Markets were rocked as Mount Trade War erupted spewing tweets and debris while sending investors fleeing like millions of Japanese before Godzilla. At the close the Dow was down 280 points at 27,502 on heavy trading volume. Early in the day the Dow was off over 400 points so the late partial recovery was nice. Both IBD and BTS have positive signals on markets for now.
The latest trade news is a jumble of several things. One is the phase one trade deal with China which was expected to be signed December 15th but now might not happen due to displeasure with Hong Kong pro-democracy legislation in the US plus Trump’s apparent willingness to table the issue on a whim coupled with China’s attempt to keep its gravy train rolling. The second is South American tariffs on steel and aluminum over “currency manipulation” which is dubious since it might give too much credit to finance ministers charged with managing historically corrupt and fragile economies and incapable of outright manipulation. The third and apparently bigger issue is Europe which just lost its 6th WTO court case involving launch aid subsidies to Airbus. Combined with France’s DST (digital service tax) against big US tech firms plus auto tariffs. The US is trying to figure out how to solve these issues against a stubborn EU mindset inclined on keeping favorable subsidies, tariffs and taxes in place. The bigger issue through all this, from a stock market perspective, is uncertainty because sudden surprise bluster may or may not actually become policy. I think I will be looking to buy stock in a company that makes tap dancing shoes.
In a surprise move iron ore pellet maker Cleveland Cliffs (established in 1847) has agreed to buy Dayton Ohio based AK Steel for $1.1 billion. Shares of AK were up on the news while Cliffs shareholders took it on the chin. AK Steel buys lots of iron ore pellets from Cliffs and sells steel to car makers. The deal might be an attempt by both firms to become more vertically integrated. Some gurus think the deal is questionable while others feel it is a fair price and a smart move. Mr. Market is saying it is a good deal for AK Steel and not so much for Cliffs since Cliffs is in a better position financially and why jeopardize this on a risky bet. Cliffs CEO Leorenco “Pele” Conclaves has a reputation for turning around troubled companies and will have his hands full with this project.