A New Wrinkle in the U.S.-China Trade Dispute

Author: Frank Holmes
Date Posted: December 7, 2018 Read time: 58 min

This week I had the opportunity to attend the Young Presidents Organization (YPO) parliamentary intelligence forum in Washington, D.C. More than 200 members of parliaments from as many as 60 European countries joined us to hear from such dignitaries as Congressmen Robert Pittenger (R-NC) and Mike McCaul (R-TX), chairman of the Homeland Security Committee.

Press Release: U.S. Global Investors Continues GROW Dividends and Share Repurchase Program

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Frank in Washington at the Senate Press room

This week I had the opportunity to attend the Young Presidents Organization (YPO) parliamentary intelligence forum in Washington, D.C. More than 200 members of parliaments from as many as 60 European countries joined us to hear from such dignitaries as Congressmen Robert Pittenger (R-NC) and Mike McCaul (R-TX), chairman of the Homeland Security Committee.

While in D.C., I was very honored to be invited into the epicenter of power and decision-making. That includes the Senate Press Office, pictured above, and the west front of the U.S. Capital facing the National Mall, where every president since Ronald Reagan in 1981 has been inaugurated.

It was there that George H.W. Bush took the oath of office, exactly 200 years after George Washington did. Newly arrived to Texas from Canada, I remember watching Bush’s inauguration on TV and being moved by his testament to freedom: “We know how to secure a more just and prosperous life for man on Earth,” he said, “through free markets, free speech, free elections and the exercise of free will unhampered by the state.”

The memory was made all the most poignant by the flags flying at half-staff, and the fact that I was standing in the same building where, just 24 hours earlier, the former president’s remains lied in state.

Remembering the 41st President

President George HW Bush 1924-2018

The life of George Bush, son of a U.S. senator and father of two governors and a president, stands as a case study in sacrifice and service. On the same day that he graduated from high school in 1942, he enlisted in the United States Navy. The country’s youngest Navy pilot at the time, Bush went on to receive the Distinguished Flying Cross after completing a bombing mission despite his plane being engulfed in flames from Japanese fire.

And from there it only gets more interesting.

Founder of a successful oil and gas company, congressman in the House of Representatives, ambassador to the United Nations, special envoy to the People’s Republic of China (before the U.S. had diplomatic relations with the Asian country), director of the Central Intelligence Agency (CIA), two-term vice president—Bush was and remains to this day perhaps the most qualified and well-equipped chief executive ever to set foot in the Oval Office.

As the 41st president, he oversaw the collapse of the Soviet Union and reunification of Germany, putting him at odds with U.K. Prime Minister Margaret Thatcher and French President Francois Mitterrand, who favored a divided Germany. His decision to push back Iraqi forces from Kuwait, arguably the greatest defining moment of his one-term presidency, was both a military and political success.  

American voters ultimately denied him a second term, however, once they felt his pledge to create “no new taxes” went unfulfilled. As part of a compromise with the Democratic-controlled Congress, Bush agreed to raise taxes to help reduce the national deficit. The episode is a reminder of a time when politicians’ duty to country trumped duty to party, even if it jeopardized reelection.

That deep sense of duty sustained him for the rest of his 94 years. Bush was involved in a number of charities and humanitarian efforts, most notably the Bush Clinton Coastal Recovery Fund. The fund— spearheaded in cooperation with his former political rival and, some might say, unlikely friend Bill Clinton—raised tens of millions of dollars for families impacted by 2005’s Hurricane Katrina.

On behalf of everyone at U.S. Global Investors, I extend my gratitude and sympathy to the Bush family. May George Herbert Walker rest in peace and remain firmly in our memory.

Stocks Hit on Renewed U.S.-China Trade Concerns

On a very different note, global stocks this week plunged on concerns that trade negotiations between the U.S. and China are not running as smoothly as initially thought. The S&P 500 Index is not only having one of its worst quarters in years, but it could also end up in the red for the year for the first time since 2008.

Adding to the uncertainty was news of the arrest in Canada of the chief financial officer (CFO) of Chinese tech giant Huawei. Although no charges have been filed yet, the company has long been investigated by U.S. authorities, and more recently it’s been suspected of violating economic sanctions against Iran. The CFO, Meng Wanzhou, faces extradition to the U.S.

A Huawei smartphone

The name might not be known to most Americans, but Huawei is the world’s second-largest manufacturer of smartphones following Samsung, and the largest supplier of telecommunications equipment. Meng is not only a top executive but also the daughter of the company’s founder, Ren Zhengfei, a former officer in the People’s Liberation Army who has close ties to the Communist Party of China.

Imagine a foreign power arresting the daughter of Steve Jobs, and you might get some idea of how big a deal this is.

President Donald Trump has levied much of his criticism on China for “unfair” trade practices and stealing intellectual property from the U.S. As I told you back in March, China’s J-31 stealth fighter jet is believed to be a knockoff of Lockheed Martin’s F-35. (A 2014 whitepaper on Huawei, in fact, states that the tech firm got its start in 1987 by “reverse-engineering foreign products and using that as the foundation to develop more complex technologies.”) But America’s beef with Huawei, and its Hong Kong-listed rival ZTE, go back further than the start of this administration and rest on suspicions their phones and other telecomm products might be used for espionage.

In 2012, after investigating Huawei and ZTE, the House Permanent Select Committee on Intelligence concluded that the two firms could be seeking to “undermine core U.S. national-security interest.” Committee members recommended that the U.S. block any mergers and acquisitions involving the companies and that all U.S. governmental agencies not use their equipment. Earlier this year, officials with the CIA, National Security Agency (NSA), Federal Bureau of Investigation (FBI) and Defense Intelligence Agency (DIA) testified before the Senate Intelligence Committee that Huawei and ZTE’s phones posed a security risk to American consumers.       

In any case, Meng’s arrest this week rattled investors, convincing many of them that U.S.-China trade talks are deteriorating rather than improving. We saw a knock-on effect among a number of Huawei’s suppliers, including lens-maker Sunny Optical (down almost 5.5 percent on Thursday), data networking firm Inphi (off 9.25 percent) and California-based NeoPhotonics (down more than 16 percent).

U.S. Trade Deficit Just Widened Even More

Speaking of trade, the U.S. deficit with the rest of the world tumbled to a 10-year low in October. According to Zero Hedge, the “trade deficit was $55.5 billion in October (worse than the $55.0 billion expected and well down from the $54.6 billion revised print for September)… underscoring continued fallout from the trade dispute with China.”

As for the U.S.-China trade deficit—the difference between exports and imports—that measure widened to a new all-time low of $43.1 billion in October, down from $40.2 billion a month earlier. The fall in net exports is expected to weigh heavily on fourth-quarter gross domestic product (GDP) growth.

US trade deficit with China fell to a record low in October
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The trade report comes at a time when additional tariffs on goods coming into the U.S. are increasingly to blame for stock volatility this year. A new analysis by Bank of America Merrill Lynch suggests that worries about tariffs have trimmed some 6 percent off domestic stocks in 2018 alone.

What’s more, tariffs could be costing American households more than most realize. Last month a study conducted by consulting firm ImpactECON and commissioned by Koch Industries—an opponent of Trump’s trade policies despite its billionaire chief executive brothers, Charles and David, being top Republican donors—estimated that tariffs would cost each U.S. household nearly $2,400 in 2019, or $915 per person. GDP growth could be reduced 1.78 percent next year, with losses close to $2.8 trillion between now and 2030, if current trade actions were allowed to stay in place, the study says. As many as 2.75 million American workers “are likely to become unemployed” in 2019 “if all trade actions are implemented concurrently.”

Gold Price Rises on Weaker-Than-Expected Jobs Report

Speaking of employment, the U.S. added 155,000 jobs in November, falling far short of expectations. The U.S. dollar pulled back slightly as a result, prompting gold to trade at a five-month high of more than $1,255 per ounce. Earlier in the week, the price of palladium briefly overtook gold’s on tightening supply and increased automobile demand. (The silvery white metal is used to manufacture catalytic converters). But if economic uncertainty continues to weigh on the dollar, we could see gold lift even higher and safely retain its spot as the most valuable precious metal.

Palladium briefly became most precious metal for first time in 16 years
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As I reminder, I recommend that investors maintain a 10 percent exposure to gold in their portfolio—half of that in gold coins, bars and jewelry; the other half in high-quality gold mining stocks, mutual funds and ETFs. Remember to rebalance at least once a year. Have a wonderful weekend!

The yield curve just inverted for the first time in years Time to reconsider risk

Gold Market

This week spot gold closed at $1,248.14 up $25.64 per ounce, or 2.10 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 5.33 percent. The S&P/TSX Venture Index was off 2.91 percent. The U.S. Trade-Weighted Dollar fell 0.66 percent.

Date Event Survey Actual Prior
Dec-2 Caixin China PMI Mfg 50.1 50.2 50.1
Dec-3 ISM Manufacturing 57.5 59.3 57.7
Dec-5 ADP Employment Change 195k 179k 225k
Dec-6 Initial Jobless Claims 225k 231k 235k
Dec-6 Durable Goods Orders -2.4% -4.3% -4.4%
Dec-7 Change in Nonfarm Payrolls 198k 155k 237k
Dec-11 Germany ZEW Survey Current Situation 55.3 58.2
Dec-11 Germany ZEW Survey Expectations -25.0 -24.1
Dec-11 PPI Final Demand YoY 2.5% 2.9%
Dec-12 CPI YoY 2.2% 2.5%
Dec-13 Germany CPI YoY 2.3% 2.3%
Dec-13 ECB Main Refinancing Rate 0.000% 0.000%
Dec-13 Initial Jobless Claims 228k 231k
Dec-13 China Retail Sales YoY 8.8% 8.6%


  • The best performing metal this week was palladium, up 3.88 percent on very tight physical markets. Dutch bank ABN Amro noted that palladium has overshot and may slide back 20 percent to $1,000. Gold traders and analysts are the most bullish they’ve been in at least three years on the yellow metal this week, according to Bloomberg’s weekly survey. Walter Pehowich, executive vice president of metal investments at Dillon Gage Precious Metals, says he expects “the price of gold to rally off a slowing economy and with the Fed being handcuffed from raising rates.” After selling its gold for much of the year, Turkey’s central bank gold holdings actually increased this week by $284 million from the previous week, according to the bank’s official figures. The Perth Mint released November sales data that showed 64,308 ounces of gold coin and bar sales, compared with 36,840 ounces in October.
  • Gold is heading for its best close since July as investors are betting on whether the Federal Reserve will continue its rate hike cycle, and as the Treasury market flashed a warning sign early this week, writes Bloomberg. Kunal Shah, head of commodities research at Nirmal Bang Securities, says that “as global GDP growth slows down, and the U.S. Fed slows down the pace of rate hikes, the dollar index will weaken,” and investors will diversify into gold.
  • Bloomberg reports that U.S. jobs and wages rose by less than forecast in November, while the unemployment rate stayed at the lowest level in almost 50 years. The price of palladium has exploded in the second half of this year, rising nearly 50 percent in less than four months. The metal briefly exceeded the price of gold this week for the first time in 16 years, but then tumbled as much as 3.1 percent on Thursday.

Palladium back below gold after a brief flirtation above it
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  • The worst performing metal this week was platinum, down 0.68 percent. It appears to be in surplus as some hedge funds have shorted it and used the proceeds to go long palladium. Although the Perth Mint saw strong sales in November, the U.S. Mint saw declines. It reported sales of 8,000 ounces of American Eagle gold coins, down 67.3 percent from the previous month. London-based BullionVault reported that its gold index measuring the balance of buyers against sellers fell to 53.4 last month as prices rose, down slightly from the previous month’s reading of 53.8. However, a reading of 50 or above indicates more buyers than sellers among BullionVault’s clients. Adrian Ash, director of research at the company, said that “2019’s worsening political outlook is likely to support gold prices by deterring sales from existing bullion investors.”
  • Venezuelan President Nicolas Maduro and Turkish President Recep Tayyip Erdogan met this week in Caracas where Maduro welcomed Turkey to mine gold in Venezuela and partner in mining development. The troubled South American country has been a big seller of gold in recent years and sent representatives to meet with the Bank of England staff to try and repatriate 16.5 tons of gold reserves currently held in London.
  • Meng Wanzhou, chief financial officer of Huawei Technologies – one of China’s “foremost corporate champions” – was arrested in Canada over potential violations of U.S. sanctions against Iran, reports Bloomberg. Her arrest sparked outrage from China and comes at a critical week in trade negations between the U.S. and China. 


  • Goldman Sachs predicts that 2019 will be another poor year for risk-adjusted investment returns due to slowing economic growth, shrinking central bank balance sheets and continued bouts of volatility. UBS Group wealth managers wrote in a report that gold may rise to $1,300 an ounce in 2019 as volatility grows. They write that “inflation will likely rise, EM investors will face currency volatility and real interest rates will peak,” which has historically lifted the value of gold. Credit Agricole recommends buying gold at $1,240 with a target of hitting $1,420 an ounce, due to currency fluctuations increasingly driving the yellow metal in the short term, reports Bloomberg.
  • Thursday was a record-breaking day in terms of trading volume for fed futures contracts, including a record volume in December 2019 Eurodollars contracts, amid falling confidence in the Fed’s ability to achieve its projection of three rate hikes next year. Traders of interest-rate futures are also uncertain that the Fed will raise rates next year, reports Bloomberg. The Fed has raised rates eight times since December 2015 and is expected to continue raising in 2019. However, many investors are unwary of this projection due to this week’s slide in global equities and the U.S.-China trade war tension.
  • President Donald Trump’s top economic advisor Larry Kudlow said in an interview this week that he expects the Fed to pause its interest rate increases for “quite some time” after the hike this month. As the Fed reconsiders its hiking cycle, gold could be set to rise next year on a falling dollar. Trey Reik, senior money manager at Sprott, sad that “once you get to the consensus view that the Fed may be done, the dollar may come under severe pressure. Gold will erupt.”


  • According to Bank of America, a “major blowout” in securitized product spreads is likely next year. The bank’s economists expect five rate hikes between now and the end of 2019, which would bring the Fed funds rate to 3.5 percent. The bank writes that the Fed looks to tighten up financial conditions, which could lead to a liquidity shock, as liquidity risk is at levels seen in late 2007 when the Fed was cutting rates, reports Bloomberg.
  • During an event on Thursday for new lawmakers from both parties, Gary Cohn, former top economic adviser and an ex-Goldman Sachs executive, got into a testy exchange with newly elected House freshman Rashida Tlaib of Michigan. The congresswoman tweeted that Cohn, in the meeting, told lawmakers that “You guys are way over your head, you don’t know how the game is played,” to which Tlaib responded “No Gary, YOU don’t know what’s coming – a revolutionary Congress that puts people over profits.”
  • The relationship between U.S. President Trump and Russian President Vladimir Putin may be souring after another round of cancelled talks between the two leaders. President Trump cited the cancelled talks at the G20 Summit in Argentina to be due to the naval clash between Russia and Ukraine near Crimea. However, Russian lawmakers are not as understanding. Bloomberg reports that senior members of the ruling United Russia party have regretted Trump’s victory in U.S. elections over Hillary Clinton. Frants Klintsevich, a Russian senator, said the current relations are “far worse than it would have been under Clinton” and that “she’s an experienced politician and any of her actions would have been based on logic and some kind of discussion. Here we’re seeing huge swings in one direction and another.”

In the News
December 6, 2018
U.S. Global Investors Continues GROW Dividends and Share Repurchase Program
December 6, 2018
Frank Holmes’ 2019 Market Outlook
December 5, 2018
Estimated Year-End Distributions Now Available

Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 4.50 percent. The S&P 500 Stock Index fell 4.60 percent, while the Nasdaq Composite fell 4.93 percent. The Russell 2000 small capitalization index lost 5.56 percent this week.
  • The Hang Seng Composite lost 1.74 percent this week; while Taiwan was down 1.29 percent and the KOSPI fell 1.01 percent.
  • The 10-year Treasury bond yield fell 13 basis points to 2.85 percent.

Domestic Equity Market

SP 500 Economic Sectors weekly performance
click to enlarge


  • Utilities was the best performing sector of the week, increasing by 1.34 percent versus an overall decrease of 4.56 percent for the S&P 500.
  • AutoZone was the best performing stock for the week, increasing 7.55 percent.
  • AutoZone’s stock was on the rise Tuesday after releasing a strong earnings report for its fiscal first quarter of 2019. The company reported earnings per share (EPS) of $13.47, which is an increase over the company’s EPS of $10.00 from the same time last year. It also beat Wall Street’s estimate of $12.21.


  • Financials was the worst performing sector for the week, decreasing by 7.08 percent versus an overall decrease of 4.56 percent for the S&P 500.
  • SVB Financial Group was the worst performing stock for the week, falling 19.23 percent.
  • The big tech stocks lost $141 billion in market value on Tuesday, with the biggest loser being Amazon, which lost $51 billion in market value.


  • U.S. stocks have a history of weathering inversions in yield gaps between Treasury securities, according to Jason Goepfert, Sundial Capital Research Inc.’s chief executive officer. Goepfert cited the yields on two- and five-year Treasury notes as an example. Their gap turned negative in 1998 and 2005 – and in both instances, the S&P 500 climbed for more than 21 months before peaking, according to data compiled by Bloomberg. The index’s gains amounted to 38 percent and 24 percent, respectively.
  • Last month’s rebound in U.S. stocks has further to go, if history is any guide. The S&P 500 has posted an average December gain of 1.61 percent since 1950, according to data compiled by Bloomberg. The advance is the biggest for any month of the year. November ranked second at 1.55 percent – just below this year’s 1.79 percent rally, which followed a 6.94 percent slump in October.
  • More details emerged surrounding Tesla’s bid for a Gigafactory in China. The state-owned Shanghai Construction Group is doing the bidding, and at least one contractor has started buying materials for the plant’s foundations, Reuters reports, citing sources and documents it reviewed.


  • There’s a simple reason people aren’t buying iPhones like they used to. Apple "continues to try to push toward these higher-price devices, and we think that is continuing to cause a slowdown in the replacement cycle," Angelo Zino, a senior equity analyst at CFRA, told Business Insider, adding he didn’t see that as a broader warning for the state of the U.S. consumer.
  • Reddit cofounder Alexis Ohanian said at Business Insider’s IGNITION conference that we’ve hit "peak social," and that it is bad news for Facebook, Twitter and Instagram. Ohanian predicted that users will move away from the big social networks toward new, more community-focused platforms.
  • UK lawmakers used their parliamentary privilege to publish a cache of internal Facebook documents and emails that had previously been sealed. The documents, which are part of a U.S. lawsuit between developer Six4Three and Facebook, show Facebook’s discussions about charging developers for user data in the run-up to 2015. This is another blow to the company’s public perception.

The Economy and Bond Market



  • Strong hiring in 2018 has sent the unemployment rate to the lowest level in almost 50 years. The jobs report released on Friday showed that the jobless rate remained at 3.7 percent for the third straight month. At the same time, the growth of new jobs is contributing to the fastest pay gains for workers in nine years. The increase in wages over the past 12 months was unchanged at 3.1 percent.
  • U.S. manufacturing activity picked up in November, according to data from the Institute for Supply Management (ISM). However, a gauge of prices paid tumbled from a month earlier. ISM’s U.S. manufacturing index rose to 59.3 in November, up from 57.7 in October, beating economists’ expectations for a reading of 57.6.
  • On Friday, the University of Michigan said its consumer sentiment index reading in December was unchanged at 97.5, keeping most of the gains consumers have registered over the last two years. The last time the sentiment index was consistently above 90 was between 1997 and 2000, when it recorded a four-year average of 105.3. Including this most recent reading, the index has averaged 97.5 over the last two years.


  • Job growth slowed in November amid fears that economic growth is slowing. Nonfarm payrolls increased by 155,000 for the month, the Labor Department reported Friday. Economists surveyed by Dow Jones had been expecting payroll growth of 198,000.
  • A report released by the Commerce Department on Thursday showed a steep drop in new orders for U.S. manufactured goods in the month of October. The Commerce Department said factory orders tumbled by 2.1 percent in October. Durable goods orders led the way lower during the month, plunging by 4.3 percent amid a 12 percent plunge in orders for transportation equipment.
  • The number of Americans filing applications for jobless benefits fell by less than expected last week, while the four-week moving average of claims rose to its highest level since April, suggesting some loss of momentum in the labor market. Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 231,000 for the week ended December 1, the Labor Department said on Thursday. Economists polled by Reuters had forecast claims falling to 225,000.


  • The slight inversion of the front end of the Treasury yield curve doesn’t foretell that the whole curve will invert, similar to prior economic cycles, writes Bloomberg Intelligence’s Ira Jersey and Angelo Manolatos. In fact, implied one-year forward rates see curves getting to just about flat and then steepening by the end of 2019. The fact that the market isn’t pricing for sustained inversion is a sign that the rates market isn’t expecting a prolonged economic downturn – at least for now.

Implied forwards show treasury curves inversion may be short
click to enlarge

  • In a meeting at the G20 summit in Buenos Aires on Saturday, President Trump agreed to postpone new economic tariffs on Chinese imports for 90 days and Chinese President Xi Jinping said that China would buy a "not yet agreed upon" amount of U.S. agriculture, energy and industrial products and will label Fentanyl as a controlled substance, the Associated Press reports.
  • As speculation grows that the Federal Reserve could soon be pausing its rate hiking cycle, inflation and retail sales numbers out of the United States next week will be monitored closely for clues on the robustness of the economy.


  • President Trump’s automobile tariffs could hit Europe fairly hard. A 25 percent tariff on European cars coming into the U.S. would shave $75 billion from growth in the eurozone next year, lowering its GDP by 0.4 percentage points to 1.2 percent, writes a Barclay’s team led by Francois Cabau in a note sent out to clients.
  • Qatar is leaving OPEC, the cartel of oil producers, on January 1. This comes amid the country’s plans to raise its natural gas production and as Saudi Arabia has cut trade and transport ties while it boycotts the country over accusations that it supports terrorism and Iran.
  • The U.S. was the only nation at the G20 summit last weekend not to reaffirm its commitment to the Paris climate accord, reports the AP.

Energy and Natural Resources Market



  • Crude oil was the best performing major commodity this week rising 5.14 percent. The commodity rose after OPEC and its allies announced production cuts amounting to 1.2 million barrels per day. Also this week, it was reported that the U.S. just became a net oil exporter for the first time in 75 years.
  • The best performing sector this week was the S&P/TSX Diversified Metals & Miners Index. The index rose 3.86 percent following global risk-on sentiment after Trump and Xi dined together at the G20 Summit in Buenos Aires over the weekend.
  • The best performing stock for the week was Canadian Natural Resources Ltd. The major Canadian oil and gas producer rose 8.67 percent after the Provincial Government in Alberta proposed crude oil production cuts as a result of limited pipeline availability, which should result in higher realized prices for Canadian crude exporters.


  • Steel was the worst performing commodity this week. The NYSE Arca Steel Index dropped 3.59 percent after U.S. steel buyers voiced concerns over possible economic fallout from trade tensions.
  • The worst performing sector this week was the S&P 1500 Paper and Forest Products Index. The index dropped 5.84 percent, to a 52-week low after U.S. macroeconomic and jobs data disappointed.
  • The worst performing stock for the week was Covestro AG. The German producer of polymers and chemicals dropped 13.2 percent to the lowest level this year after supply uncertainties, such as the low Rhine river water level and higher U.S. tariffs on Chinese goods, have led to inventory buildups across the sector.


  • The U.S. is on track to become a leading LNG exporter. Major commodity trading houses have signed numerous supply agreements with U.S. producers, whose low costs and abundant supplies can be sold and marketed profitably in Asia. “The LNG business is evolving into a true commodity market” Tellurian Chief Executive Officer Meg Gentle said after inking a recent deal.

US exports of LNG have increased substantially in the past two years
click to enlarge

  • Oil prices climbed after OPEC producers and allies surprised the market with a larger-than-expected deal to reduce output. The group will collectively curb production by 1.2 million barrels a day, higher than the 1 million barrel-a-day scenario that was earlier floated. Russia’s Energy Minister Alexander Novak said OPEC and allies’ cooperation is “as strong as ever.”
  • Gold is heading for the best week since August as investors expect a slower pace of U.S. interest rate hikes and market sentiment improves. Investors have pared bets on hikes in 2019 amid a debate on whether borrowing costs are now nearing the so-called neutral rate, and following stock market losses and fears of an extended U.S.-China trade war. Traders and analysts were the most bullish in at least three years, according to a Bloomberg News survey.


  • The strength of U.S. economic indicators appears to be fading. The Bloomberg ECO U.S. Surprise Index — which measures whether economic data have exceeded or fallen short of analysts’ estimates — fell last week to the lowest in more than a year. The Fed’s Beige Book report showed fading optimism over growth prospects at U.S. firms even as most districts continued to report a modest expansion.
  • The boost to steel prices from U.S. metal tariffs is fading fast. Concern over possible economic fallout from trade tensions is proving more tenacious. The benchmark price of American steel is now trading below where it was when President Donald Trump announced the tariffs on March 1. While prices are still up for the year, they’ve slid 17 percent from a July high amid worries that the U.S.-China trade war will erode economic growth and pinch demand for the metal.
  • The yield premium for emerging market bonds has surged well above its historical average, signaling tighter lending conditions and liquidity. Emerging market credit availability is linked to demand for commodities and resources. The bonds have performed worse than high-yield and investment-grade credits, where spreads are hovering near their long-term averages.

Whats driving energy view the handout here

Emerging Europe



  • Russia was the best performing country this week, gaining 1.62 percent. OPEC and Russia agreed to cut oil output by 1.2 million barrels a day, lifting crude prices.
  • The Czech koruna was the best performing currency this week, gaining 1.22 percent against the U.S. dollar.
  • Energy was the best performing sector among eastern European markets this week.


  • The Czech Republic was the worst performing country this week, losing 2.65 percent.
  • The Turkish lira was the worst performing currency this week, losing 1.57 percent against the U.S. dollar. The currency crisis that peaked in August along with a spike in the central bank’s benchmark rate in September have crippled some companies, reducing demand for new loans and investments. The slump, coupled with weak consumer demand, is liable to hamper growth in the third quarter and produce an economic contraction in the fourth and possibly beyond, according to Inan Demir, an economist at Nomura International Plc in London.
  • Industrials was the worst performing sector among eastern European markets this week.


  • Hungary’s gross domestic product (GDP) rose 4.9 percent year-on-year in the third quarter of 2018, the Central Statistical Office (KSH) said in a second estimate of data on Wednesday. The KSH raised the figure from 4.8 percent in its initial flash report on November 14. The KSH revised the figure upward primarily due to better-than-expected performance of market-based services and strong growth in higher value-added branches of industry.
  • German factory orders climbed 0.3 percent in October from a revised 0.1 percent the month earlier. Economists had predicted a contraction of 0.4 percent. The construction purchasing manager’s index (PMI) rose to 51.3 in November from 49.8.
  • The Czech Statistical Office announced on Thursday that the retail sales in October, excluding car sales, rose by 6.4 percent in annual terms. The growth signals stronger-than-usual, pre-Christmas holiday spending, analysts said, in line with Czechs’ rising purchasing power. Online sales grew at an even faster pace, climbing more than 24 percent year-on-year.


  • Euro-area manufacturers saw activity slow further as concerns over trade wars and political instability hit demand for machines and other investment goods. IHS Markit’s PMI for factories fell to 51.8 in November from 52 in October. Production could act as a drag on the eurozone economy in the fourth quarter,” said Chris Williamson, an economist at IHS Markit. While Eastern Europe’s expansion has so far defied forecasts for a slowdown, its biggest economy, Poland, registered its first manufacturing contraction since 2014 last month.

Euro area manufacturing slows amid political uncertainty
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  • Russia threatens to target U.S. allies hosting U.S. missiles if Washington goes ahead with plans to pull out of a landmark Cold War arms treaty, General Staff chief Valery Gerasimov said on Wednesday. His comments came hours after the U.S. said it would pull out of the 1987 Intermediate-Range Nuclear Forces Treaty in 60 days if Russia does not stop alleged violations. The impending collapse of a Cold War-era treaty banning U.S. and Russian intermediate-range missiles is spurring broader concerns about the future of global arms control.
  • Poland’s $57 billion transport and logistics industry is facing a serious threat as the European Union (EU) agreed to tighten rules on international trucking services, upending its business model based on lower driver costs. The proposed regulation will lift wages for east EU truckers working abroad; as a result, it will mainly hit companies from the EU’s poorer east, which have used their cost advantages to dominate the bloc’s road freight industry. Transport and logistics account for 11 percent of Poland’s economy, twice as much as the EU average.

China Region



  • The Nikkei Vietnam Manufacturing PMI print clocked in at a solid 56.5, the metric’s all-time high.
  • Thailand’s latest exports reading jumped 8.4 percent year-over-year in the October measurement period, up from the prior month’s year-over-year decline of 5.5 percent. The Nikkei Philippines Manufacturing PMI came in higher than last month’s reading, clocking in at 54.2, up from September’s 54.0 print.
  • China’s Caixin China Manufacturing PMI clocked in at 50.2, slightly ahead of survey expectations and up barely from the prior month’s reading of 50.1. The Caixin reading is thus quite close to the official Manufacturing PMI that came in at only 50.0. The Caixin China Services PMI reading came in significantly better than expected, though, clocking in at 53.8, handily beating analysts’ anticipated 50.7 print.

Chinas November Purchasing managers index data
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  • The consumer goods sector of the Hang Seng Composite Index dropped 3.88 percent for the week, the poorest-performing sector for the week.
  • The Nikkei Malaysia Manufacturing PMI dropped to 48.2, down from October’s reading of 49.2 and still in contractionary territory.
  • Hong Kong’s Hang Seng Composite Index declined by 1.74 percent for the week, while India’s Nifty Index dropped by 1.68 percent.


  • Every single one of the world’s top 10 cities for GDP growth through 2035 is in India, according to a recent Oxford Economics study reported in Bloomberg News this week. At the top of the list is Surat, in Gujarat, which is expected to grow an average 9.17 percent annually.
  • The G20 meeting broadly, and the Trump-Xi sit-down in particular, left investors scratching their worried heads, but at the end of the day U.S. President Donald Trump said it was a great meeting with Chinese President Xi Jinping. Upon returning to China, President Xi said it was a productive meeting as well and that indeed the Chinese will continue to cut the trade deficit down and step up the game on the agricultural and auto fronts in particular. In the meantime, a trade “truce” of sorts is emerging as Trump indicates he’ll hold off on further implementation or hikes in tariffs for the next 90 days. Bloomberg reports moreover that the Chinese State Council website cited Premier Li Keqiang as saying that China should deepen reform in its scientific and technological system while also putting more efforts into protection of intellectual property rights.  In fact, this week China outlined some 38 penalties to be applied to intellectual property violations, starting this month. These are signs of progress, albeit amid a volatile week of global trading.
  • Surveyed expectations for the Philippines’ latest CPI print were for 6.3 percent (down from October’s 6.7 percent reading), but for the first time in several months the actual reading came in lower than expected at 6.0 percent. Philippine inflation has been on a tear; any signs of slowing inflation may well be good.  The peso has strengthened in recent weeks as well.


  • Risks and concerns surrounding the trade war between the U.S. and China continue to remain relevant and ever-changing. The trade “truce” may indeed be worthy of celebration but many are now attempting to look beyond the 90 day window and ascertain and game out possible next steps. In fact, Bloomberg reported on Wednesday that trade tensions are pushing firms across Asia to delay or cancel investment decisions and adjust their supply chains, according to the American Chamber of Commerce in Singapore. Data compiled by AmCham Singapore and Blackbox Research show that half of respondents are considering putting on hold or scrapping investment. In addition, around 38 percent are looking to source components outside of China, while 30 percent are seeking alternatives to U.S. supplies, the article continues.
  • Meng Wanzhou, the chief financial officer of Huawei Technologies, was arrested in Vancouver in connection with violating sanctions against Iran, reports Bloomberg. The arrest, which took place on the same day that Trump and Xi Jinping struck a trade war truce in Argentina, could now threaten to make the U.S.-China conflict much worse, the article continues. “This is sending a signal that there is a new game,” Dennis Wilder, former CIA China analyst and senior director for Asia at the National Security Council under President George W. Bush said. “They are trying to deter Chinese espionage and make it clear that there are real consequences.”
  • Business groups in Hong Kong are starting to worry that the Trump administration will move to end the financial hub’s preferential trade status, reports Bloomberg. Last month the U.S.-China Economic and Security Review Commission recommended that Congress reassess Hong Kong’s special trading status for some sensitive U.S. technology imports, the article reads. If Trump decides to follow through with this recommendation, it only impacts “dual-use technology with consumer and military applications,” however; the blow to the city’s image may be irreparable, according to business leaders.

Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performing for the week ended December 7 was Veros, up 358 percent.
  • The hash rate, better known as the mining power on the global bitcoin network, is down 36 percent from its all-time peak in August of this year, reports Bloomberg. Essentially, this means that “problem-solving difficulty” for miners is dropping, currently down 10 percent and making it easier for crypto mining rigs that are still in operation to earn bitcoins, the article continues. Although this is positive news for big miners, Bloomberg notes that consolidation among smaller miners can still increase risks for investors and others vested in the network’s success.

Bitcoin hash rate drops
click to enlarge

  • Following a meeting in Buenos Aires, leaders from the G-20 Summit released a declaration titled “Building consensus for fair and sustainable development,” on Sunday, reports Coindesk. In the document, the participants commit to a number of measures to help grow the global economy. The group of 20 nations also reiterated their pledge to regulate the cryptocurrency industry. “We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards and we will consider other responses as needed,” the document reads.


  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week ended December 7 was RealTract, down 76.89 percent. Bitcoin fell more than 11 percent overnight on Thursday, as the SEC again delayed its decision on a rule change for the first bitcoin ETF from VanEck, Seeking Alpha reports.
  • With bitcoin recently dropping to 14-month lows, Coindesk reports that this has left the cryptocurrency on track for its biggest ever yearly loss. Bitcoin’s only previous annual loss was in 2014 when it fell 57 percent, the article continues. So as long as the price stays under $5,959, 2018 will take the record for biggest annual decline.
  • According to data released by the National Police Agency in Japan, the nation’s cryptocurrency exchanges reported 5,944 suspicious transactions in the first 10 months of this year. This is a 788 percent increase in the number of reports compared to the 669 cases reported from April to December 2017. Coindesk writes that the police believe the rise in suspicious transactions is due to the new law mandating that exchanges report such transactions.


  • Despite the dramatic fall in digital currency prices, Danny Scott, CEO and cofounder of crypto exchange CoinCorner, remains undeterred by the movements, reports MarketWatch. “If we look back over bitcoin’s short 10-year history, it has experienced many price fluctuations – something that is to be expected given that the industry is still very young,” Scott said.
  • In an interview with Bloomberg Markets: Asia this week, Mike Kayamori, CEO of Japanese cryptocurrency exchange firm Quoine, said he believes that bitcoin will not only recover but surpass its all-time record high before the end of next year. “When you look at historical patterns and where things are going, I think the bottom is near” for bitcoin, Kayamori commented. In addition, the price of bitcoin could reach its long-term mean, Bloomberg Commodity Strategist Mike McGlone writes this week, in a move similar to those in 2011 and 2015 before the digital currency ramped up nearly 28 standard deviations, in late 2013 and 2017. “Bitcoin’s continuous mean near $1,500 has gravitational pull, and is also about the per-ounce price of gold and the launch level in 2017,” McGlone says.
  • U.K.-based Calastone, the world’s largest transaction network for investment funds, announced this week that it would migrate all 1,700 of its financial organizations, across 40 global markets, to blockchain in May 2019. “The migration, a world-first, connects one of the largest communities of global financial organizations using distributed ledger technology, marking a significant step for the digitalizing of the funds sector,” the group said in a press release. Calastone believes the move could save the company as much as 4.3 billion pounds ($5.5 billion), “achieved through the technological mutualization of the trading and settlement process.”


