MAX 8s with leasing firm Jackson Square. Airbus (OTCPK:EADSY) is already plotting its revenge. It’s working on a blockbuster agreement to sell $23B worth of aircraft to AirAsia, as well as confirming a $9B order from StarLux and Sichuan Airlines.
2. Oil Dips Below $70 on Saudi Offer, SPR Release — Saudi Arabia is said to have offered extra crude to some customers, extending additional cargoes of its Arab Extra Light crude to at least two buyers in Asia, Bloomberg reported. The Trump administration is also actively considering tapping into the U.S.’s 660M-barrel Strategic Petroleum Reserve as political pressure grows to rein in rising gas prices before November elections.
3. U.S. Files Trading Complaints at WTO — the U.S. has filed separate claims with the World Trade Organization against China, the EU, Canada, Mexico and Turkey after the countries lodged complaints over the Trump administration’s steel and aluminum tariffs. President Trump has repeatedly raised the prospects of withdrawing from the WTO, although this month he said that no withdrawal was planned for now. Amid the trade tensions, Chinese mainland stocks are down almost 30% since their peak in January.
4. Japan, EU Sign Trade Agreement — Japan and the EU have signed the world’s largest bilateral trade pact covering about a third of global GDP. The deal, which involved significant concessions on both sides, will eventually reduce heavy Japanese tariffs on European wine, cheese and other foods and lift EU tariffs on Japanese cars and vehicle parts.
5. EU Mulls U.S. Tariffs on Coal, Pharma, Chemicals — the EU will consider introducing tariffs on coal, pharmaceuticals and chemical products from the U.S. if President Trump imposes restrictions on European cars, Germany’s Wirtschaftswoche magazine reported. The potential trade measures will be decided based on the outcome of a meeting next week in Washington between European Commission President Jean-Claude Juncker and President Trump. However, Commerce Secretary Wilbur Ross said it’s “too early” to say whether the Trump administration will move ahead with proposed tariffs of as much as 25% on imported vehicles and auto parts .

The week ahead — Economic data from Econoday.com:

“Accepting losses is the most important single investment device to insure safety of capital.” – Gerald M. Loeb

1. Payments Halted Under Obamacare Program — the Trump administration is suspending a program that pays insurers to stabilize health insurance markets under Obamacare, saying that a recent federal court ruling prevents the money from being disbursed. Based on their 2017 business, the payments amount to $10.4B. With 20M Americans receiving health insurance through the Affordable Care Act, the latest freeze could increase uncertainty and drive up premiums this fall.
2. Brett Kavanaugh Nominated to Supreme Court — Brett Kavanaugh has been nominated for the U.S. Supreme Court, although a tough confirmation fight lies ahead in the Senate. As an ideological conservative he’s expected to push the court to the right on a number of issues, including business regulation. Kavanaugh has been critical of the expanding powers of federal agencies, including on measures like labor rights, credit-card fees and “payday” loans, and has also cast doubt on the constitutionality of the Consumer Financial Protection Bureau. Kavanaugh is widely viewed as being more conservative than Justice Anthony Kennedy, whom Kavanaugh has been nominated to replace.
3. China Ups Tariffs on U.S. Fiber Products — China’s commerce ministry will raise “anti-dumping tariff rates” tomorrow on some optical fiber products originating from the U.S., increasing the levy range to between 33.3% to 78.2%, compared with 4.7% to 18.6% as set in 2011. U.S. companies, including Corning (NYSE:GLW), OFS Fitel (OTCPK:FUWAY) and Draka Communications Americas, are among the firms affected by the change. the Trump administration raised the stakes in its trade war with China, saying it would slap 10% tariffs on an extra $200B worth of Chinese imports. The new list appears to target Beijing’s important manufacturing export industries, going after electronics, textiles, metal components and auto parts.
4. China’s Trade Surplus with U.S. Hits Record — China’s trade surplus with the U.S. swelled to a record in June, a result that could further inflame trade tensions with Washington. Exports to the world’s largest economy rose 5.7%, while imports from the U.S. rose 4%, resulting in a trade surplus of $28.97B. Separately, an explosion at a chemical plant in China overnight killed 19 people and injured 12, marking the latest deadly industrial incident in the country.
5. Index Correlation of 2018 VS Prior Years — courtesy of BIG, in comparing the S&P 500’s performance in 2018 to prior years, correlation of the closing prices – through July 11, of the S&P 500 to every year since 1928. Statistically, just two years correlated strongly with 2018: 1942 and 1980, when the rest of the year was up 11% and 15%, respectively.

