“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: