Week in Review

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Week in Review

08/03/2019

For the week 7/29-8/2

[Posted 10:30 PM ET, Friday]

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Edition 1,060

Thursday, as the stock market was recovering from its Wednesday, Fed-induced swoon, President Trump suddenly announced he would impose new tariffs on $300 billion worth of imports from China, effectively taxing every product that Americans buy from the place.

Trump was acting one day after Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer wrapped up talks in Shanghai, which were all of six hours, aimed at restarting trade negotiations, but the discussions did not go well.  The two sides did say sometime in September they would meet in Washington, but then Trump tweeted:

“The U.S. will start, on September 1, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country.  This does not include the 250 Billion Dollars already Tariffed at 25%.”

Stocks ferociously reversed, with the Dow Jones shedding about 300 points in minutes, on the way to a 600-point reversal by the market’s close, taking the two-day cumulative loss to 610 on the Dow.  The market ended up having its worst week since December for the S&P 500 and Nasdaq.

Trump has been saying in recent weeks that China likely wouldn’t agree to a trade deal until after the 2020 election, with Beijing wanting to see if he was reelected.

So then in a tweet Tuesday, the president wrote that he would be much tougher with China if Beijing waited until after the election, and he also raised the possibility that he might never agree to a deal.

Trump told reporters at the White House Thursday, “If they don’t want to trade with us anymore, that would be fine with me.”

According to the Wall Street Journal, the tariff hike was opposed by Lighthizer, Mnuchin and economic adviser Lawrence Kudlow, as well as national security adviser John Bolton.  But Trump was adamant in pushing for the increase and was supported by White House adviser Peter Navarro, though you can be sure all those opposed will say publicly they support their boss.

On Wednesday, Fed Chairman Jerome Powell had cited uncertainty over trade policy as contributing to weaker global growth.

And now China will retaliate...in what form hasn’t been revealed as yet.  There is also the possibility Trump could withdraw his threat before the new levies went into effect.

A Chinese Foreign Ministry spokeswoman said on Friday: “China won’t accept any maximum pressure, threat, or blackmailing, and won’t compromise at all on major principle matters.”  More on this below.

But I have been talking all year of how we are in such a dangerous time, and nothing signifies this more today than the status of Hong Kong and the brave protesters there who are standing up to Beijing.

I have been telling you in the last few weeks, though, that Hong Kong is a powder keg.  And down below I spell out Beijing’s reaction to the protests.  The situation can blow at any moment, with Xi Jinping sending in the troops to establish “order.”  I’ve been warning it could be a bloodbath.  Taiwan is also in a very precarious position.

Americans have no clue what a crackdown in Hong Kong would mean for the world, a true battle between good vs. evil, and President Trump is likely to exacerbate the situation.

This is what I am worried about tonight as I go to post.

And I hope some of you caught Trump’s ‘press spray’ on Thursday, after we learned he had had a chat with Vladimir Putin.

A reporter brought up the Mueller testimony and the Special Counsel’s claims Russia was continuing to interfere, today, in U.S. elections, with the eye on 2020, with the reporter asking if Trump had discussed this with Putin.

The president pointed to the reporter and said, “Do you really believe that?  No, I didn’t bring it up.”

If you are comforted by this ‘leadership,’ I don’t know what to say.

Trump World

--President Trump toned down his rhetoric against four Democratic congresswomen, “The Squad,” at a rally in Cincinnati on Thursday night, choosing instead to focus his attacks on Rep. Elijah Cummings.

After receiving criticism for his failure to stop his supporters from chanting “Send her back!” about Somali-born Rep. Ilhan Omar at his last campaign rally in Greenville, N.C., two weeks ago, Trump did not name her or the other three in the opening moments of the Ohio rally, though he did reference them briefly.

Instead, focusing on Cummings and his city of Baltimore, Trump said:

“No one has paid a higher price for the far-left destructive agenda than Americans living in our nation’s inner cities.  We send billions and billions and billions for years and years and it’s stolen money, and it’s wasted money.”

There’s nothing wrong with this.  It’s just that last Saturday, the president fired off a series of tweets insulting African-American Cummings and his district, which to me and many others was racist. 

“Rep. Elijah Cummings has been a brutal bully, shouting and screaming at the great men & women of Border Patrol about conditions at the Southern Border, when actually his Baltimore district is FAR WORSE and more dangerous.  His district is considered the Worst in the USA,” Trump tweeted.

But then he wrote that holding facilities at the U.S.-Mexico border are “clean, efficient & well run, just very crowded” and called Cummings’ district a “disgusting, rat and rodent infested mess” and a “very dangerous & filthy place.”

“Why is so much money sent to the Elijah Cummings district when it is considered the worst run and most dangerous anywhere in the United States.  No human being would want to live there. Where is all this money going?  How much is stolen?  Investigate this corrupt mess immediately!”

It was the comment “No human being would want to live there” that was frankly despicable.  Ironically, the Jerusalem Post later commented that the latest data showed that 32,000 Jews lived in the district.

Trump added later:

“If the Democrats are going to defend the Radical Left ‘Squad’ and King Elijah’s Baltimore Fail, it will be a long road to 2020.  The good news for the Dems is that they have the Fake News Media in their pocket!”

The Baltimore Sun duly ripped the president in an editorial.

“This is a president who will happily debases himself at the slightest provocation.  And given Mr. Cummings’ criticisms of U.S. border policy, the various investigations he has launched as chairman of the House Oversight Committee, his willingness to call Mr. Trump a racist for his recent attacks on the freshmen congresswomen, and the fact that ‘Fox & Friends’ had recently aired a segment critical of the city, slamming Baltimore must have been irresistible in a Pavlovian way.  Fox News rang the bell, the president salivated and his thumbs moved across his cell phone into action.

“As heartening as it has been to witness public figures rise to Charm City’s defense on Saturday...we would above all remind Mr. Trump that the 7th District, Baltimore included, is part of the United States that he is supposedly governing.  The White House has far more power to effect change in this city, for good or ill, than any single member of Congress including Mr. Cummings.  If there are problems here, rodents included, they are as much his responsibility as anyone’s, perhaps more because he holds the most powerful office in the land.

“Finally, while we would not sink to name-calling in the Trumpian manner...we would tell the most dishonest man to ever occupy the Oval Office, the mocker of war heroes, the gleeful grabber of women’s private parts, the serial bankrupter of businesses, the useful idiot of Vladimir Putin and the guy who insisted there are ‘good people’ among murderous neo-Nazis that he’s still not fooling most Americans into believing he’s even slightly competent in his current post.  Or that he possesses a scintilla of integrity.  Better to have some vermin living in your neighborhood than to be one.”

Meanwhile, presidential son-in-law Jared Kushner owns more than a dozen apartment complexes in Baltimore County that have been cited for hundreds of code violations and, critics say, provide substandard housing to lower-income tenants.

Kushner stepped down as chief executive of the company that owns almost 9,000 rental units across 17 complexes in the overall area when he became a senior White House adviser.

--It is beyond embarrassing that President Trump was intent on replacing Dan Coats as director of national intelligence with Rep. John Ratcliffe, simply because Trump saw Ratcliffe support him during the Mueller hearings.

But we then learned that Ratcliffe has been padding his resume, which makes the selection even worse, claims such as, “As a U.S. Attorney, I arrested over 300 illegal immigrants on a single day,” he says on his congressional website.

It’s a false claim.  He played a supporting role in the 2008 sweep, which involved U.S. attorneys’ offices in five states and was led by ICE.   Ratcliffe also made false claims he had put terrorists in prison.

Trump then tweeted late this afternoon:

“Our great Republican Congressman John Ratcliffe is being treated very unfairly by the LameStream Media.  Rather than going through months of slander and libel, I explained to John how miserable it would be for him and his family to deal with these people...

“...John has therefore decided to stay in Congress where he has done such an outstanding job representing the people of Texas, and our Country. I will be announcing my nomination for DNI shortly.”

It needs to be pointed out that there were many Senate Republicans, not just the LameStream Media, who had expressed severe misgivings with Ratcliffe.

He would have been an absolute disaster as DNI.  As David Ignatius of the Washington Post wrote earlier in the week:

“The deepest worry among intelligence professionals is how the Ratcliffe nomination, and the intense partisanship that fueled it, will be perceived by the United States’ intelligence partners overseas....

“If the White House exerts political control through Ratcliffe, ‘foreign governments will be wondering if they should be sharing information’ with the CIA and National Security Agency, said (a) veteran station chief.”

At least now we don’t have to worry.

--Trump tweets:

“China, Iran & other foreign countries are looking at the Democrat Candidates and ‘drooling’ over the small prospect that they could be dealing with them in the not too distant future.  They would be able to rip off our beloved USA like never before.  With President Trump, NO WAY!”

“If I hadn’t won the 2016 Election, we would be in a Great Recession/Depression right now. The people I saw on stage last night, & you can add in Sleepy Joe, Harris, & the rest, will lead us into an economic sinkhole the likes of which we have never seen before. With me, only up!”

“CNN’s Don Lemon, the dumbest man on television, insinuated last night while asking a debate ‘question’ that I was a racist, when in fact I am ‘the least racist person in the world.’  Perhaps someone should explain to Don that he is supposed to be neutral, unbiased & fair....

“...or is he too dumb (stupid) to understand that.  No wonder CNN’s ratings (MSNBC’s also) have gone down the tubes – and will stay there until they bring credibility back to the newsroom.  Don’t hold your breath!”

“A$AP Rocky released from prison and on his way home to the United States from Sweden.  It was a Rocky Week, get home ASAP A$AP!”

I couldn’t give a flying blank about this guy...and it’s pathetic President Trump does, especially at the expense of relations with Sweden.   But he likes Kim Kardashian’s ass.

Wall Street and the Trade War(s)

The stock market plunged Wednesday despite the Fed announcing its first interest rate cut since 2008, as Chairman Powell signaled that the quarter-point cut was an “adjustment” and not the beginning of a “lengthy cutting cycle.”

The Dow Jones fell more than 400 points (closing down 333) as Fed watchers fretted that the punch bowl wasn’t getting many more free refills.

Powell did not perform well in his press conference at the conclusion of the Open Market Committee’s two-day meeting and was left scrambling to clarify some of his comments.

“Let me be clear.  I said it’s not the beginning of a long series of rate cuts.  I didn’t say it’s just one or anything like that.”

In addition, the Fed also said it’s halting its balance sheet reduction – two months earlier than planned.

The Fed cited “uncertainties” in the global economy and “muted inflation pressures” as reasons for the cut, while noting that U.S. economic activity has been rising at a “moderate rate.”

The policy statement indicated the Fed could cut rates again in the months ahead by saying that as it “contemplates the future path” of its policy rate, “it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

Eight of 10 Fed officials voted in favor of the cut, while two officials dissented from the decision in favor of holding rates steady.

President Trump told reporters Tuesday, “The Fed moved, in my opinion, far too early and far too severely,” adding that he would like to see a “large cut” at the conclusion of Wednesday’s meeting, and then he got just a quarter-point.

After the Fed acted, Trump tweeted:

“What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world....

“....As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation.  We are winning anyway, but I am certainly not getting much help from the Federal Reserve!”

Earlier, on the economic data front, June personal income was up a solid 0.4%, with consumption up 0.3%, both basically in line with estimates, the core-PCE (personal consumption expenditures index...the Fed’s preferred inflation barometer) was just 1.6% year-over-year.

Wednesday, though, the Chicago purchasing managers’ index for July was a putrid 44.4 (50 being the dividing line between growth and contraction), the lowest in 4 ½ years, and well below forecasts.  The next day the national ISM reading on manufacturing was 51.2, the lowest since August 2016.

June construction spending was down an unexpected 1.3%, while factory orders for the month were in line, up 0.6%.

And then today we had the July employment report, the economy creating 164,000 jobs, basically in line, though May was revised down 10,000 to 62,000, and June was lowered from 224,0000 to 193,000, meaning the three-month average is 140,000, which is still good, but nowhere near as strong as last year.

[The monthly average for the first seven months of 2019 is 165,000.  For 2018 it was 223,000.]

U6, the underemployment rate, is 7.0%, near its all-time low of 6.8%.  This is important.

Average hourly earnings ticked up to a 3.3% annualized rate, which is solid.

The thing is, befitting the poor manufacturing PMI data (including in Europe and Asia, see below), manufacturing employment has been drying up to only 8,000 a month vs. 22,000 in 2018.

Yes, the consumer is really the key, 70% of the economy, and not manufacturing, but it’s a problem owing in no small part to trade tensions, all over the world.

At least Wall Street won’t have to deal with the debt-ceiling or budget deficit issues, with the Senate joining the House in approving the $2.7 trillion spending agreement negotiated between Speaker Nancy Pelosi and the White House, sending the deal to the president’s desk for his signature. 

The House had approved the two-year agreement by a 284-149 margin, with 219 Democrats and 65 Republicans approving of the plan.

The Senate then passed it 67-28 with more Democratic votes than Republican.

The plan will raise the nation’s debt ceiling through 2021 as well as raise caps on federal spending for the next two years.  Lawmakers will still have to enact additional legislation to determine how and where the money will be spent.

But many Republicans voiced opposition to the plan for lifting the spending caps, resulting in $320 billion in additional spending, with only $77 billion in cuts.

Sen. Rand Paul (R-Ky.) dubbed the bill’s passage the “final nail in the coffin” of the tea party movement and fiscal responsibility.  I can’t disagree with him on this.  Fiscal conservatives made themselves scarce during the debate.

Senate Majority Leader Mitch McConnell (R-Ky.) tried to frame the deal as the best compromise that could be reached in a divided government.

President Trump: “Budget Deal is phenomenal for our Great Military, our Vets, and Jobs, Jobs, Jobs!  Two year deal gets us past the Election.  Go for it Republicans, there is always plenty of time to CUT!”

[Not during the term of this deal, Mr. President.]

Turning to the Trade issue, as noted, President Trump tweeted Thursday:

“Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing.  More recently, China agreed to...

“...buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die!  Trade talks are continuing, and...

“...during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%...

“...We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!”

The announced tariffs on another $300 billion of Chinese imports means nearly all goods from China will be subject to import taxes, with Trump continuing to say they generate billions of dollars in revenues for the U.S. Treasury from China.  But that is not how tariffs work.

China’s government and companies in China do not pay U.S. tariffs directly. Tariffs are a tax on imported products and are paid by U.S.-registered firms to U.S. customs when goods enter the United States.  Importers often pass the costs of tariffs on to customers – manufacturers and consumers in the U.S. – by raising their prices.

U.S. business executives and economists say U.S. consumers foot much of the tariff bill.  That was why, immediately after Trump announced his decision, U.S. retailers blasted the move as “another tax increase on American businesses and consumers,” which they warned would threaten U.S. jobs and raise costs for American families.

The new levies will hit a wide swath of consumer good from cell phones and laptop computers to toys and footwear.

Clearly, the trade war has been impacting business confidence and investment, with the latter falling 0.6 percent in the second quarter, its worst performance in more than three years, even as the consumer remained strong (consumption up 4.1% in Q2).

Former National Economic Council director, Gary Cohn, told the BBC that “everyone loses in a trade war.”  Constant uncertainty about tariffs stops businesses from investing, he said, while the import levies drive up the cost of importing crucial products from China, negating the intended benefits of Trump’s tax cuts.

“When you build plant and equipment, you’re buying steel, you’re buying aluminum, you’re buying imported products and then we put tariffs on those, so literally the tax incentive we gave you with one hand was taken away with the other hand,” Cohn said.

For its part, China continues to insist that all tariffs be lifted as part of a deal before they would deliver on any reforms, something the U.S. has said it would not commit to.

China’s new ambassador to the United Nations, Zhang Jun, said today that if the United States wanted to fight China on trade, “then we will fight” and warned that Beijing was prepared to take countermeasures over the new U.S. levies.

Zhang described Trump’s move as “an irrational, irresponsible act” and urged the United States to “come back to the right track.”

“China’s position is very clear that if the U.S. wishes to talk, then we will talk; if they want to fight, then we will fight.  We definitely will take whatever necessary countermeasures to protect our fundamental right, and we also urge the United States to come back to the right track in finding the right solution through the right way.”

Zhang served as an assistant minister for foreign affairs before beginning his role as UN ambassador.  So he was asked by reporters today if China’s trade relations with the U.S. could harm cooperation between the countries on dealing with North Korea.  Zhang said it would be difficult to predict, but he added: “It will be hard to imagine that on the one hand you are seeking the cooperation from your partner, and on the other hand you are hurting the interests of your partner.”

Editorial / Wall Street Journal

“One problem with President Trump’s China trade strategy of gradually escalating tariffs is that no one knows when or whether they’ll stop.  Mr. Trump’s tariff ratchet is now 18 months old, and on Thursday he escalated again with a 10% levy on $300 billion of additional Chinese imports on September 1.

“This is the third round of tariffs on China, and this time the border tax will hit consumer goods such as cellphones, laptops and tablets, clothing and toys. The stock market went into reverse on the news, but that isn’t the biggest economic risk.  Bond yields also fell and oil fell nearly 8%, both warnings of slower growth in China and perhaps around the world....

“As we learned from the second quarter GDP report, tariffs result in mutual pain. They’ve hurt U.S. exports and contributed to what is close to a global recession in manufacturing.

“Mr. Trump’s Thursday tweets on China were respectful and anticipated further bilateral trade talks.  But the President is embarked on a high-risk coercive showdown with the world’s second largest economy in which neither side wants to bend first. Trade wars aren’t easy, especially for the innocent economic bystanders.”

There is another serious trade issue in Asia, the spat between South Korea and Japan that only grows worse.

South Korea fired back on Friday, pledging it would not be “defeated again” by its neighbor, laying bare decades-old animosity at the root of a row over fast-track export status.

Addressing his ministers today during a rare live television broadcast of his cabinet, President Moon Jae-in threatened countermeasures after Japan’s cabinet approved the removal of South Korea’s fast-track export status from Aug. 28.

“We won’t be defeated by Japan again,” Moon told his cabinet, pointedly invoking South Korea’s difficult history with Japan, which colonized the Korean peninsula before World War II.

Cutting South Korea from a so-called “white list” of favored export destinations could require Japanese exporters to obtain permits, potentially slowing down exports of a wide range of goods that could be used to produce weapons.

Japan said it took the move to tighten curbs on exports to South Korea of three high-tech materials needed to make memory chips and display panels, threatening the global supply of chips.

Japan is worried South Korea is shipping some of the products to North Korea.  The “white list” contains 27 countries, including the United States, Germany and Britain.

Finally, this afternoon, President Trump signed a minimal deal with the European Union to sell more U.S. beef to Europe, an event at which he startled participants by joking that his administration was working “on a 25% tariff on all Mercedes-Benz and BMWs coming into our nation.”  He then said he was only kidding.

But later, Trump told reporters, “The EU has tremendous barriers to us.  They’re very, very difficult.”  The president said the threat of auto tariffs may have helped move the EU toward accepting the beef deal, but auto tariffs remain an option.

“Auto tariffs are never off the table,” Trump said.  “If I don’t get what we want, I’ll put on tariffs. ...If I don’t get what I want, I’ll have no choice but maybe to do that.”

The EU has said it is eager to work with the United States to reform the World Trade Organization and rein in China’s behavior on world markets, but would retaliate if Washington makes good on its threat to raise car tariffs, which would be a disaster for all.

Europe and Asia

We had a slew of economic news from the Eurozone (EA19) this week.  Eurostat issued a ‘flash’ reading on second-quarter GDP, up 0.2%, 1.1% annualized, which compares with Q1, which had quarter-over-quarter growth of 0.4%, 1.2% ann.  The annualized growth rate for 2018 Q3was 1.7%, so there has been steady deceleration.

Eurostat also issued a ‘flash’ estimate on inflation for July, 1.1%, ditto on core (ex-food and energy), which was down from 1.3% on both in June.

And the June unemployment figures were released for the EA19, 7.5%, the lowest since July 2008.

Germany came in at 3.1%, France 8.7%, Italy 9.7%, Spain 14.0%, Ireland 4.5%, Netherlands 3.4%, and Greece 17.6% (April).  [Eurostat]

The volume of retail trade for the EA19 in June compared with May was up 1.1%, up 2.6% year-over-year. 

But then you had the manufacturing data.  IHS Markit reported that the final eurozone manufacturing PMI for July came in at 46.5, vs. 47.6 in June.  Output and orders were both down markedly as confidence hit its lowest level since December 2012.

Germany’s manufacturing figure was just 43.2, an 84-month low; France 49.7; Italy 48.5; Spain 48.2; Netherlands 50.7; Ireland 48.7(75-month low); and Greece 54.6 (3-month high).

The U.K. came in at 48.0, unchanged from June and the third straight month below the neutral mark.    Uncertainty over Brexit is contributing to the sour tone.

Chris Williamson / IHS Markit:

“The Eurozone PMI dashboard is a sea of red, with all lights warning on the deteriorating health of the region’s manufacturers.  July saw production and jobs being cut at the fastest rates for over six years as order books continued to decline sharply.  Prices fell at the sharpest rate for over three years as firms increasingly competed via discounting to help limit the scale of sales losses....

“The downturn is being led by Germany, reflective of a further worsening condition in the auto sector and falling global demand for business equipment.  However, output is also falling in Italy, France, Spain, Ireland and Austria and is close to stalling in the Netherlands.  Greece notably bucked the deteriorating trend.

“Rising geopolitical concerns, including trade wars and Brexit, and worries about slower economic growth both domestically and internationally were all widely reported as having subdued current demand and hit confidence in the outlook.  The concern is that, while policymakers have become increasingly alarmed at the deteriorating conditions, there may be little that monetary policy can do to address these headwinds.”

Brexit / Boris Johnson:

Johnson’s Conservatives suffered a big loss in a by-election on Thursday, with the Liberal Democrats beating an incumbent Conservative, which leaves Johnson with a working majority in Parliament of exactly one. 

Now, with such a thin majority, the prime minister will have to rely heavily on the support of his own MPs and his partners in the DUP (the small party in Northern Ireland) to get any legislation passed in key votes.

It also means he has an even tougher time steering Brexit through Parliament and may increase the odds of a snap general election.

Speaking of Brexit, Johnson has been touring the four nations that make up the United Kingdom and the 2016 vote to leave the European Union has strained bonds between them.  A majority of voters in England and Wales backed leaving in the referendum, while those in Scotland and Northern Ireland voted to remain.

Scotland’s nationalist government wants to hold a vote on independence from the U.K. if Scotland is dragged out of the EU against its will.  Similarly, nationalists in Northern Ireland argue there should be a referendum on unification with the Irish Republic if there is a damaging no-deal Brexit.

Johnson continues to insist the U.K. is leaving the EU on the scheduled dated of Oct. 31, with or without a divorce deal.  But he doesn’t seem to grasp the dangers of a no-deal Brexit economically, particularly for Northern Ireland and its shared land border with the bloc.

The British government said it is setting aside more than $2.4 billion to prepare for leaving the EU, with the additional funds going to the hiring of 500 border officers, stockpiling essential medicines and other areas such as public information.

Both Britain and the EU have promised Northern Ireland there would be no hard border after Brexit, but they have disagreed on how to avoid it.

And businesses in Britain are simply seizing up, such as the vital auto sector, where there has been virtually zero investment in 2019 over the uncertainty of what would emerge post-Brexit, especially a no-deal.

Boris Johnson did receive some good news, with a Sunday Times poll showing there had been a “Boris bounce,” pushing support for his Conservatives to 31%, up six points from the previous poll, while Labour was on 21%, up two points.  The Liberal Democrats were at 20% and the new Brexit Party, led by Nigel Farage, was down four points to 13%, half its peak level in May.

Turning to Asia...China’s manufacturing sector stabilized in July.  The official government PMI came in at 49.7 vs. June’s 49.4.  The non-manufacturing/services reading was 53.7 compared with 54.2 in June.

The private Caixin manufacturing PMI rebounded to 49.9 in July from 49.4 in June, though the second month in a row that China’s manufacturing activity has shrunk.

In Japan, the manufacturing PMI came in at 49.4 in July, up slightly from June’s 49.3, a third successive month of deterioration.  Separately, the Cabinet Office cut the country’s forecast for the economy to 0.9 percent for the 12 months to March 2020, down from 1.3 percent forecast back in January.  The Bank of Japan voted to keep interest rates at minus 0.1 percent at a meeting this week as well.

South Korea reported a manufacturing PMI for July of 47.3 vs. 47.5 in June, signaling further deterioration in South Korea’s goods-producing sector.  Escalating tensions with Japan aren’t helping.  Exports also tumbled for an eighth straight month in July, down 11% from a year earlier, with persistently weak global demand and the escalating dispute with Japan.

Taiwan’s manufacturing PMI last month rose from a 91-month low, 45.5 in June, to 48.1 in July.

Street Bytes

--As alluded to above the S&P 500 and Nasdaq had their worst weeks since December, the S&P losing 3.1% to 2932, Nasdaq 3.9% to 8004.  The Dow Jones lost 2.6% to 26485.

The S&P and Nasdaq were down all five days, with the tech sector getting slammed as many of the big players receive a sizeable share of their revenue from China.

--U.S. Treasury Yields

6-mo. 2.00%  2-yr. 1.71%  10-yr. 1.85%  30-yr. 2.38%

The 10-year is at its lowest yield since 2016, and it was the sharpest weekly decline (from 2.07%) in 7 years.  The yield on the 30-year dropped from 2.59% to 2.38% in one week.

But in Europe, these are some of the week’s closing yields on their respective 10-year bonds, all-time lows.

Germany -0.50%
France -0.24%
Netherlands -0.39%
Italy 1.54%....with a debt to GDP of 135%
Spain 0.24%
Portugal 0.28%
Greece 2.01%....debt to GDP of over 180%
U.K. 0.55%

Unfathomable, I think you’d agree.

Japan’s 10-year yield is -0.18%.

--Oil prices gained after data on Wednesday from the Energy Information Administration showed U.S. crude stockpiles hit their lowest level since early November, with the week’s drawdown far larger than expected.

But then oil fell 8% Thursday, its worst day in four years, on reports global production was increasing, while trade tensions crimp growth and weaken demand. The price of West Texas Intermediate fell on the week to $55.23.

Related to the above...Exxon Mobil reported second-quarter results that beat expectations, but were sharply down from the year before, pressured by lower natural-gas prices and maintenance.

Revenue fell to $69.1 billion from $73.5 billion in the same quarter last year, but topping estimates.

Exxon said oil-equivalent production rose 7% to 3.9 million barrels a day, driven by growth from the Permian Basin.  Natural-gas volumes rose 5%.

Chevron reported second-quarter earnings that handily exceeded the Street’s estimate, though revenue fell short of forecasts. The company said worldwide net oil-equivalent production rose to 3.08 million barrels per day from 2.83 million a year ago, with U.S. production driven by production increases from shale, largely, in the Permian Basin in Texas and New Mexico.

--July seasonally adjusted annual U.S. auto sales came in at 16.89 million vs. 17.01 million last year and above consensus forecasts of 16.60 million.  Autodata said cars continue to lose share to SUVs, with GM posting a better-than-expected net profit on Thursday as high-margin pickup trucks, SUVs and crossovers helped overcome slowing sales in the United States and China.

GM’s profit from North America climbed 13% in the second quarter, and the company posted a 10.7% operating margin in the region – the highest in two years – helping offset weak China sales that more than halved its quarterly income from that market.

GM’s operating profit for the second quarter fell to $3 billion, better than expected, though revenue fell 2%.

GM warned China’s car market will continue to struggle.  Industry sales there fell 12% in the first six months of the year, and GM’s sank 15%, with income there falling 60% to $235 million.

--Profits at Fiat Chrysler rose by 14 percent in the second quarter, as demand for pick-up trucks in North America continued to surge.  Net profit was $880 million, even as group revenues fell 3 percent.

Profit in North America was $1.7bn even though deliveries fell 12 percent; FCA looking to reduce inventory at its dealerships.  The Ram pick-up was the only model to show growth in the first half of the year, up 28 percent, while the new Jeep Gladiator is exceeding expectations.

--In a statement released Monday, Capital One officials said a data breach impacted roughly 100 million people in the United States and 6 million in Canada.  The fifth-largest U.S. credit-card issuer said no credit card numbers or log-in credentials were compromised, but roughly 140,000 Social Security numbers of its credit card customers were obtained, or 20,000 more than the FBI’s estimate of 120,000, with approximately 77,000 bank account numbers also compromised.

Paige A. Thompson was charged Monday with a single count of computer fraud and abuse in federal court in Seattle after FBI officials linked her to online posts detailing the massive data theft on Twitter and Slack.

“I’ve basically strapped myself with a bomb vest,” Thompson wrote on June 18, according to the criminal complaint.  “F—king dropping capitol ones dox and admitting it.”

The FBI said Thompson was able to obtain the data via a “firewall misconfiguration” that allowed her to execute commands with a server that gave her access to data in Capital One’s storage space at a “Cloud Computing Company,” according to the criminal complaint. 

That company was identified as Amazon, which also reported that Thompson previously worked for Amazon Web Services.

An online tipster first contacted Capital One on July 17 about a potential vulnerability in its data, saying that leaked information appeared to be on a code-hosting site called GitHub.  Two days later, bank officials confirmed the breach.

Capital One chairman and CEO Richard Fairbank said, “While I am grateful that the perpetrator has been caught, I am deeply sorry for what has happened.”

But the breach, and Amazon’s involvement with its AWS arm, highlights the risks in cloud-computing, where you are relying on the likes of Amazon, Microsoft, and Google to do the work of configuring computers inside their own data centers.  Someone dropped the ball in building the firewall.

As for Ms. Thompson, she faces a maximum sentence of five years in prison and a $250,000 fine.

--Shares in Apple traded higher after the company reported better-than-expected results for its fiscal third quarter ended June 30.  The company posted revenue of $53.8 billion, up just 1% from a year ago but ahead of the Street’s consensus forecast.  The modest growth nonetheless reverses the 5% top-line decline in the March quarter. 

Apple said international sales were 59% of revenue in the quarter.

“This was our biggest June quarter ever – driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac and significant improvement in iPhone trends,” CEO Tim Cook said in a statement.  “These results are promising across all our geographic segments, and we’re confident about what’s ahead. The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services, and several new products.”

Service revenue in the quarter was $11.46 billion, up 12.6% from a year earlier; though down from 16% growth in the March quarter.  This isn’t good, Services expected to be the driver for Apple going forward.

Meanwhile, iPhone sales were $25.99 billion, down 11.8% from a year ago, though this was a smaller decline than the 17% drop in the previous quarter.

But all eyes were on the company’s comments regarding China, where sales were $9.16bn, down 4.1% from a year ago, which is viewed as a modest decline given the ongoing trade tensions, though Tim Cook emphasized that non-iPhone revenues for mainland China grew 17%.  But according to market research firm Canalys, Apple’s iPhone market share in China declined from 6.4% to 5.8%, as smartphone rival Huawei gained market share to become the top handset seller in the country.  Apple is also slowly losing market share to smaller competitors in China such as Xiaomi, Oppo and Vivo.

This was the first time since 2013 that iPhone sales did not account for a majority of Apple’s revenue in a quarter.  So it’s all about promoting new services to existing iPhone owners.

Some  believe the real growth will now come from Wearables, which includes the Apple Watch and AirPods, which saw revenue rise more than 50% in the quarter.

For the current fiscal fourth quarter, the company sees revenue of $61 billion to $64 billion.  Cook also confirmed on a conference call that a branded credit card will launch in August, Apple Card, which is a partnership with Goldman Sachs Group Inc.  Those services still mostly require the iPhone.

But now, no doubt the focus in the halls of Apple’s C-Suite is on China and any potential retaliation.  Apple shares hit $221 following the earnings news, but closed the week at $204 after Trump’s tariff announcement.

--Ryanair highlighted the issues of the Boeing 737 MAX grounding (ditto GE, below), as profits in the second quarter fell 21 percent vs. a year ago.  The airline blamed lower fares and higher fuel and staff costs, as well as Brexit concerns, which the giant discount airline said are weighing negatively on consumer confidence and spending, Germany and the UK experiencing weakness.

But Ryanair reiterated its confidence that the MAX aircraft, the first of which it expects to take delivery of next January at the earliest, will “transform” its business.

“We have great confidence that these ‘gamechanger’ aircraft (which have 4 percent more seats, but burn 16 percent less fuel and have 40 percent lower noise emissions) will transform our costs and our business,” CEO Michael O’Leary said.

But O’Leary added that the airline won’t see the expected cost savings really for another year, saying, “I am concerned that the MAX return to service keeps slipping.”

The current estimate to take 30 aircraft for summer 2020 could fall to 20, “which would significantly truncate our growth rate,” Mr. O’Leary said.

“It could move to 10 and it could move to zero if Boeing don’t get their s**t together pretty quickly with the regulator,” the colorful CEO added.

--Procter & Gamble Co. reported its highest quarterly sales growth in more than a decade, riding strong consumer spending on household staples.  The maker of Tide detergent and Pampers diapers said Tuesday that organic sales – which strip out currency moves, acquisitions and divestitures – rose 7% in the quarter.  About half the gains came from higher prices.  For P&G, the sales gain was the biggest since the 2008 recession.  The company credits its turnaround effort, which included slashing brands and jobs to streamline the organization.  Rivals Kimberly-Clark Corp. and Colgate-Palmolive Co. also reported solid quarterly results, though they didn’t quite measure up to P&G’s.

But the company had to take an $8bn charge to write down the value of the Gillette razor business it acquired 14 years ago; Gillette continuing to lose business to online startups such as Dollar Shave Club and Harry’s.  The company had to acknowledge it erred with a singular focus on creating more sophisticated razors with higher prices, which opened the door to lower-priced rivals.

--General Electric raised its 2019 forecast on Wednesday, helped by improvement in its industrial businesses, even as its latest earnings dipped into the red after two profitable quarters.

GE swung back to a loss in the second quarter as the cost of restructuring its ailing power business and the grounding of the Boeing 737 MAX drained more cash than expected from GE’s otherwise profitable industrial units.  GE makes the jet’s engines through a joint-venture, with the company expecting to take a hit of $400 million per quarter in the second half if the grounding continues. 

--Aforementioned Huawei Technologies Co. has seen a dramatic slowdown in sales growth as it deals with U.S. sanctions banning U.S. companies from working with Huawei.  Revenue at the telecommunications giant increased 13% in the June quarter to $32 billion, down from a 39% growth rate in Q1, according to Bloomberg News.

Chairman Liang Hu said the supply of critical components from the U.S. hasn’t resumed, despite Donald Trump’s proclamation in June that the company would be able to buy some American technology again.  For example, the U.S. government hasn’t given Google approval to supply the Shenzhen-based giant with the Android software, which is essential for mobile phones it wants to sell globally.  Liang said in an interview that Huawei can roll out its own software to install on devices if it remains blocked from the world’s most popular smartphone operating system.

Liang said in an interview with Bloomberg, “If we are not able to use Android for our new smartphones, we have the ability to develop our own operating system.”

Huawei has been preparing for the worst and is pulling out all the stops right now to boost sales, assigning as many as 10,000 engineers across three shifts a day to work on alternatives to American software and circuitry.

--Citigroup Inc. is preparing to cut hundreds of jobs in its trading division, in a further sign of an industrywide slump in revenue this year that may be more permanent.  Citi plans to slash jobs across its fixed-income and stock-trading operations over the course of 2019, according to Bloomberg, including at least 100 in its equities unit, or about 10% of the division’s workforce.

--Barclays PLC said it cut 3,000 jobs in the second quarter and is planning further reductions as net profit fell 19%.  The shares have been falling all year, about 17%, as investors question whether the bank’s mix of consumer, business and investment banking can produce stable returns.

Of particular concern is the impact of a potential no-deal Brexit. The bank is one of the U.K.’s largest lenders to companies and households.

--My neighbor across the street, Celgene, reported adjusted earnings of $2.86 a share, well above estimates, with revenue of $4.40bn also exceeding expectations.  Revlimid, a cancer drug (treatment of multiple myeloma), accounted for $2.7bn of Celgene sales.

The company raised its outlook for 2019, but the shares barely moved, though they’ve had a nice rally off the bottom earlier in the year on the announcement the company was being acquired by Bristol-Myers Squibb; the transaction expected to be completed by early 2020.

--Lowe’s Co. eliminated thousands of store workers this week as the company began outsourcing tasks such as assembling barbecue grills and janitorial services.

Each of Lowe’s roughly 1,800 U.S. stores has several staff members doing these jobs.  Laid off employees, including full-time staff with years of service, aren’t being paid severance, but instead are being offered “transition pay” of just two weeks for full-time workers.

Lowe’s employed 190,000 full-time and 110,000 part-time workers as of Feb. 1.

Traditional retailers are forced to closely examine their labor costs as they face increasing competition and adapt to consumers making more of their purchases online.  Plus, retailers are under pressure to increase their hourly wages to attract workers in a tight labor market.

--Shares in Heineken fell sharply after the brewer reported profits that failed to meet expectations.  But revenues rose across all regions.  The issue on the profit side was rising production costs, up 8.5 percent in the first six months of the year, mostly on aluminum.  And mostly related to Brazil, where Heineken pays for the raw material in dollars, but the currency fell, hitting the brewer in one of its key markets.  The company  sees the situation improving in the second half.  The pain is separate from the likes of Anheuser-Busch InBev and Molson Coors, where imports of the metal into the U.S. have been subject to a 10 percent tariff imposed by the Trump administration.

Weather has been an issue for Europe and major consumer-goods companies, and Heineken and its ilk are waiting to see if Europe’s record temperatures in July boosted demand in the third quarter.

--Uber said it laid off a third of its marketing team on Monday, 400 people, as the ride-hailling company tries to cut costs and streamline operations following its launch as a public company in May.  During its IPO roadshow, the company faced questions from Wall Street about whether it could ever make money.  Uber shares remain under its offering price.

--Beyond Meat Inc. said sales of its plant-based burgers and sausages continued to surge, though the company’s shares plummeted following news BYND was preparing to issue more stock, which was indeed the case days later.  [The company’s share price ended last week at $235, but closed today at $177.]

But for the quarter, the company said it was on track to deliver a profit this year, after adjusting for some expenses and taxes.  Beyond Meat also lifted its 2019 sales forecast to $240 million, nearly tripling 2018’s level.

Revenue for the quarter ended June 29 climbed to $67.3 million as Canadian and European grocery stores added Beyond Burgers and the company introduced a ground-beef replacement, which CEO Ethan Brown said consumers have been using in meatloaf and tacos.

U.S. retail sales of plant-based foods, from imitation burgers to soy milk, have climbed to $4.5 billion, rising about 11% over the 52 weeks ended April 21, 2019, outpacing general growth in retail food sales by more than five times, according to data from market-research firm Spins and plant-based trade groups released earlier this month.

But in the case of Beyond Meat, there are a slew of competitors entering the market, including Nestle, Unilever and Tyson, while veggie burger brands like MorningStar Farms and Boca are reformulating their offerings and launching new products.  [Jacob Bunge / Wall Street Journal]

--Yum Brands, the owner of KFC, Taco Bell and Pizza Hut restaurants, reported strong second-quarter results Thursday.  Comparable-store sales growth of 5% exceeded expectations, with earnings topping estimates as well.

Comp sales at KFC and Taco Bell rose 7% and 6%, respectively.  Pizza Hut’s rose 2%.

--Shares in Kellogg surged as the company beat second-quarter profit estimates, as well as sales, as investments in marketing and product development bore fruit.  Sales at Kellogg’s North America business rose 1%, driven by higher demand for Pringles, Pop-Tarts and Rice Krispies.

--“Once Upon a Time...in Hollywood,” the new film from Quentin Tarantino, with Leonardo DiCaprio and Brad Pitt, had a strong initial weekend, selling about $40.4 million tickets in the United States and Canada from Thursday night to Sunday.  A win for both Sony, the distributor, and director Tarantino.

But Disney’s “The Lion King,” the realistic remake, sold $75.5 million tickets domestically in its second weekend.  The movie picked up another $142.8 million internationally, bringing its cumulative global total to a whopping $962.7 million.  Good lord!

--We note the passing of legendary Broadway producer and director Hal Prince, 91.  Prince had his first hit with 1955’s “The Pajama Game,” and from there, it was a steady stream of all-time successes: “Damn Yankees,” “West Side Story,” “Fiddler on the Roof” and “Cabaret.”

Prince then collaborated with Andrew Lloyd Webber on “Phantom of the Opera.”  What a career.  The world thanks Mr. Prince.

Foreign Affairs

Iran: The Trump administration announced Wednesday it will sanction Iranian Foreign Minister Mohammad Javad Zarif, a move that ratcheted up tensions and narrowed the window for discussions with the Islamic Republic.

President Hassan Rouhani said Thursday the decision to impose sanctions on Zarif showed Washington is afraid of the top diplomat.

“They [Americans] are resorting to childish behavior... They were claiming every day ‘We want to talk, with no preconditions’ ...and then they sanction the foreign minister,” Rouhani said.  “This means they have lost the power of rational thought.”

“A country which believes it’s powerful and a world superpower is afraid of our foreign minister’s interviews,” Rouhani said in an apparent reference to numerous interviews Zarif gave to U.S. media when he visited New York for a United Nations meeting in July.

“When Dr. Zarif gives an interview in New York...they [Americans] say Iran’s foreign minister is misleading our public opinion,” Rouhani said.  “What happened to your claims of liberty, freedom of expression and democracy?”

“The pillars of the White House are made to tremble by the words and the logic of a knowledgeable and self-sacrificing man,” Rouhani said.

Zarif, long viewed as relatively ‘moderate,’ was Iran’s chief negotiator for the 2015 nuclear deal, and his blacklisting throws into doubt any future diplomatic efforts between Washington and Tehran and could be a victory for Iran’s hardliners who have long sought to aggressively push back against the Trump administration.  Zarif has advocated a more cautious approach.

But he said on Wednesday that Iran would continue to cut its commitments to the nuclear deal unless its European partners move to protect it from U.S. sanctions by ensuring it can sell oil and receive income.

Separately, Yemen’s Iran-backed movement said it launched missile and drone attacks Thursday on a military parade in Aden, the seat of the Saudi-backed government, that left at least 32 dead.  The Houthis claimed they launched a medium-range ballistic missile and an armed drone at the parade, which it described as being staged in preparation for a military move against provinces held by the movement.

Afghanistan: The Washington Post reported today that the Trump administration is preparing to withdraw thousands of troops in exchange for concessions from the Taliban, including a cease-fire and a renunciation of al-Qaeda.

U.S. officials say the agreement, which would require the Taliban to begin negotiating directly with the Afghan government on a larger peace deal, could cut American troop strength in the country from 14,000 to between 8,000 and 9,000.

The plan is being hatched after months of negotiations between the Taliban and U.S. envoy Zalmay Khalilzad, who was tasked by the administration last year to jump-start talks.

Any agreement of the kind being discussed will be met by skepticism, but any deal would see bipartisan support in a U.S. Congress that increasingly wants to see an end to the war.

Khalilzad said in a tweet Wednesday that he plans to resume his next round of talks with the Taliban in Qatar soon and that if the group does its part, an agreement will be finalized.

State Department officials told the Post that any breakthrough hinges on an agreement on four issues: counterterrorism assurances, troop withdrawal, intra-Afghan dialogue and a comprehensive cease-fire.  Khalilzad said last spring that any accord would not be achieved “until everything is agreed.”

But today, the violence continues.  Last Sunday, a Taliban attack in Kabul left at least 20 dead.

On Monday, two U.S. soldiers were killed in Uruzgan province in what officials have described as an “insider” attack by an Afghan soldier, bringing the number of American troops killed in the country this year to 14.

The UN also announced this week that last year was the deadliest for civilians during the entirety of the conflict, with 3,804 civilian deaths and 7,000 wounded.

In the first six months of this year, another nearly 1,400 civilians have been killed, with Afghan, American-led forces, and the Taliban all responsible.  Airstrikes resulted in 363 civilian deaths, according to the UN.

Meanwhile, Hamza Bin Laden, the son of al-Qaeda founder Osama Bin Laden, died in an air strike, various media outlets reported citing intelligence officials.  The place or date of death wsa unclear and the Pentagon didn’t comment (nor President Trump).

Bin Laden, thought to be about 30, had released audio and video messages calling for attacks on the U.S. and other countries.  There was no confirmation from al-Qaeda.

There have also been conflicting reports on al-Qaeda’s strength these days.  Some say they have used the focus on ISIS to lay low and rebuild.  Others say the organization has more or less collapsed.  I would believe the former.

Syria: A no-airstrikes ceasefire in northwest Syria went into effect today, with the Syrian Observatory for Human Rights saying there were no government or Russian air raids, after more than 400 civilians had been killed in airstrikes since April, with more than 440,000 uprooted, according to the United Nations.

Ceasefire talks have been taking place in Kazakhstan.  Such cessations have been tried in the past and failed.

China / Hong Kong: As alluded to in my opening, China’s powerful military issued a stern warning to protesters in Hong Kong Wednesday – vowing to defend the nation’s sovereignty and maintain stability against “intolerable” demonstrations that have racked the semi-autonomous territory for weeks.

“We resolutely support the action to maintain Hong Kong’s rule of law by the people who love the nation and the city, and we are determined to protect national sovereignty, security, stability and the prosperity of Hong Kong,” said Chen Daoxiang, commander of the People’s Liberation Army garrison in Hong Kong.  In an extraordinary rebuke at a Chinese army event in Hong Kong Wednesday, Chen, in describing the protests as “intolerable, added the military was ready to support Chinese sovereignty and keep order.

The PLA also issued a video to bolster its strong words, including images of Chinese military troops shooting tear gas at pretend rioters.

Claudia Rosett / Wall Street Journal

“Protesters in Hong Kong have delivered the most stunning rebuke to Chinese tyranny since the Tiananmen Square uprising of 1989.  The question now, after eight weeks of demonstrations, is whether China’s dictator, President Xi Jinping, will respond with the same brute military force used to crush that democracy movement 30 years ago.  Serious observers worry the backlash is coming.

“For Mr. Xi, who took power in 2013, the situation in Hong Kong presents an immediate threat to his domestic political legitimacy. State repression, bolstered by staggering levels of high-level surveillance, has increased under his rule.  In China’s western province of Xinjiang, despite international protest, the regime has for two years been dishing out torture and forced political indoctrination to an estimated one million Uighur Muslims held in internment camps. Dealing harshly with Hong Kong’s protest movement would remind the city’s residents – and the rest of China – who’s boss.

“Mr. Xi’s main concern is preventing the protest movement from spreading to the mainland.  Faced with legislation that would allow extradition to China, Hong Kong’s protesters reject the horrors of Beijing’s one-party rule.  That sentiment also simmers among the 1.4 billion people of the mainland, where Beijing deploys legions of censors and security agents to keep the population under control.  Mainland Chinese may not agree with the protesters’ methods or even their goals, but they visit Hong Kong by the millions every month.  Many are aware that Hong Kong’s people are defying Beijing and getting away with it....

“Mr. Xi’s strategic calculation may be influenced by the embarrassing fact that the protests have grown even as China tries to tighten its grip.  A young generation of savvy Hong Kongers is crowdsourcing tactics over the internet, gleaning lessons from recent uprisings in Ukraine and elsewhere.  Unfortunately, Beijing’s precedent for dealing with a protest on this scale is Tiananmen. The most defiant demonstrators for democracy were shot, jailed or exiled.  The millions who marched or sympathized were terrorized into submission.  While the slaughter of June 4, 1989, horrified much of the world, for China’s Communist Party it was a success. The challenge to its power was swept away. After a brief scolding from the international community and the imposition of some short-lived U.S. sanctions, the world soon moved on.

“Beijing has kept thousands of troops garrisoned in Hong Kong since the 1997 handover and is now laying the propaganda groundwork for a military crackdown.  Last Wednesday China’s Defense Ministry told the press it would be legitimate for Hong Kong’s government to invite the People’s Liberation Army to maintain public order....

“If the U.S., Europe or any of the world’s democracies have a plan to keep China’s jackboot off Hong Kong’s throat, now would be the time to try it out.  Abandoning the freedom-loving people of Hong Kong in their hour of need would send Mr. Xi a dangerous message.  He would view it as an invitation to send the People’s Liberation Army on its next adventure.”

Separately, Beijing is suspending the issuance of permits for individual Chinese tourists to travel to Taiwan ahead of a divisive presidential election on the island in a further move to increase tensions with Taipei.

The provision does not cut off all visits by Chinese citizens to Taiwan, as business, student and group travel are organized under separate arrangements.  More than 2.5m Chinese residents visited Taiwan last year.

The presidential election on the island is slated for January, with independence-leaning incumbent Tsai Ing-wen running against pro-Beijing candidate Han Kuo-yu.

Shi Yinhong, professor of international relations at Renmin University in Beijing, told the Financial Times: “It’s a declaration to the Taiwan people that if they elected Tsai Ing-wen in 2020...the two sides won’t have normal non-governmental exchanges in the future.”

North Korea: Kim Jong Un and his Orcs have now launched missiles three times in just over a week after two more short-range missiles were fired early on Friday local time.  The string of tests are being seen as a reaction to planned military exercises between South Korea and the U.S.

On Thursday, the UK, France and Germany called on North Korea to engage in “meaningful” talks with the U.S.

After a closed-door meeting at the UN Security Council, the countries said international sanctions needed to be fully enforced until Pyongyang had dismantled its nuclear and ballistic missile programs.

The latest launches were of missiles that appeared to be of a new type, with South Korean officials saying they flew very low and traveled about 165 miles at a great rate of speed.  The launch site also appeared to have been a new one.

Wednesday, Pyongyang launched two missiles that flew higher and farther.  July 25, the North had fired two other missiles, one of which traveled 430 miles.  That launch was the first since President Trump and Kim held an impromptu meeting in June at the DMZ.

North Korea has been voicing anger over the U.S.-South Korean exercises, an annual event that the allies have refused to cancel, but have scaled back significantly. 

Pyongyang sees the drills as preparation for war, calling them a “violation of the spirit” of the joint statement signed by Trump and Kim at their face-to-face talks in Singapore last year.

Secretary of State Mike Pompeo said on Monday that he hoped talks could start up again “very soon,” but that there were no further summits planned.

For his part, President Trump has pooh-poohed the recent tests, telling reporters yesterday, “I think it’s very much under control. Very much under control.”

But North Korea is violating UN Security Council resolutions.

This afternoon, President Trump tweeted:

“Kim Jong Un and North Korea tested 3 short range missiles over the last number of days.  These missiles tests are not a violation of our signed Singapore agreement, nor was there discussion of short range missiles when we shook hands.  There may be a United Nations violation, but...

“...Chairman Kim does not want to disappoint me with a violation of trust, there is far too much for North Korea to gain – the potential as a Country, under Kim Jong Un’s leadership, is unlimited.  Also, there is far too much to lose.  I may be wrong, but I believe that...

“...Chairman Kim has a great and beautiful vision for his country, and only the United States, with me as President, can make that vision come true.  He will do the right thing because he is far too smart not to, and he does not want to disappoint his friend, President Trump!”

Russia:  The U.S. is formally withdrawing from the Intermediate-Range Nuclear Forces Treaty (INF) that was signed by President Ronald Reagan and Soviet leader Mikhail Gorbachev in 1987.  It banned missiles with ranges between 310-3,400 miles.

But earlier this year the U.S. and NATO accused Russia of violating the pact by deploying a new type of cruise missile, which Moscow has denied.

The U.S. said they had evidence Russia had deployed a missile – known to NATO as the SSC-8 – that NATO then backed.  Last February, President Trump gave Moscow until Aug. 2 to come into compliance.  Instead President Vladimir Putin suspended his country’s own obligations to the treaty shortly afterwards.

Analysts fear the collapse of the historic agreement will lead to a new arms race between the U.S., Russia and China.

Pavel Felgenhauer, a Russian military analyst, told Agence France Presse: “Now that the treaty is over, we will see the development and deployment of new weapons.  Russia is already ready.”

Last month, NATO Secretary General Jens Stoltenberg told the BBC that the Russian missiles were in “clear violation of the treaty” – were nuclear-capable, mobile, very hard to detect, and could reach European cities within minutes.

“This is serious,” he added.  “The INF treaty has been a cornerstone in arms control for decades, and now we see the demise of the treaty.”

Stoltenberg said that any decision by NATO on how to respond would come after the deadline.

There is another key treaty – the New Start treaty – that limits long-range nuclear weapons and that is set to expire in February 2021.  Its survival is far from certain.

Separately, Russia opposition leader Alexei Navalny was discharged from a Moscow hospital on Monday and returned to prison under guard after being treated for what his lawyer and doctor have described as suspected poisoning from a chemical agent.

Navalny, 43, was rushed to hospital from jail on Sunday with what his spokeswoman said were signs of an acute allergy with “severe swelling of the face and skin redness.”

Navalny’s lawyer told reporters: “He was really poisoned by some unknown chemical substance.  But what the substance was has not been established.”

His personal doctor said she had taken samples of his hair and a T-shirt to be tested at an independent laboratory for signs he had been poisoned.

Navalny had been ordered to serve a 30-day sentence for violating tough protest laws after urging people to take part in a Moscow demonstration on Saturday, with police then detaining more than 1,000 (as many as 1,400) people for what they said was an illegal event.  It marked one of the biggest crackdowns in recent years against an increasingly defiant opposition decrying Vladimir Putin’s tight grip on power.

The unauthorized march protested the exclusion of several opposition candidates from an upcoming election.  Chants of “We demand fair elections,” “Russia without Putin” and “Putin resign” echoed through central Moscow.

Nigeria: At least 65 people were killed in Nigeria’s northeastern state of Borno after Boko Haram militants targeted civilians on their way from a funeral, state television reported.

Random Musings

--Presidential tracking polls....

Gallup: 44% approval of Trump’s job performance, 51% disapproval (Jul 1-12), 90% Republicans, 38% independents
Rasmussen: 48% approval, 50% disapproval (Aug. 2)

Prior to the debates, Quinnipiac University released a new national poll and among Democrats and independent voters who lean Democrat, Joe Biden polled 34%, followed by Elizabeth Warren 15%, Kamala Harris 12%, and Bernie Sanders at 11%.  [Pete Buttigieg 6% and Beto O’Rourke and Andrew Yang 2% each.]

In a July 2 Quinnipiac national poll, Biden was at 22%, Harris 20%, Warren 14% and Sanders 13%.

So the post-first debate (June 27) surge for Harris faded as Biden regained his footing.

Now national polls are pretty meaningless in terms of the looming primaries, but they obviously impact who will be on the debate stage, for one, and in terms of Donald Trump, Quinnipiac found that only 32% of all American voters said they “definitely” will vote for Trump, with 54% saying they “definitely” will not for him, matching the “never Trump” total from a May 21 Quinnipiac survey.

Trump’s job approval is 40% in this one, 54% disapproval.  On June 11, the split was 42-53.

--The Democratic Debates in Detroit:

I watched the entire two nights and what did we learn?  There are major divisions on policy – especially on healthcare, as well as immigration and trade, and whether the House should proceed with a formal impeachment investigation of Donald Trump.

Joe Biden did what he had to do to stop the bleeding after his first debate performance, though polls prior to Wednesday night in Detroit showed he was already doing that (such as Quinnipiac’s).  Biden seemed to have learned from his first clash with Kamala Harris and he was ready for her, though both Harris, who had a poor night Wednesday, and Cory Booker (who had a good one) blasted Biden’s record on criminal justice reform.  And Julian Castro took shots at Biden on immigration, Jay Inslee went after him on climate change, and Kirsten Gillibrand questioned old comments he made about the place of women in the workplace.

But at least Biden mounted a vigorous defense of his policies and record.  So he stabilized things.

Tulsi Gabbard had a solid performance, unloading on Harris’ record as attorney general of California.

In the first night, both Elizabeth Warren and Bernie Sanders were winners for staying on message and defending their big-ticket progressive plans.  When former Congressman John Delaney and other lesser-known centrists tried to knock down her proposals, Warren was ready.

“I don’t understand why anybody goes through all the trouble running for president of the United States just to talk about what we really can’t do and shouldn’t fight for,” she said.

Warren now has two solid debate performances under her belt, and she will definitely begin to distance herself from Sanders on the far-left.

The two non-politicians – Marianne Williamson and Andrew Yang – were terrific, though neither is going to move the needle more than a point or two in the polls.    Williamson’s talk of a “dark psychic force” in the nation was mocked by some, but she clearly gave voice to those feeling particularly anxious about a second Trump term.

For his part, Yang did a good job distilling his one big issue – a universal basic income to address sweeping automation – into something that was understandable.

In Yang’s closing statement, he took a shot at the way these debates have been packaged.

“We’re up here with makeup on our faces, and our rehearsed attack lines, playing roles in this reality TV show. It’s one reason we elected a reality TV star as our president.”

Pete Buttigieg once again displayed his intelligence, but he just didn’t connect, whereas Cory Booker embraced the role of the ‘happy warrior,’ and it worked.

I was very disappointed that Amy Klobuchar, who is not only qualified to be president, but is pragmatic enough to be a potentially strong candidate against President Trump, did nothing to help her break into the top tier.  IF she qualifies for the September debate, and IF she hasn’t dropped out beforehand, she needs a superb performance to keep herself in the mix for vice president.  But with such low numbers, she wouldn’t stand a shot of being tabbed.  [Then again Biden was despite failing miserable in his runs for president, so what do I know?]

So at the end of the week, we have the top tier....Biden, Warren, Sanders and Harris, with Buttigieg a weak fifth.

And then we await the first polls to see if Cory Booker or, perhaps, Tulsi Gabbard, can at least get to 4 or 5 percent, which in such a big field would signal relevancy.  Julian Castro is another possibility, but speaking of vice presidential candidates, he’s not hurting his chances any with two solid debate performances.

So if the next debate’s field was limited to ten, you have eight who I believe should be on the stage, and then for entertainment value, we’ve got to get Williamson and Yang up there too.

[I like Michael Bennet and Gov. Hickenlooper, but they are obviously going nowhere.]

Beto O’Rourke did better on Tuesday, and I guess he could qualify for September (he apparently has), but Castro should be ahead of him.

Biden was mocked online after telling viewers in his closing statement to visit a phone number online, saying “go to Joe30330” rather than “text Joe to 30330,” setting off a flurry of jokes on the 76-year-old’s ineptitude with technology.

John Podhoretz / New York Post

“Biden was facing a pundit class that viewed his uncertain first debate performance as a harbinger of doom – one more bad show and he’d be through. Well, toast he isn’t.  He won the debate hands down, in part because he had a ready parry for every thrust made at him by the rest of the field.

“Example: When Kirsten Gillibrand tried to make it out that he had somehow been hostile to working mothers, he pointed out that his late wife and his present wife had always worked and that in a joint appearance at Syracuse University, Gillibrand had praised him as a leader in this area.

“Bam.

“Gillibrand, by the way, was a cringe-inducing embarrassment.  In one answer on race, she seemed to suggest that she was well-equipped to deal with the issue because she could go to white people like herself and explain that if things were truly fair in this country, cops would be shooting their kids.

“And that wasn’t even the worst of it.  The worst of it was this Gillibrand quote: ‘I know how to beat Trump.  I ready did it.  I took a bus tour.’

“What about Bill de Blasio? I will simply say to the rest of the country: Now you know. Now you know what a schmuck we have in our City Hall.  We have two more years of this before he goes back permanently to his gym.  Pray for us.

“As for Harris:

“At the opening, she was unable to defend her heath care plan effectively against a very basic charge levied by Biden, that it would cost $3 trillion.  Any minimally prepared debater would have anticipated the attack and had a counter-salvo prepared.  She didn’t.

“That incompetence characterized nearly every word she spoke.

“She spent precious minutes complaining everybody on the stage was mischaracterizing her health care plan.  She violated Debate Rule 101: When you’re complaining, you’re losing.

“And when she went after Biden yet again on the supposedly monstrous crime bill, Biden simply told people to Google ‘thousands prisoners free Kamala Harris.’  When I did it, atop the search is a story from the Daily Beast headlined ‘Kamala Harris’ A.G. Office Tried to Keep Inmates Locked Up for Cheap Labor.’

“Boom.

“Cory Booker tried to go at Biden on crime as well, only to find himself attacked by Biden for his own police department’s stop-and-frisk policies. This all came after Booker complained the debate was dividing Democrats instead of bringing Democrats together against Donald Trump.

“Donald Trump’s team is doing a joyous jig because Biden said he would eliminate coal just as Hillary Clinton did – endangering Biden’s possibility of winning Pennsylvania back in 2020 should he be the nominee.

“Still, Biden’s got to get to that convention stage in July.  On night two of debate round two, Joe Biden moved closer to that goal.”

Podhoretz had the following on the first night of debates:

“Used to be that Republicans running for president had the monopoly on unknowns, also-rans and non-politicians who would suddenly step up and deliver standout performances in debates.

“It happened in 2008, when Mike Huckabee shot into the top tier with cracker barrel humor and cornpone wisdom and the libertarian crackpot Ron Paul ranted about foreign aid...

“Well, Tuesday night...the veteran New Age motivational speaker Marianne Williamson hit it out of the park and brought the Democratic Party into the Nutcase Era.

“The key problem afflicting America, in Williamson’s view, is a ‘dark psychic force’ that is weaving a racial divide.  It is the cause of white nationalism. That racial divide is causing an ‘emotional imbalance’ that is interfering with human thriving. And this betrays the purposes of the founding fathers, who brought America into being to allow us all to have ‘possibilities.’

“To most of us elitists, this either sounds wacko on its own terms or is dismissible as a semi-pagan illiterate translation of classic Christian thinking about the devil’s role in ordinary life.  But we dismiss the power of this approach at our peril. These are key themes not only through American history, but also ideas that have played a significant role in the Age of Oprah.

“Williamson has been speaking in this way to gigantic audiences for close to 40 years, under the East Coast radar.  And you know what? She’s really good at it.  And she brought real feeling and passion to the most visceral issue for Democrats at the moment.  She essentially said that racism and white supremacy are nothing less than demonic and that saving America from their evil is a moral task.

“ ‘I want a politics that goes much deeper,’ Williamson concluded.  ‘I want a politics that goes to the heart....We need to override dog whistles...We need to love each other, love our democracy.’

“Williamson won the debate going away, if only because her performance was so unexpectedly effective.”

--Republicans suffered a huge blow with the news that the only black congressman in the House, Will Hurd of Texas, was not running for reelection.  Hurd, who worked for the CIA, including as an operations officer in Southeast Asia, was a voice of reason in the party.

--The handpicked successor to disgraced Puerto Rico Governor Ricardo Rossello was sworn in on Friday after Rossello stepped down, but lawyer Pedro Pierluisi said his term as governor might be short-lived because the U.S. territory’s Senate still must approve his appointment when they convene Wednesday.

--I have always believed it is incredibly reckless for Vice President Pence to be continually accompanying the president on road trips outside the White House.  Heaven forbid something happens.  I don’t recall any other Veep making even a quarter of the joint appearances these two do.

--Last week I wrote of how distressing it was to see the recent rash of incidents of alleged misbehavior in the military, particularly within the elite Navy SEALs, and the group’s leader, Rear Adm. Collin Green sent a blistering letter to the force, writing in boldface type, “We have a problem.”

Green gave commanders until Aug. 7 to detail the problems they see and provide recommendations on how they will ensure troops are engaging in ethical and professional behavior.

The letter – dated July 25 and obtained by CNN Thursday – says in part:

“I don’t know yet if we have a culture problem, I do know that we have a good order and discipline problem that must be addressed immediately.”

Green said in the letter that “some of our subordinate formations have failed to maintain good order and discipline and as a result and for good reason,” the culture of the Navy’s special operations forces “is being questioned.”

--More than 200 reindeer were found dead on the Arctic island of Svalbard, in Norway, with the Norwegian Polar Institute concluding the reindeer died after climate change altered the conditions in the Arctic, according to Norwegian news outlet NRK last weekend.

Scientists found the bodies of the 200 last winter, all thinner than the average weight for the animal.

The main food source for the reindeer is vegetation lying underneath the snow, but, “Climate change is making it rain much more. The rain falls on the snow and forms a layer of ice on the tundra, making grazing conditions very poor for animals,” an ecologist with the institute, told the Guardian.

So the reindeer have to travel farther to graze, with the youngest and eldest dying first.

The institute does not, however, draw any conclusions on whether Christmas, at least package delivery by Santa, is at risk, Svalbard being the Stanford for reindeer who want to learn how to fly.

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Pray for the men and women of our armed forces...and all the fallen.

God bless America. 

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Gold $1452
Oil $55.23

Returns for the week 7/29-8/2

Dow Jones  -2.6%  [26485]
S&P 500  -3.1%  [2932]
S&P MidCap  -3.5%
Russell 2000  -2.9%
Nasdaq  -3.9%  [8004]

Returns for the period 1/1/19-8/2/19

Dow Jones  +13.5%
S&P 500  +17.0%
S&P MidCap  +15.1%
Russell 2000  +13.7%
Nasdaq  +20.6%

Bulls 57.2
Bears 17.1

Have a great week.

Brian Trumbore

 

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