(New York)

In a great example of how Trump’s new tariffs on China will reverberate around the US economy, Nike and Adidas are panicking over the new Trump moves. The pair just led a consortium of 173 companies who penned an open letter to the President imploring him to stop the tariff move immediately. Nike and Adidas say the tariffs will be “catastrophic”. Clothing and footwear already endure some of the highest tariffs, so hiking them further will increase costs and create huge logistical complications. The letter summarized their view this way, saying they will be ”catastrophic for our customers, our companies, and the American economy as a whole”.

FINSUM: If you are a company that makes or imports a lot of your merchandise from China, this is going to be a very rough period. We expect the market will start to take this into account as the full impact of the trade war is digested.

(San Francisco)

One of the trade war’s big victims could be Apple. While much of the trade war panic has been focused on other products, Apple could be the biggest victim to suffer. The the reason why may have more to do with sentiment than with tariffs. While there is much talk of Chinese “national champions”, Apple is undoubtedly an American national champion in China, and with sentiment souring against the US in the face of the trade war, it is likely that Chinese consumers will move towards purchasing domestic smart phones. Apple will be forced to raise prices because of tariffs, which would accelerate the trade. China accounts for about 18% of Apple’s revenue and a higher percentage of its profits.

FINSUM: There could be a big hit to Apple’s top and bottom lines here. China could also take measures to specifically wound Apple the way Washington has done to Huawei. Anything seems to be fair game right now.

(New York)

There has been growing consternation about the threat of a major meltdown in corporate debt. The Fed, in particular, has been very troubled by the amount of corporate debt in the economy, which has led to speculation by Wall Street that there could be a blow up. Goldman Sachs has been more sanguine, saying debt levels look healthy. Now the Fed appears to be taking a more mild view as well. In a speech this week, Chairman Powell said that the comparison to pre-Crisis debt levels are not convincing. “Most importantly, the financial system today appears strong enough to handle potential business-sector losses, which was manifestly not the case a decade ago with subprime mortgages.

FINSUM: Debt levels seems high, but profits are margins are good to. The question is what happens when the economy turns south. We are especially concerned about the BBB market.

(Washington)

The panic over Trump’s blacklisting of Huawei was reaching a fever pitch. The fall out had gotten so bad that it looks like the President decided to take a step back. Trump has now granted a three-month reprieve on the blacklist to give companies time to adjust. The stay is not a cancellation of the decision, just a window for adjustment. Huawei says it “doesn’t mean much”.

FINSUM: This is smarter than a sudden blanket ban as it will give a little adjustment period which may make it a bit easier for companies and markets to digest.

(New York)

There was a beautiful four-month window between December 2018 and May 2019 when everything looked positive. The trade spat with China looked increasingly mild and economic data was strong. It was a mirage. Even the hefty 3.2% GDP growth figure was mostly because of an incredible buildup in inventories, which when stripped away leave growth at 1.5%. Further, revised data shows that industrial production has dropped 1.2% since December. Even though this counts for a small portion of the economy, it is highly indicative of the business cycle. Some areas like auto production and machinery are down much more at 5%.

FINSUM: The glorious rally of the first third of the year seems to have stalled and the bad news is piling up, with the trade war exacerbating everything.