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Trump weighs exempting Apple from China tariffs

  
  Analysis
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President Donald Trump said on Wednesday after touring a plant that assembles Apple computers that he was considering whether to exempt the U.S. company from tariffs on imports from China.

“We’re looking at that,” Trump said in answer to a reporter’s question about the tariffs, after touring a plant in Austin, Texas, with Apple Chief Executive Tim Cook that assembles the company’s Mac Pro desktop computers.

Cook, who has a strong relationship with Trump, has sought relief for Apple from the U.S. tariffs, which are part of a months-long tit-for-tat trade war between the world’s largest economies.

“The problem we have is you have Samsung. It’s a great company but it’s a competitor of Apple, and it’s not fair if, because we have a trade deal with Korea — we made a great trade deal with South Korea — but we have to treat Apple on a somewhat similar basis as we treat Samsung,” Trump said.

Apple announced in September it would make its new Mac Pro computers in Austin. The announcement came days after U.S. trade regulators approved 10 out of 15 requests for tariff exemptions filed by Apple amid a broader reprieve on levies on computer parts.

Earlier this month, Apple also asked the Trump administration to waive tariffs on Chinese-made Apple Watches, iPhone components and other consumer products.

Trump has made boosting the U.S. manufacturing sector one of the goals of his presidency, taking to Twitter to pressure U.S. companies into keeping jobs at home.

Earlier on Wednesday, Apple said it had started construction of a new campus in Austin that will employ 5,000 workers, with the capacity to grow to 15,000. It is expected to open in 2022.

Key Apple suppliers ready more non-China production

  
  Analysis
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The world’s two largest contract electronics suppliers, Foxconn and Quanta Computer, said on Wednesday that they will continue to move production capacity out of China to cope with the protracted trade war.

“The U.S.-China trade war is very dynamic and our clients are monitoring the situation closely,” Foxconn Chairman Young Liu told reporters. “We have to be well prepared and expand capacity at the fastest pace when our clients make decisions [to move].”

Formally traded as Hon Hai Precision Industry, Foxconn’s other key clients include China’s Huawei Technologies, Google, Amazon and Tesla. The company makes a wide range of goods such as smartphones, PCs, servers and electronics components, many of which have been hit by Washington’s tariffs.

Foxconn has manufacturing facilities in 16 countries, but 75% of its capacity is in China. It is the country’s largest employer and exporter. But now the company’s decadeslong production portfolio has begun to change owing to the trade tensions. (more…)

Chinese yuan rises to the highest levels since mid-August

  
Analysis, Forex
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USD/CNH falls below the 100-day moving average

USD/CNH falls below the 100-day moving average
Here’s your chart of the day.
USD/CNH is down 0.2% today and the decline has taken out both the Sept low, the Oct low and the 100-day moving average.
Notably, it’s the first time below the 100-dma since the broke on gap when Trump tweeted to restart the trade war. The next big hurdle is 7.000 but we’re on the way.
Take it as a great sign for global growth and risk trades.

Sources: Apple mobilizes suppliers to launch first 5G iPhone range

  
  Analysis
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 In a quest to reclaim its crown as the world’s most innovative tech company, Apple is mobilizing suppliers to produce its first ever 5G iPhones next year, with the three flagship models also set to include the most advanced mobile processors available and leading-edge screens, the Nikkei Asian Review has learned.

The upgraded iPhones, which Apple hopes will vault the company over Huawei’s current position as the second-biggest smartphone maker, will also likely accelerate global carriers to roll out 5G telecoms infrastructure — especially outside China, which has already invested heavily in the nascent technology.

Apple has been slow to embrace 5G; its iPhone 11 series this year only features 4G wireless technology. However Apple will push to reclaim its former glory as the maker of the world’s “must-have” smartphone with the major product line overhaul in 2020, sources told Nikkei. The iPhone, first launched in 2007, still accounts for around half of company revenues.

