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China Ships Steel To Vietnam To Avoid U.S. Tariffs

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After a complaint from U.S. steelmakers stating Chinese steel companies are shipping steel through Vietnam to secure lower tariff costs, the U.S. Department of Commerce is launching a formal investigation into whether Chinese steel companies at fault. How does the scam work? And how should American investors respond?

Dept. of Commerce Launched Investigation

U.S. steel companies could see a boost in the coming weeks after the U.S. Department of Commerce started a probe to see if China is avoiding tariffs by shipping steel to Vietnam first. The probe centers around U.S. steel maker claims that Chinese steel companies are shipping steel to Vietnam first, then importing the steel to the U.S. from there because Vietnam pays significantly lower import tariffs than China.

Chinese companies argue that they’ve done no wrong, and ship to Vietnam in order to coat the steel with zinc, making it corrosion-resistant. The Chinese companies say this is enough of an addition to the steel to make it a new product “made in Vietnam”, thus not requiring a higher Chinese tariff. However, U.S. steel makers counter that argument by pointing out that coating the steel is a simple process, “involving relatively small investment, that adds relatively little value, and adds no components or mass whatsoever,” which is not enough to say it’s made in Vietnam.

U.S. steel makers are fighting a glut of Chinese steel in the market, and seem to have found the source of it. In the first six months of 2016, shipments of steel from Vietnam to the U.S. rose to 312k tons of steel, up from 26k tons over the same time period of 2015. Meanwhile, in that same window, Chinese companies exported 6.3 million tons of steel, up from 4.3 m tons in the first half of 2016.

So what would happen if the U.S. probe finds China at fault?

The U.S. would raise duties on all Chinese steel coming from Vietnam to be on par with steel coming directly from China. As a result, the influx of Chinese steel in the market would slow to a trickle as supply and demand realign. The cost of steel would rise, and U.S. steelmakers would see not only a boost in sales, but most likely a rise in market share, as well.

 

Watch China fishing vessel chased, rammed until a Vietnamese fishing boat was sunk in this video.

U.S. steelmakers such as United States Steel Corp. (X), AK Steel Holding Corp. (AKS), and Nucor Corp. (NUE) are all spiking on the news. Expect the probe to find in favor of U.S. steel companies, and expect shares of those steel companies to rise accordingly.

Talking about cheating. It seems like Volkswagen is facing another lawsuit after U.S. Regulators discover a cheating device in their Audi cars. Read the full news in our yesterday’s news here!

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Stocks Soar Again, Yet Doubt Remains That This Rally is Real

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Stocks Soar Again, Yet Doubt Remains That This Rally is Real

Stocks climbed across the board on Monday, at least temporarily reversing the losses the market experienced last week.

The Dow Jones Industrial Average gained 1,627 points to close 7% higher, following a 7% gain for the S&P 500 and a 7.3% gain for the Nasdaq.

Coming off a week that saw the Dow lose ground for the third time in a month, Monday’s market rally was due to positive news in the fight to contain the coronavirus pandemic.

Stocks and Coronavirus Peak

Newly reported cases fell to 28,200 on Sunday. This reversed a trend that saw 30,000 new cases on Thursday, 32,100 on Friday and 33,260 on Saturday according to the latest data from Johns Hopkins.

While it is far too early to tell if the number of new cases has peaked, the market took the decline in new cases on Sunday as an indication that things could get back to normal much sooner than even the most optimistic predictions.

New York State reported the first daily decline in coronavirus-related deaths, with 594 new coronavirus deaths on Sunday after a reported 630 on Saturday.

“Incoming data suggests NY state might peak sooner than (Governor) Cuomo’s optimistic case,” said Tom Lee, head of research at Fundstrat. “With better visibility on the healthcare crisis in the US, particularly, on a potential to model a national peak, we believe buyers are now taking control.”

Billionaire Bill Ackman, who famously bet the coronavirus outbreak would tank the stock market and turned $27 million into $2.6 billion, has now turned bullish on stocks.