The week ahead — Economic data from Econoday.com:

“If you take emotion – would be, could be, should be – out of it, and look at what is, and quantify it, I think you have a big advantage over most human beings.” — John Henry

1. EU Warns U.S. of $300B in Tariffs — the EU warns that if the U.S. goes ahead with punitive tariffs against EU car imports, the European Commission will likely apply countermeasures worth as much as $294B – about 19% of U.S. goods exports in 2017. The measures risk plunging the global economy into a full-scale trade war, as it will harm employment in the U.S. auto sector, which accounts for more than 4M jobs.
2. Trump Warns the WTO — A statement by President Trump that the administration won’t take any action against the World Trade Organization unless the organization is “unfair” to the U.S. While the latest rhetoric is a downshift in tone, concerns of a standoff still remain. Height Capital Markets warned of the “immense” economic downside from U.S. action against the WTO. The investment firm noted that while Trump cannot roll back the U.S statute agreeing to the WTO, he can signal U.S. withdrawal under the structure of the WTO agreement. “However, this quirk of US law – enabling the President to claim the U.S. is withdrawing even as U.S. law differs – does not guarantee that other nations would still grant the US the protections afforded to a member of the WTO,” .
3. Feds Expand Data Probe into Facebook — Federal agencies are reportedly turning up the heat on Facebook (NASDAQ:FB), with the FBI, SEC and FTC joining the Justice Dept. in probing the company’s response to the Cambridge Analytica data sharing scandal. The focus of the agencies is on squaring Facebook’s statements about the affair with the underlying facts, as well as how forthcoming and prompt the company has been in cooperating.
4. First Half 2018 Asset Class Performance Matrix — courtesy of BIG, below highlights the performance of various asset classes of ETFs during the first half of 2018.
At the halfway point of 2018, small-caps have trumped large-caps, while growth has crushed value. Looking at sectors, Consumer Discretionary (NYSEARCA:XLY), Technology (NYSEARCA:XLK), and Energy (NYSEARCA:XLE) have been the best performers so far this year, while Consumer Staples (NYSEARCA:XLP), Financials (NYSEARCA:XLF), Materials (NYSEARCA:XLB), and Industrials (NYSEARCA:XLI) are solidly in the red.

5. U.S. Offers German Carmakers ‘Zero Tariffs’ Solution — Germany’s big three automakers – BMW (OTCPK:BAMXF), Volkswagen (OTCPK:VLKAF) and Mercedes-parent Daimler (OTCPK:DDAIF) – met with U.S. Ambassador to Germany Richard Grenell, stating they would support the elimination of EU tariffs on imported American cars provided the U.S. did the same. While EU tariffs on passenger cars are 10%, versus 2.5% in the U.S., the latter imposes import duties of 25% on European vans and pick-up trucks.
6. U.S.-China Trade War Started — Accusing the U.S. of “launching the largest trade war in economic history to date,” Beijing has implemented retaliatory tariffs on 545 items worth $34B in response to the comparable U.S. duties that were enacted at midnight. Another $16B in tariffs are expected to go into effect in two weeks, and President Trump has warned of additional levies on $500B in Chinese goods.

The week ahead — Economic data from Econoday.com:

“I always define my risk, and I don’t have to worry about it.” – Tony Saliba

1. EU Responds to U.S. Auto Tariff Threat — after President Trump threatened to impose a 20% tariff on all imports of EU-assembled cars, EU Commission Vice President Jyrki Katainen told French newspaper Le Monde “If they decide to raise their import tariffs, we’ll have no choice, again, but to react,”.
2. GE Plans Healthcare Spinoff, Baker Hughes Stake Sale — the once industrial conglomerate is spinning off its healthcare business and unloading ownership in its oil services company Baker Hughes (NYSE:BHGE). The final turnaround plan from CEO John Flannery. GE will focus on its power, aviation and renewable-energy divisions. The company was booted out of the Dow Jones Index and was replaced by Walgreen Boots.
3. Canada Prepares Moves to Block Chinese Steel Diverted from U.S. — Canada is preparing tariffs and quotas on steel from China and other countries to prevent a potential flood of imports from global producers seeking to avoid U.S. tariffs. The Bloomberg report follows warnings from the Canadian steel industry and the EU’s decision to ward off the dumping of steel that would have been sent to the U.S.
4. Amazon’s New Last-Mile Delivery Service — Amazon is building out its own last-mile delivery service, pushing further onto the turf of shipping partners UPS and FedEx (NYSE:FDX). The new program, called Delivery Service Partners, will let entrepreneurs run their own local delivery networks of up to 40 delivery vans emblazoned with Prime logos. “This is all about scaling cost effectively,” said Dave Clark, SVP of Amazon Worldwide Operations (NASDAQ:AMZN).
5. AAII Weekly Bearish Sentiment Surges — according to the latest weekly sentiment survey from AAII, bullish sentiment dropped more than ten percentage points, falling from 38.7% down to 28.4% in what was the largest one week decline since early March.

Meanwhile, bearish sentiment surged, rising from 26.2% up to 40.8% in what is only the second week in the last year where bearish sentiment has been above 40%. More importantly, though, it was the largest one week increase in negative sentiment since January 2016, which also happens to be another time when a plunging Chinese stock market was in the headlines.

The week ahead — Economic data from Econoday.com: