The dollar is on a post-election tear against the Chinese yuan, which has fallen to its lowest level since 2008. After shaking off their election night surprise, markets seem to have concluded that Donald Trump has an opportunity to break the gridlock in Washington and pass some combination of infrastructure spending plus tax cuts that will stoke economic growth and push interest rates higher.
This may be getting a bit ahead of the game, but that’s what markets do. The irony, of course, is that candidate Trump attacked the Chinese for pushing their currency down in order to boost exports to the U.S., whereas in fact the People’s Bank of China has been intervening for most of this year to support it while private investors have sent their capital abroad. The PBoC’s foreign reserves have fallen by $210 billion this year. The election appears to be intensifying that trend. Not sure how that will affect Trump’s promise to label the country a currency manipulator on day one.
Meanwhile, Republicans in Congress are hoping their new leader softens his very hard position on trade. Kevin Brady, chairman of the House Ways and Means Committee, said yesterday he will continue to promote the benefits of free trade agreements, including the Trans-Pacific Partnership, which was much maligned by both candidates during the election.
Here’s Brady: “I hope that he allows us to make the case that to grow our economy, it’s just not enough to buy American. We have to sell American around the world…If we withdraw or abandon that field completely, we lose and China wins in a big way, so my advice to him will be to not withdraw (from TPP) but to renegotiate.”
Well said. News below.
• Profit-Taking Sets in Across Markets
Yuan weakness notwithstanding, the first leg of the Trump Rally appears to be officially over this morning, with the dollar retracing gains against most currencies, industrial commodities down, bond yields well off yesterday’s highs and stocks decidedly mixed. Strange to say, but there are factors apart from the election also at play: European GDP numbers disappointed in Germany (but beat expectations in Italy). Oil futures are recovering after a sharp slide on hopes that OPEC will after all agree to rein in output at the end of the month. But they’re still below $45 a barrel, down more than 10% from their recent highs.
• Google, Facebook Shut Stable Door; Horse Vanishes Over Horizon
Google and Facebook are struggling to come to terms with how their platforms allowed the spread of fake news, amid a chorus of outrage from anti-Trump sectors of the population over the perceived contribution that such hoaxes made to his election victory. Google said it will “restrict ad serving on pages that misrepresent, misstate, or conceal information about the publisher, the publisher’s content, or the primary purpose of the web property.” Facebook also updated its advertising policies to spell out that its ban on deceptive and misleading content applies to fake news. But as the row over hate speech on Facebook has shown, having a policy and enforcing it are two different things.
• SEC Head White to Step Down in January
Mary Jo White is to step down as head of the Securities and Exchanges Commission in January after a checkered term of just under three years. Wall Street firms’ stocks have soared since the election due in part to expectations of a lighter regulatory regime, and White’s departure will stoke expectations of a replacement who will embody such a policy shift. Partisan fights among her commissioners have frequently hamstrung the independent White, and her achievements have been overshadowed by an overhanging sense that those who caused the 2008 crisis and all its subsequent woe have largely escaped justice.
• Reynolds American Rejects BAT
Reynolds American has rejected as too low British American Tobacco’s bid of $47 billion for the 58% of the company that it doesn’t already own. The merger would create the world’s largest listed tobacco group and the only one with a major presence in both U.S. and global markets. According to Reuters’ sources, the two sides are still in talks.
Around the Water Cooler
• It’s Not Our Fault, It’s Theirs
For the first time in Amazon’s 20-plus year history, Amazon is suing merchants that are selling counterfeit items on its marketplace. The suits are good PR ahead of the crucial holiday season for a company whose core business is increasingly threatened by fakes (a threat it has indirectly encouraged by courting more Chinese manufacturers recently). Amazon has tried to put the genie back in the bottle recently by charging steeper fees and demanding additional paperwork from suspicious sellers. With bona fide manufacturers suffering real damage from such competition, Amazon will have to run hard to stay ahead of litigation risk.
• Buffett Dumps Wal-Mart for Airlines
New securities filings show that Warren Buffett’s Berkshire Hathaway has cut its stake in Wal-Mart by more than two-thirds to below $1 billion, which may go some way to explaining why the retail giant’s rally has run out of steam in recent weeks. Buffett appears to have rotated into airline stocks, buying Delta, United Continental and American Airlines (all of which ended Monday’s trading session comfortably higher). He’s also invested in Southwest since the deadline for the filing. It’s a remarkable change of heart for someone who called aviation “a death trap for investors” only three years ago.
• Kremlin Hawks Chalk up Another Win
One person who won’t be around long enough to enjoy the normalization of U.S.-Russian relations is Alexey Ulyukayev, the country’s economy minister. He was arrested Monday on suspicion of taking a $2 million bribe in return for waving through the acquisition of oil producer Bashneft by the national champion Rosneft. Ulyukayev’s act–if the reports are accurate–would be a betrayal of the economically liberal bloc of the government to which he belongs. Rosneft’s spin doctors are saying it was a sting. Nobody from their FSB-dominated ranks has been arrested for giving the bribe. The hawks in Russia’s government thus appear to be the likeliest winners from the affair.
• Adena Friedman Takes Over at NASDAQ
After Phupinder Gill’s surprise resignation from CME Group last week, Bob Greifeld said he would make way at the top of Nasdaq OMX for chief operating office Adena Friedman. The move is less mysterious than Gill’s: Friedman had been widely tipped to take over as CEO, and Greifeld will remain engaged, moving to the chairman’s seat. He’ll be a tough act to follow: Nasdaq’s market capitalization has risen from $600 million in 2003 to nearly $11 billion today.
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Summaries by Geoffrey Smith Geoffrey.firstname.lastname@example.org;