Iran conflict latest: Trump pauses Iran energy plant strikes by 10 days
President Trump rattled the stock market when he announced last Friday that he would impose an additional 100% tariff on China as well as export controls on “any and all critical software” beginning November 1st, after threatening to cancel an upcoming meeting with China’s President, Xi Jinping. Trump’s announced tariffs would raise import taxes on many Chinese goods to 130% on November 1st, which is a bit below the 145% level imposed earlier this year. Clearly, President Trump wants to negotiate a better trade deal with China.
What is going on is that while President Trump (as of his Sunday tweet) is trying to play the “good cop,” Bessent is playing the “bad cop.” China has imposed sweeping export controls on rare earth and critical minerals that caused Treasury Secretary Scott Bessent to accuse China of trying to hinder worldwide economic growth. Specifically, Bessent said, “This is a sign of how weak their economy is, and they want to pull everybody down with them.”
Trump is striving to replace conflict with commerce. Currently, President Trump is on his Middle East swing. President Trump’s next stop is Egypt, where he will be meeting with more Middle East leaders and encouraging them to join the Abraham Accords that formally recognize Israel. Like all of President Trump’s Middle East trips, he will be seeking business deals to help rebuild Israel, as well as for more countries to do business deals.
The Wall Street Journal’s survey of economists forecasted fourth-quarter GDP growth at a 1.7% annual pace. This represents an improvement of their last economists’ survey in July that estimated 1% annual fourth quarter GDP growth, but also a big deceleration from the Atlanta Fed’s estimate of 3.8% annual GDP growth for the third quarter. The federal government shutdown is expected to impede consumer confidence a bit, but since the government tends to impede productivity, the shutdown may not be a significant drag on GDP growth.
What is expected to impede U.S. economic growth and job creation is that the National Federation of Independent Business said Tuesday that its optimism index, a gauge of sentiment among small firms, fell by 2 points in September to 98.8. Economists were expecting small business sentiment to hold steady at 100.8, so the decline in sentiment was a surprise. Approximately 64% of small business owners reported that supply-chain disruptions were affecting their business to some degree. The index’s uncertainty component rose 7 points in August to 100, which is the fourth-highest reading in more than 51 years. Overall, it appears that small business caution may impede fourth quarter GDP growth.
The third quarter announcement season is off to a great start with major financial institutions reporting better-than-expected results. Although flagship financial stock J.P. Morgan (JPM) reported a 12% increase in third-quarter earnings, it also posted credit losses of $3.4 billion during the quarter, which is the highest in over five years. J.P. Morgan allocated another $810 million in reserves for bad loans. CEO Jamie Dimon said the U.S. economy remained resilient despite some “signs of softening, particularly in job growth.” Dimon also said that the economic impact of tariffs “has been less than people expected, including us,” and added that the final outcome of tariff negotiations has yet to be seen. Investment banking boosted the bottom line for both Goldman Sachs and J.P. Morgan.
Fed Chairman Jerome Powell is speaking today, and it is widely anticipated that he will acknowledge recent weakness in labor markets, which will effectively signal an impending key interest rate cut. I suspect Powell will also complain about the lack of economic data, especially for the consumer and wholesale inflation indices, namely the Consumer Price Index (CPI) and the Producer Price Index (PPI). Retail sales are likely softening, but that will not be announced until the federal government shutdown is over. As a result, Powell is expected to complain that the Fed is effectively flying blind due to a lack of economic data.
