On Wednesday the U.S. revealed a new proposal for a tariff on uranium on the basis that imports threaten national security.  According to Wilbur Ross, “U.S. production of uranium necessary for military and electric power has dropped to 5 per cent of domestic consumption, from 49 per cent.” 

China's Commerce Ministry responded by saying China will have to take further measures in response to US tariffs.  China is concerned that tariffs will slow its economy, so it is taking proactive measures by giving its economy a shot of stimulus by incentivizing banks to expand lending.  News of this credit-fueled stimulus weighted on the Chinese Yuan.  As USD vs the Yuan (USD/CNY) hits 4-week highs, it is sending all major currencies lower against the USD.  The strong USD translated into a weak equity open this morning.  A strong USD has been a concern of multi-national companies as it makes their products more expensive for overseas customers to purchase.  There are concerns that China may be purposely weakening the Yuan vs. the USD in response to tariffs.  Just as a strong USD hurts overseas sales of U.S. multi-national companies, a weak Yuan makes Chinese goods cheaper for U.S. companies to purchase, hence enhancing their competitiveness.

Philadelphia Fed

Manufacturing in the Philadelphia region continued to expand in July.  New orders were stronger than June, while employment growth was less widespread.  Both number of employees and average workweek expanded at slower paces. 

Firms reported paying higher prices for inputs while receiving more for their own manufactured goods.  Inputs are expanding at a faster pace than finished goods (see chart below).   This coincides with comments in the Fed Beige Book that “the extent of pass-through from input to consumer prices remain slight to moderate.”  The main culprits for higher input prices were fuel, construction materials/lumber, freight and metals. 

One of the “special questions” asked respondents if they were planning plant shutdowns during the summer months?  The number of firms responding yes were lower this year than last year.  Suggesting business is brisk and there is not enough time for a summer shut down. 

Leading Indicators

The Conference Board’s Leading Economic Index increased 0.5% in June after being unchanged in May (revised down from +0.2%).  This was the highest reading since February.  New orders were a main contributor confirming the Philly Fed data.   The increase in new orders may be the reason behind the lower expected plant shutdowns? 

The major equity indices have rebounded off their lows but remain fractionally lower.  At the low of the day the Dow was down by 150 points, currently it is lower by 105 points.    

Equities did get a quick boost and attempted to go positive when highlights from an interview with President Trump were aired on CNBC.  The President criticized the Fed for raising interest rates and commented that he was “not thrilled” with the rate hikes and was concerned that the hard work his administration has done will be negated.