A worker cuts a steel coil at the Novolipetsk Steel PAO steel mill in Farrell, Pennsylvania, March 9, 2018.
Aaron Josefczyk | Reuters
Consumer and industrial activity in both the U.S. and China slowed in April, even before the world’s two biggest economies entered the latest phase of an escalating trade war that could take a bite out of global growth.
“The real message today is that both the economic data from the U.S. and China have disappointed. They’re like two boys in the sandbox that are spitting on each other, and it could get a lot worse,” said Marc Chandler, global market strategist at Bannockburn Global Forex.
The latest round of tariffs announced by President Donald Trump and China President Xi Jinping raised the stakes and potential economic hit on both economies. Trump boosted the tariffs on $200 billion in goods to 25% from 10%, while Xi upped the tariffs on $60 billion in goods.
Economists see about a 0.4 to 0.5% hit on China’s GDP and about a 0.1% hit to the U.S. from the higher tariffs. Strategas Research estimates the higher tariffs would cut into U.S. growth by 0.1% for every two months the raised tariffs are in place, or 0.5% a year.
Trump also threatened 25% tariffs on another $325 billion in Chinese goods, which economists say could hit Chinese sales and send prices higher for U.S. consumers. The impact of those tariffs would be even greater on GDP.
China’s retail sales rose 7.2% in April, the slowest pace in 16 years and less than March’s 8.7% and forecasts of 8.6%. China’s April industrial production rose 5.4%, less than the 6.5% expected or the 8.5% gain in March.
“This is the first bit of cleaner data we’re getting, and it paints a much less rosy picture of the economy than a lot of people thought was happening,” said Gareth Leather of Capital Economics. Leather said seasonal factors could have masked weakness in March data, which showed some improvement and had appeared to be signs of green shoots and recovery. “This really quashes those hopes for the time being.”
U.S. retail sales slid 0.2% in April, down from the surprise jump of 1.7% gain in March. Car sales fell 1.1% last month, while sales at electronics and appliance stores lost 1.3%. Economists had expected a 0.2% gain in the monthly sales data, which is important since it reflects the health of the consumer, about 70% of the U.S. economy.
U.S. industrial production, reflecting total production at factories, utilities and mines, fell 0.5% after a 0.2% gain in March. Manufacturing output dropped 0.5%, led by a 2.6% decline in motor vehicles and parts, the third decrease in four months and the latest manufacturing report to show softness.
“Autos had a weird swing, as a result of excess inventories,” said Michelle Meyer, chief U.S. economist at Bank of America Merrill Lynch. “I’ll be paying pretty close attention to manufacturing data, the survey datas, the confidence measures. It’s going to be very important to watch how the economy is going to fare around the escalation. Manufacturing has weakened already.” She said that manufacturing has been falling off since peaking last summer.
She said the trade wars have had an impact on the manufacturing sector, with about 59% of companies in the ISM semi-annual survey saying that the tariffs have led to an increase in the price of goods produced.
Meyer described the weaker April retail sales data as “noise,” but said it bears watching if the tariffs go into place on the $325 billion in goods since they would directly affect many consumer products. Manufacturers have been reporting impacts from tariffs, with 59% saying production costs went up as a result.
Markets responded to the news from both countries by ramping up expectations for central bank and other policy easing. U.S. fed funds futures signaled expectations for more than one quarter-point rate cut this year, while China’s stock markets rallied on expectations of more fiscal and monetary stimulus.
“Both economies softened before the tariff truce ended, but what’s interesting is still we’re not talking about recessionary levels. If China grows less than 6%, that’s a big deal,” said Chandler. He said U.S. growth currently looks to be averaging 2.4% in the first half.
“I think the chances the Fed will have to cut rates before the end of the year have clearly increased, given the trade war scenario. It’s still not my baseline. I think the Fed has to be careful in responding to the current trade tensions. It’s not obvious how persistent it will be, and how it will play out in the real economy,” Meyer said.
Trump has repeatedly called on the Fed to cut interest rates, including on Tuesday when he said China will probably cut interest rates, and if the U.S. did so as well it would be “game over.”
Leather said if Trump goes through with the next round of tariffs, they may end up being more harmful to U.S. consumers than to China, since many of the goods cannot be sourced elsewhere. The first round of tariffs did not do all that much harm to China, and its economy has been in decline for years, he said.
“It will impact China” if the tariffs on $325 billion in goods are implemented, Leather said. “But not as much as people think. The impact on the U.S. will be more.” He said China’s issues are lingering.
“If you look at Q1, China’s exports to the U.S. underperformed the rest of the world by 13%, and they normally pretty much match. They go in lockstep. There does seem to be some impact there. But if you look at China’s exports to the U.S. as a share of GDP, it’s about 3%. Thirteen percent of 3% is very small. Some of the slowdown in China is related to trade, but a very small percent,” he said.
