Donald Trump’s unique and highly personal brand of industrial policy is bearing fruit, even before he takes office.
Bloomberg reports a number of U.S. companies already have called off or postponed plans to offshore operations in Mexico. That’s according to the CEO of Tacna, a California firm that helps companies build manufacturing facilities south of the border. Another, similar Texas-based firm says two of the five firms it is working with have put plans on ice. The main reason is Trump’s threat to slap a 35% tariff on their imported products – a threat which he has, as president, some authority to make good on.
Even more powerful than the “stick” of tariffs is the “carrot” of reduced taxes on overseas earnings, which is something the President cannot do unilaterally, but is looking increasingly possible in Congress next year. Apple alone has $181 billion locked overseas, and would probably be happy to move more of its operations to the U.S. if it could repatriate that cash at a lower tax rate.
That’s no doubt why yesterday’s Trump tech meeting turned out to be such a cordial affair, despite the fact that the tech industry lined up almost in lockstep behind Hillary Clinton.
Meanwhile, China sent a warning shot across the bow of ship Trump. A senior state planning official told the China Daily that it may slap tariffs on an unnamed auto maker for monopolistic behavior. Shares of both Ford and GM fell in response.
More news below.
• The Fed’s Dovish Tightening
The Federal Reserve indicated it expects to raise interest rates three times next year as the economy strengthens and inflation picks up. After yesterday’s 25 basis point hike, that would still leave the key Fed Funds rate below the forecast rate of inflation at the end of 2017, so to call its new stance ‘hawkish’ would be an exaggeration. It suggests that Janet Yellen (who plans to serve out her full term) won’t stand in the way of a stimulative fiscal policy under the new administration, or at least that she is relaxed enough about the inflation outlook to wait to see the size of any stimulus before reacting. It also suggests that the traditional relationship between unemployment and inflation is still deeply disturbed.
• The Dollar Marches Higher
The dollar hit its highest level in 14 years overnight in response to the Fed’s moves, surging against the yen, euro and sterling. It also hit its highest in over eight years against the Chinese yuan. Such moves invariably hit the biggest U.S. companies, with the biggest share of overseas revenue in their mix, the hardest, which goes some way to explaining why the Dow baulked at a run on the 20,000 level. But the bond rout is back on, with the yield on the 10-year Treasury note soaring to 2.63%, 15 basis points above where it was before the Fed announcement. The odds on a credit crunch in emerging markets next year are getting shorter.
• Sale! Sale! Sale!
One of the reasons for the lack of inflationary pressure in the economy is the desperation of much of the retail sector. Even though major retailers have tried hard to avoid over-ordering, they appear to have no confidence about shifting inventory without aggressive promotions. Data firm DynamicAction analyzed $4 billion in online transactions and found that 67% of orders placed online in November used a promotion, up from 38% last November. Only two of 21 retailers tracked by Instinet’s Simeon Siegel are relying less on promotions this year than they did last year, according to The Wall Street Journal.
• A Lump of Coal in Tsipras’ Stocking
The Eurozone took a dim view of Greek Prime Minister Alexis Tsipras attempts to play Santa. It suspended proposed debt relief measures for the country in reaction to Tsipras’ surprise move to pay bonuses to low-income pensioners and delay a sales tax hike. Both actions went against the conditions of its bailout. The issue will enliven today’s year-end EU summit, where discussions on what to do about the U.K., Turkey, an unabated stream of migrants and, of course, the new U.S. administration will compete for the leaders’ attention. Greece is, as ever, trying to exploit divisions between the Eurozone and the IMF, which is increasingly critical of the Eurozone’s hard line. After all, it’s a strategy that’s worked well for the last six years…
Around the Water Cooler
• Yahoo’s Breach of a Billion
Yahoo announced the discovery of yet another hacking incident that compromised one billion (sic) user accounts–the biggest such breach in history by a wide margin. The breach disclosed on Wednesday occurred in 2013 and, like the one in 2014, allowed the hackers to obtain personal information but not credit card details. The upshot is that anyone who uses Yahoo accounts for email or services like fantasy sports, should change their passwords immediately. The news will put further pressure on Verizon to revise the terms of its deal to buy Yahoo’s legacy businesses.
• California Bans Uber’s Self-Driving Cars
On the day that Travis Kalanick joined Donald Trump’s council of advisors, his company fell foul of regulators in its home state. The California Department of Motor Vehicles sent a letter to Uber on Wednesday ordering the company to “cease the operations” of its autonomous cars until it applies for and receives the testing permit required by the state. Uber responded that it did not need the permit, because its cars require a person to constantly monitor and take control of the wheel, thus avoiding the definition of autonomous. On Wednesday, local media aired a video captured by a bystander of a self-driving Uber running a red light. Uber said the incident was due to human error – suggesting that the car was not in autonomous mode – and the driver had been suspended.
• Lloyd’s of…Luxembourg? Lisbon? Limerick?
The venerable insurance market Lloyd’s of London is set to move its base to a new country in the EU next year, to ensure that it keeps full access to the European market after Brexit. Chairman John Nelson told the Financial Times that the market needed to act sooner rather than later to protect its business. The loss of such a big name will be a jolt to a British government that is still trying to pretend it can leave the EU’s Single Market without damaging business, in particular a financial services sector that is the country’s most internationally competitive and generates over 70 billion pounds ($90 billion) a year in tax revenue.
FT, metered access
• Christie’s Gets a New CEO
Christie’s, the world’s biggest auctioneer, has tapped a former manager from rival Sotheby’s to help steady its ship in a stormy market (revenues from fine art sales fell by one-third from last year in the first half of 2016). Guillaume Cerutti, a former chief of staff at the French Ministry of Culture and Media, had been deputy chairman for Europe at Sotheby’s until August last year. He quietly started work at Christie’s in September. In other management changes, Christie’s current CEO Patricia Barbizet returns to the Groupe Artemis holding company of Francois Pinault, Christie’s owner, in the role of CEO. Pinault himself will take over as chairman of Christie’s board.
WSJ, subscription required
Summaries by Geoffrey Smith Geoffrey.email@example.com;