“I am beginning to get optimistic,” said Pershing Square’s Bill Ackman in a tweet on Sunday. “Cases appear to be peaking in NY. Almost the entire country is in shutdown.”

Peter Boockvar, chief investment officer at Bleakley Advisory Group added “It seems that each day that passes we seem to be getting to a better place on containment. It’s still a long road ahead, but some of the more dangerous places seem to be getting some control of it.”

Doubt Still Remains

Despite the growing optimism, many investors believe there’s still plenty of trouble to come for the markets.

Citigroup’s chief global equity strategist Robert Buckland says corporate earnings could fall by 50% in 2020 due to the coronavirus pandemic. He also mentioned that stock prices should drop an equal amount to reflect the expected decrease in profits.

“Typically, stock markets fall the same as EPS in a recession, but with a lead/lag relationship. With global equities currently down around 30%, we are not convinced they are pricing in the likely EPS collapse.”

Matt Maley, chief market strategist at Miller Tabak, believes another significant drawdown is in the cards.

“This is more a bear market trap. I just think we’ve had a first period of liquidation. But I think we could have more of it,” he told Yahoo Finance.

“We’re in a de-risking process and now we have to have the companies, which have loaded up to the gills in terms of debt over the last 12 years. As they de-risk and deleverage themselves, that is going to keep the economy from picking back up the way it did following the 2018 deep correction” he added.

For investors who do not worry about another significant decline, Maley does have some advice.

“With the market already down as much as it is, you can start dipping your toe back in. You just want to be able to go into the the high-quality companies with great management … that have great balance sheets.”

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Trump Threatens Oil Tariffs, Prices “Probably Going to Crater”

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Trump Threatens Oil Tariffs, Prices “Probably Going to Crater”

President Trump said he was willing to impose a tax on foreign oil if Saudi Arabia and Russia can’t reach a production agreement that has caused the price of oil to plummet and upend the global energy market.

“If they don’t get along, I would do tariffs, very substantial tariffs,” Trump said Sunday, referring to Saudi Arabia and Russia. The comments came during the daily White House coronavirus briefing.

“We would essentially be saying ‘we don’t want any foreign oil,’” the president said.

Ultimately, President Trump said he didn’t think he would have to follow through on this threat.

“I would use tariffs if I had to. I don’t think I am going to have to. Because Russia doesn’t benefit by having this and Saudi Arabia doesn’t benefit by having this. Oil and gas are their major sources of income. So it’s obviously very bad for them” he added.

Trump’s threats come as oil prices are set to plunge again. These prices offset the gains from last week’s massive rally that saw prices rise 32%.

West Texas Intermediate crude was 7% lower Sunday night. It traded more than $2 per barrel lower than it closed last week.

Oil Prices in the International Scene

The fear of a “no-deal” between Saudi Arabia and Russia has reignited, despite President Trump’s insistence last week that the two sides are close to an agreement to cut production.

OPEC and other oil-producing counties decided to postpone today’s meeting to Thursday. This came after the two countries engaged in more parley over who’s to blame for the price war. On Friday, Russian President Vladimir Putin once again put the blame for the crash in prices on Saudi Arabia. The latter, in turn, immediately refuted the claim.

“The Russian Minister of Energy was the first to declare to the media that all the participating countries are absolved of their [output] commitments starting from the first of April, leading to the decision that the countries have taken to raise their production,” said Saudi Energy Minister Prince Abdulaziz bin Salman in a statement.

With tensions still at the boiling point, the meeting appears to be an all-or-nothing situation, and many fear the worst.

A Negative Outlook

Oil prices are “probably going to crater,” as per John Kilduff of Again Capital. He also mentioned that a lot of optimism was priced into oil on Thursday and Friday. “With this new Saudi, Russia spat, it doesn’t look like it’s going to come together,” he added.

