Markets recovered a little today after a dismal Monday. Markets responded to stabilization in the Chinese currency, the Yuan (or RMB), as well as a bounce back from what seemed like slightly irrational selling yesterday. Even with all the trade rhetoric, companies are showing strong financials with 74% of S&P companies beating earnings estimates. The Dow finished up 311 points closing at 26,029.
China stabilized the Yuan a little after they were labeled a “currency manipulator” by Treasury Secretary, Steven Mnuchin. The interesting thing about this is that China has been manipulating their currency as of late, but not in the way that they were labeled yesterday. Generally, currency manipulation refers to a country artificially weakening their currency to be a more attractive trade partner. However, as of late, if anything, China has been artificially keeping their currency stronger in accordance with the wishes of the U.S. Yesterday actually saw the Chinese letting their currency revert to more appropriate market price in response to the tariffs. But, by labeling China a currency manipulator, the U.S. hopes to engage the IMF (International Monetary Fund) to help put some pressure on China and earn a better trade deal. In order for the IMF to take any action to support the currency manipulation claim, the U.S. will need to provide some pretty substantial proof. Given that China more blatantly manipulated their currency from roughly 2003 to 2013, and the IMF did nothing then, it’s not likely the U.S. will get a lot of support now, especially considering they are actually doing the opposite now. The other interesting aspect of the trade spat, is that many European countries also dislike China’s trade practices, however, some are in disagreement with the methods the U.S. are using. If the U.S. is able to stand with Europe on trade, leaving China isolated, that could put China and their economy in a very difficult situation, and may force them to come to the trade table.
Barney’s filed for bankruptcy after nearly a century of being in business. The bankruptcy will see them close 15 of their 22 stores, including their location in Seattle, and allow them to readjust their leases, which has been a tremendous burden for many brick and mortar stores, especially as they battle the increased level of online shopping. Department stores have been struggling mightily, with Macy’s down 34% this year, Saks down nearly 50%, and Nordstrom now trading roughly 40% lower than their buyout offer from two years ago.