by Louis Navellier
December 10, 2024
President-elect Donald Trump’s latest tariff threat is a potential 100% tariff against the BRICS nations (Brazil, Russia, India, China and South Africa), which are trying to bypass the U.S. dollar in their trade and foreign exchange transactions. Brazilian President Lulu da Silva and China’s President Xi Jinping have been striving to undermine the U.S. dollar. Other countries, like India and Russia, also try to bypass the U.S. dollar, since it helps Russia avoid international sanctions, but the U.S. dollar currently accounts for about 60% of international transactions and nearly all commodities are priced in U.S. dollars.
I’ve already described the recent leadership crisis in Macron’s France. Adding to Europe’s leadership vacuum, Germany will need to form a new government in February. In the meantime, union workers at nine VW plants began their two-hour strikes this week, centered around their fears of impending layoffs and plant closures. Starting next week, these strikes will expand to four hours at selected plants.
The entire automotive sector in Germany, with the exception of Porsche, is suffering from a big drop in global demand. Reflecting this malaise, Destatis reported last Thursday that German factory orders are down 1.5% in October, so Germany’s recession is getting worse, as suppliers announced major layoffs.
European Central Bank (ECB) President Christine Lagarde warned last week that the euro-zone economy remains fragile, with uncertainty and downside risks clouding the outlook. Specifically, Lagarde said on Wednesday that “Survey-based data suggest that growth will be weaker in the short term.” Clearly, the political chaos in France and Germany, plus the fact that the two largest economies in the euro-zone are in a recession, is dragging down the entire euro-zone. On Thursday, Eurostat announced that euro-zone retail sales declined 0.5% in October, led by a 1.4% drop in Germany, so recession fears continue to spread.
A recent Financial Times interview of ECB President Christine Lagarde revealed that she acknowledges that President-elect Trump likes to threaten tariffs so that he can better negotiate lower tariffs from Europe and our other trading partners. Lagarde said the European Commission is preparing to engage Trump to offer to import more U.S. goods and resources, like LNG. Furthermore, Lagarde wanted to be positive about boosting trade with the U.S. and not engage in a “tit for tat” trade dispute. Overall, it appears that the European Commission will be able to diffuse much of the tariff talk by boosting U.S. imports.
Two new nations erupted in chaos last week, South Korea and Syria. In South Korea, President Yoon Suk Yeol said in a nationally televised address that he imposed martial law to protect the country from “anti-state forces” and North Korean sympathizers. Then, six hours later, Yoon accepted Parliament’s vote and lifted martial law. Still, Yoon and his wife are under intense investigation, so many in his People Power Party have largely deserted him. Parliament is controlled by the opposing progressive Democratic Party.
It’s too early to assess whether the regime change in Syria will bring more despotism or an improvement, but time will tell. Amidst this simmering chaos in the world, the U.S. remains an economic oasis. The U.S. is food and energy independent, which few other countries can claim. Furthermore, our 50 states act as economic laboratories and constantly compete with one another for recruiting businesses and jobs, and the U.S. has better demographics, by creating new households and assimilating immigrant workers better.
The truth of the matter is that the U.S. has a huge economic advantage compared to every other large or advanced nation. It is clear that under Trump 2.0 President-elect Trump intends to exploit this clear U.S. advantage to negotiate better trade deals and impose matching tariffs on uncooperative countries.
Turning to energy, the Biden ban on LNG expansion has now ended, and Trump 2.0 is expected to boost LNG exports, as well as utilize natural gas to double utility output to fuel AI data center demand. Natural gas futures in Europe have soared on the fear of a lack of storage, as well as Russian LNG increasingly being blocked by new sanctions, so although natural gas prices are hyper-sensitive to cold winter weather, the U.S. still has excess supply and will have more supply to export under Trump 2.0’s “drill, baby, drill” policy. In fact, Trump has appointed a fracking expert, Chris Wright, to lead the Department of Energy. Furthermore, North Dakota Governor Doug Burgum has been nominated for Interior Secretary, a pro-energy leader who is willing to open up more federal land for crude oil and natural gas production.
Lower energy prices are expected to be deflationary and help the Fed lower key interest rates in 2025. Further helping lower rates in 2025 is the fact that the euro-zone is now in a recession and the ECB will be cutting key interest rates to try to stimulate the euro-zone economy and stop rising unemployment rates.
Most U.S. Economic Indicators Reflect an Ongoing Recovery
Last Tuesday, we learned that the ISM manufacturing index rose to 48.4 in November, up from 46.5 in October. Although this improvement is welcome, any reading below 50 signals a contraction, so we have been in a manufacturing recession for 24 of the past 25 months. Although new export orders rose to 48.7 in November (up from 45.5 in October), the suppliers index declined to 47.7 in November (down from 52 in October) as 11 of the 14 manufacturing industries surveyed contracted in the November report.
Then, on Wednesday, ISM announced that its non-manufacturing (service) index declined to 52.1 in November, down from a more robust 56 in October. Although any reading over 50 signals an expansion, this rapid four-point deceleration was shocking and bodes poorly for fourth-quarter GDP growth. Fully 14 of 17 service industries reported an expansion in November, but their expansion was at a slower pace.
Turning to the often-conflicting jobs data, ADP announced on Wednesday that 146,000 private payroll jobs were created in November – a number which was essentially in-line with the economists’ consensus forecast of 150,000 jobs. Also, the October private payroll report was revised down to 184,000 jobs from 233,000 previously reported. ADP reported that 26,000 manufacturing jobs were lost in November, so the manufacturing recession persists. ADP also reported that small businesses lost 17,000 jobs in November.
Then, on Friday, the Labor Department announced that 227,000 payroll jobs were created in November, which was slightly higher than economists’ consensus expectation of an increase of 220,000. The October payroll report was also revised higher to a 36,000 increase, up from a 12,000 increase previously reported.
The unemployment rate rose to 4.2% in November, up from 4.1% in October. The worker participation rate declined to 62.5%, the lowest level since May. Average hourly earnings rose 0.4% to $35.61 per hour. Due to a higher unemployment rate and lower worker participation rate, I expect that the Fed will cut key interest rates 0.25% at its FOMC meeting on December 18th, since the Fed is more focused on jobs now.
On Thursday, the Commerce Department announced that the U.S. trade deficit declined nearly 12% in October to $73.8 billion as imports plunged 4% to $339.6 billion and exports declined less, just -1.6%, to $265.7 billion. The trade deficit accounted for a 0.57% subtraction from third-quarter GDP growth of 2.8% (annual pace). As the trade deficit shrinks, economists generally boost their GDP estimates, so in theory, if Trump 2.0 can shrink the trade deficit with a combination of booming energy exports and by making some imports more expensive via tariffs, then Trump can improve overall U.S. GDP growth.
At a conference last Wednesday, Fed Chairman Jerome Powell said, “The economy is strong, and it’s stronger than we thought it was going to be in September.” Signaling the Fed’s pivot to focus on jobs, Powell added, “We wanted to send a strong signal that we were going to support the labor market if it continued to weaken.” Then, the Fed Chairman concluded by saying, “The good news is that we can afford to be a little more cautious,” implying that the Federal Open Market Committee (FOMC) would likely slow down their key interest rate cut regimen. All this will be reconfirmed next week, on December 18th, via the FOMC’s post-meeting statement and their new “dot plot” survey of FOMC members.
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