Eurasia Group’s Ayham Kamel agrees. “The details of the emerging framework are complex, even if the overall picture seems clear on the surface: All in or no deal,” he said. “Politically and economically, Putin and Prince Mohammad need US participation in some shape or form,” he continued.

Even Iraq’s oil minister said OPEC and its allies need support from producers that are not part of OPEC+. Kameel also made mention of the United States, Canada and Norway.

Vital Knowledge founder Adam Crisafulli believes non-OPEC countries will be willing to follow any plan that cuts production. “It still looks like something will happen on the supply front,” Crisafulli said. “Saudi Arabia and Russia continue to publicly feud, but nearly every producer on the planet is pleading for action and even countries like Canada and Norway, which usually don’t participate in global supply actions, now seem willing to contribute,” he went on to say. “It’s unlikely 10M barrels come offline, but some sort of a curb seems very probable by the end of this week,” he added.

However, some fear that even with massive production cuts, the drop in demand will continue to drag down oil prices.

“The energy sector is facing its most challenging fundamental period since the Great Energy Depression of 1981-1995,” said Kurt Hallead, Royal Bank of Canada’s co-head of global energy research. “On the oil front, demand is set to decline by amounts never before seen driven by the COVID-19 global economic shock.”

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Investors Are Bullish Right Now, and That’s a Bad Sign for the Market

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Investors Are Bullish Right Now, And That’s a Bad Sign for the Market

A recent survey by Royal Bank of Canada showed that 58% of institutional investors are “bullish” or “very bullish” on the market right now. This could spell bad news for those hoping the worst of the drawdown is behind us.

The survey, conducted between March 25 and 31, shows that even after last month’s tumultuous ride, investors are more bullish today than they were back in December when everything was sailing along smoothly.

Even more concerning, 57% of investors say stock valuations are “attractive” or “very attractive” today. This is a new record for RBC’s survey.

“I’m concerned that we have not seen the lows yet,” said Lori Calvasina, RBC’s head of U.S. equity strategy.

“This surprisingly high level of bullishness supports our own view that we haven’t yet seen investor capitulation, echoing what we’ve seen in other data sets. We view capitulation as a necessary, though not sufficient condition for stock market bottoms in major drawdowns” she added in a note to clients last week.

These bullish investors believe that the Federal Reserve will continue supporting the economy with its zero-interest-rate policy and the $700 billion quantitative easing plan. They also believe that the economic impact of the coronavirus pandemic will be “manageable.”

The 58% “bullish” or “very bullish” reading is the highest the RBC U.S. Equity Investor Survey has had since it debuted in early 2018.

Perhaps the most surprising data from the survey shows that despite the record-level of bullish optimism, a significant number of respondents believe there’s still plenty of pain to be doled out by the market.

Possible Outlooks

Only 19% of those surveyed believe the market hit bottom in the first quarter. Meanwhile, 57% believe that we are going to see the market head lower and reach a new bottom this quarter. Additionally, 15% don’t anticipate stock bottoming until Q3 2020. The 9% of those surveyed believe we won’t see the bottom until Q4 2020 or later.

And despite all the chatter in the news about a quick economic recovery once new cases of coronavirus plateau, the RBC survey shows that investors aren’t quite as optimistic as some may hope.

Only 19% of respondents believe we will get a “V”-shaped recovery. 41% believe that we will see a ‘W’-shaped recovery and 35% see the country going through a slower “U”-shaped recovery.

Some banks on Wall Street are expecting massive GDP contracting as high as 30% during the second quarter. Those responding to the survey, however, weren’t quite so bearish.

Most believe that the country’s GDP won’t contract by more than 20% in any quarter. They also think that if we do get a recession, it will end in the fourth quarter.

It could be more bad news for the market if those numbers end up worse than predicted.

“If evidence that the most negative GDP quarter will be worse than 20% and that the contraction will last beyond 3Q emerges, it is likely to destabilize the market,” the RBC strategists wrote. “If evidence emerges that the impact will be less severe, it can help the stock market stabilize and move higher” they added.

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