  • According to Bloomberg, most cryptocurrency miners are profitable only when bitcoin trades above $4,500, which hasn’t happened since November 19. “We note that the BTC price would need to re-accelerate substantially for mining to once again become self-funding, as it has been for most of bitcoin’s history,” reads a note published last week by Fundstrat. Since early September, Fundstrat notes that around 1.4 million servers have been unplugged once the fall in prices left them unprofitable, or forced to consolidate.
  • It looks as though some companies’ boasts that blockchain technology is improving operations might be unfounded, which could threaten, or at least delay, broader adoption. In a blog post on MERL Tech, fellows with the U.S. Agency for International Development (USAID) alleged finding no hard evidence to back up firms’ high praise of blockchain usage, either by combing through press releases and other official documents or by contacting the companies themselves. Not a single firm, the researchers said, was willing to share data on program results. “Despite all the hype about how blockchain will bring unheralded transparency to processes and operations in low-trust environments, the industry is itself opaque,” the authors wrote. “From this, we determined the lack of evidence supporting value claims of blockchain in the international development space is a critical gap for potential adopters.”
  • It appears there won’t be a payday for the biggest-ever bet on bitcoin options, reports Bloomberg. The options were purchased on LedgerX’s trading platform for nearly $1 million just days after the price of bitcoin peaked a year ago, the article continues, with a strike price of $50,000 and an expiration date of December 28, 2018. As Bloomberg explains, for the contracts to retain any value at expiry, bitcoin would have to rally more than 1,200 percent.

Who wins the match up men vs women explore the infographic here

Leaders and Laggards

Weekly Performance
Index Close Weekly
S&P/TSX Global Gold Index 175.19 +10.85 +6.60%
XAU 67.94 +3.48 +5.40%
Oil Futures 52.33 +1.40 +2.75%
Gold Futures 1,253.60 +27.60 +2.25%
Korean KOSPI Index 2,075.76 -21.10 -1.01%
Hang Seng Composite Index 3,506.88 -61.92 -1.74%
Natural Gas Futures 4.51 -0.10 -2.21%
S&P/TSX VENTURE COMP IDX 572.38 -17.14 -2.91%
S&P Energy 471.34 -15.08 -3.10%
DJIA 24,388.95 -1,149.51 -4.50%
10-Yr Treasury Bond 2.85 -0.14 -4.55%
S&P 500 2,633.08 -127.09 -4.60%
Nasdaq 6,969.25 -361.29 -4.93%
S&P Basic Materials 323.38 -17.73 -5.20%
Russell 2000 1,448.09 -85.18 -5.56%


Monthly Performance
Index Close Monthly
Natural Gas Futures 4.51 +0.96 +26.86%
S&P/TSX Global Gold Index 175.19 +11.70 +7.16%
XAU 67.94 +2.35 +3.58%
Gold Futures 1,253.60 +18.80 +1.52%
Korean KOSPI Index 2,075.76 -2.93 -0.14%
Hang Seng Composite Index 3,506.88 -23.41 -0.66%
S&P 500 2,633.08 -140.94 -5.08%
DJIA 24,388.95 -1,791.35 -6.84%
S&P Basic Materials 323.38 -27.16 -7.75%
Nasdaq 6,969.25 -601.50 -7.95%
Russell 2000 1,448.09 -134.07 -8.47%
S&P Energy 471.34 -47.66 -9.18%
10-Yr Treasury Bond 2.85 -0.38 -11.84%
S&P/TSX VENTURE COMP IDX 572.38 -99.62 -14.82%
Oil Futures 52.33 -9.34 -15.15%


Quarterly Performance
Index Close Quarterly
Natural Gas Futures 4.51 +1.74 +62.70%
S&P/TSX Global Gold Index 175.19 +23.22 +15.28%
XAU 67.94 +5.03 +8.00%
Gold Futures 1,253.60 +43.60 +3.60%
10-Yr Treasury Bond 2.85 -0.02 -0.73%
Hang Seng Composite Index 3,506.88 -147.87 -4.05%
DJIA 24,388.95 -1,606.92 -6.18%
S&P 500 2,633.08 -244.97 -8.51%
Korean KOSPI Index 2,075.76 -211.85 -9.26%
S&P Energy 471.34 -63.72 -11.91%
Nasdaq 6,969.25 -953.47 -12.03%
S&P Basic Materials 323.38 -48.12 -12.95%
Russell 2000 1,448.09 -266.38 -15.54%
S&P/TSX VENTURE COMP IDX 572.38 -137.18 -19.33%
Oil Futures 52.33 -15.44 -22.78%


U.S. Global Investors, Inc. is an investment adviser registered with the Securities and Exchange Commission ("SEC"). This does not mean that we are sponsored, recommended, or approved by the SEC, or that our abilities or qualifications in any respect have been passed upon by the SEC or any officer of the SEC.

This commentary should not be considered a solicitation or offering of any investment product.

Certain materials in this commentary may contain dated information. The information provided was current at the time of publication.

Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (09/30/2018):

Covestro AG
Sunny Optical Technology Group Co. Ltd.

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The Russell 2000 Index is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months.
The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500.
The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index.
Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.
The S&P/TSX Composite Diversified Metals & Mining Sub Industry Index is a subset of the constituents of the S&P/TSX Composite Index.
The S&P Supercomposite Paper & Forest Products Index is a capitalization-weighted index. The index was developed with a base value of 100 as of December 30, 1994.
The Bloomberg ECO U.S. Surprise Index is a measurement of economic data exceeding or falling short of analysts’ estimates.
BullionVault’s Gold Investor Index measures the balance of private investors buying gold to start or grow their holding across the month over those reducing or selling them entirely. A reading of 50.0 means the number of people buying gold across the month was perfectly balanced by the number of sellers.
The Nifty 50 Index is National Stock Exchange of India’s benchmark broad based stock market index for the Indian equity market.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The NYSE Arca Steel Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the production of steel products or mining and processing of iron ore.