Apple plans to ship at least 80 million of the new 5G phones, one of the sources said. Rivals such as Samsung Electronics, the world’s largest smartphone supplier, China’s Huawei Technologies and second-tier competitors such as Oppo and Xiaomi, have already launched 5G phones.

“It will be the first time Apple introduces 5G iPhones … There will be three of them and the company has set an aggressive sales target,” one of the people familiar with the company’s thinking said.

Apple reports fourth quarter earnings after the U.S. stock market closes on Wednesday. (more…)

Next week brings the FOMC and BOJ meetings – forecast range for USD/JPY

  
Analysis, Forex
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A note via MUFG on the yen for the week ahead, analysts looking for 107/111 for USD/JPY.

On the Federal Open Market Committee meeting:
  • USD/JPY has already priced in a rate cut by the FOMC to some degree, so would not react much to a cut. If the Fed does defer on cutting rates, then the initial reaction would likely be USD buying, but stock price weakness would likely cap a rise by USD/JPY
And, on the Bank of Japan:
  • BoJ will maintain current monetary policy
  • BoJ Governor Kuroda commented in an interview that he expects a rate cut, so if the BoJ stands firm on policy, JPY may strengthen slightly but probably not continue. But if the BoJ does make some sort of policy change, JPY would initially weaken but not continue to do so because of concerns about side effects and continuity, and at some point USDJPY would lose steam. 
And, of course on a big driver:
  • Ultimately Brexit continues to loom and there will likely be little sense of direction despite some volatility.
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FOMC on the 30th, Wednesday next week.
BOJ on the 31st, Thursday next week.
  
Analysis, US Market
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A few big names weighed and tech struggled

On the day:
  • S&P 500 down 12 points to 2986 (-0.4%)
  • DJIA -0.9%
  • Nasdaq -0.8%
On the week:
  • S&P 500 +0.5%
  • DJIA -0.2%
  • Nasdaq +0.4%
A report saying that there are text messages showing Boeing executives worked to hide safety problems from the FAA sent shares of the industrial giant down 6.38% in the biggest slide since Feb 2016. Shares of J&J were also soft on a lawsuit.
The S&P 500 is consolidating ahead of the all-time high of 3027.
A few big names weighed and tech struggled

Will China GDP matter more to assets than any US-China deal?

  
  Analysis
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Via Bloomberg

China
The title of this post was a good question on Bloomberg’s Markets live blog at the end of last week. Mark Cranfield phrased the question as follows:

China’s 3Q GDP is due Oct 18 and it could be the first time on record that it prints below 6%. That could have a greater long-term impact on assets than a partial trade deal. Especially, as Bloomberg Economics expect policy makers to step up stimulus in response to stabilise the mainland economy.

If so, will that make China equities an asset class that become less correlated to the direction of Wall Street and global stocks? Would it trigger an asset swicth away from China bonds that spills over to other fixed income markets?

My assessment is that Firstly.  China’s GDP growth is going to be slowing due to reasons of growth. It is not the norm for developed countries to have double digit growth in the GDP. As China joins those developed nations it is only normal that GDP slows in pace.
Secondly, on a more general note, I think that the US-China deal matters more than the GDP figures. No deal – bad GDP would have been the worst outcome. With the US and China together making up 40% of the world’s GDP and the US on it own about 25% a good deal between those two countries should ultimately put positivity back into asset classes. It feels like the disaster outcome has avoided for now.
What is your take on it?

HK press says US-China talks are expected to last for only one day! No progress made.

  
Analysis, Politics
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South China Morning Post with the piece saying:

  • US and China make no progress on key trade issues in two days of deputy-level talks, sources say
  • The Chinese delegation refuses to talk about forced technology transfers, a core US grievance in the negotiations, a person with knowledge of the meetings says
  • High-level talks are expected to last for only one day, with Liu He and his team now planning to leave Washington on Thursday
Risk off on this news.
And yen, gold positive
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