Apple’s earnings would drop by nearly 30% if China bans its products
Tim Cook, Apple CEO
John Chiala | CNBC
The U.S.-China trade war could take a big chunk out of Apple‘s bottom line if China retaliates by banning its products, according to an analyst at Goldman Sachs.
Analyst Rod Hall said in a note to clients that Apple’s earnings could drop by 29% if the company’s products were banned in mainland China.
Apple’s China business accounted for more than 17% of its sales in its fiscal second quarter, coming in at $10.22 billion. The company also sells billions of dollar worth in iPhones every year in China.
“Should China restrict iPhone production in any way we do not believe the company would be able to shift much iPhone volume outside of China on short notice,” Hall said. “We believe that Apple is near its annual rapid ramp of new iPhone production to prepare for new device launches in the Fall so even a short term action affecting production could have longer term consequences for the company.”
Hall also noted that China’s “tech ecosystem” and local employment could take a hit if Apple products are banned. Most of Apple’s supply chain rests in mainland China, including the iPhone’s final assembly, which is executed at Foxconn.
Apple shares are down 7% for the month through Tuesday’s close as China and the U.S. ratchet up trade fears. The U.S. hiked tariffs on $200 billions worth of Chinese goods earlier in May. China retaliated by raising levies on $60 billion worth of U.S. imports.
Hall is not the only analyst raising concern over Apple’s exposure to China. On Monday, HSBC analyst Erwan Rambourg cut his price target on the tech giant to $174 per share from $180. Meanwhile, Credit Suisse analyst Matthew Cabral said Tuesday that Apple’s earnings per share would fall by about 15 cents a share for every 5% drop in Greater China sales.
England will ban plastic stirrers, straws and cotton swabs from 2020
saulgranda | Moment | Getty Images
A ban on plastic drinks stirrers, straws, and plastic-stemmed cotton swabs will come into force in England next April.
“Urgent and decisive action is needed to tackle plastic pollution and protect our environment,” Environment Secretary Michael Gove said in a statement Wednesday.
“These items are often used for just a few minutes but take hundreds of years to break down, ending up in our seas and oceans and harming precious marine life,” he added.
The ban follows on from a consultation which found that more than 80% of respondents supported a ban on the distribution and sale of plastic straws, with 90% backing a ban on drinks stirrers and 89% in favor of a ban on cotton swabs. The consultation ran from October 22, 2018 to December 3, 2018, and had 1,602 respondents.
Outlining details of the ban, the U.K. government said there would be exemptions to make sure that people with a disability or medical requirements could continue using plastic straws.
In practice, this means that while restaurants and bars will not be allowed to display plastic straws or “automatically hand them out” they will be able to provide them upon request.
Another exemption will apply to the use of plastic-stemmed cotton swabs for “medical and scientific purposes” where such items are “often the only practical option.”
The CEO of Surfers Against Sewage, Hugo Tagholm, said the charity welcomed the ban. “Stopping the production and distribution of these single-use plastic menaces will prevent them from polluting beaches nationwide,” he added. “It’s a really positive and bold step in the right direction in the battle against plastic pollution.”
Several major businesses are already looking to move away from using plastic in their stores. Fast food giant McDonald’s is rolling out paper straws to stores in the U.K. and Ireland, while upscale supermarket Waitrose now only offers paper straws in its cafes.
The issue of plastic pollution is a big problem. Europeans produce 25 million tons of plastic waste per year, according to the European Commission. Less than 30% of this is collected for recycling.
Twitter exchange with Elon Musk lands a British man a job at Tesla
Tesla has hired a British man behind a viral tweet that caught the attention of Elon Musk last month.
Adam Koszary, who engineered a viral Twitter exchange between Musk and an English museum, will begin a new role as Tesla’s social media manager in July.
Back in April, Koszary, the digital lead for the Museum of English Rural Life (MERL), tweeted a photo of a ram with the caption: “Look at this absolute unit.”
The picture has been liked more than 100,000 times to date – and its popularity really took off when Elon Musk used the image as his own profile picture on Twitter.
“I’m an absolute unit too,” he said in a tweet, temporarily changing his Twitter bio to “absolute unit.”
In response, the MERL switched its own picture for one of Elon Musk, sparking an ongoing exchange between the two accounts.
Koszary, who had been due to start a new job at the U.K.’s Royal Academy of Arts (RAA), announced on Twitter on Tuesday that he had instead accepted a role with Tesla.
“I’m no longer moving to the Royal Academy. Instead, I’ll be Tesla’s Social Media Manager from July,” he said.
Sob! We’re obviously very sad that the lovely and talented Adam now won’t be joining us, but know he’ll do a great job at Tesla (and Adam, please don’t forget to send over that RA-branded Model S we discussed). If *you* want his job, apply here -> https://t.co/9GH6lHJfzC
— Royal Academy (@royalacademy) May 21, 2019
The RAA said in a tweet on Tuesday that it was “very sad that the lovely and talented Adam now won’t be joining us, but know he’ll do a great job at Tesla.”
A spokesperson for Tesla was not immediately available for comment when contacted by CNBC.
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