We don’t have much in the way of special insight here above and beyond what we wrote in November (when we expounded on the extent to which Apple has become synonymous with the macro narrative) and reiterated on Wednesday (following Apple’s guidance cut), but we did want to briefly highlight some recent analyst commentary on Apple as a bellwether or, in this case, on Apple’s recent stumbles as a sign that the trade war is finally coming home.
Apple’s “shock” guidance cut, delivered after the bell on Wednesday, wasn’t really a “shock”. In November, a series of supplier guide downs tipped decelerating demand for some of the world’s most important consumer products and it’s been clear for months that the trade war was making an already tenuous situation for the Chinese economy immeasurably worse (although “immeasurably” might be the wrong word here considering retail sales and PMIs have done a pretty good job of “measuring” and otherwise quantifying China’s ongoing economic deceleration).
For those who need a refresher on our previous expositions re: Apple and the macro narrative, we would simply refer you to “Rotten Apple: When One Company Becomes Synonymous With The Macro Story“ and “Bad Apple“, but the gist of it is captured in the following short passages:
This goes well beyond waning demand for iPhones. There’s a read-through for global demand more generally and also for the Semi cycle which appears to be turning.
In short, it’s not a stretch to say that Apple may be a harbinger of what’s coming for the global economy and it’s certainly not a coincidence that the company is having such a rough go of it at the exact same time as the incoming economic data is rolling over across the globe.
On Friday, during his highly absurd shutdown presser, Donald Trump made it clear that he’s not inclined to care too much about how Apple is impacted by the trade war. His comments betrayed a generalized unwillingness to think about the company as a barometer of overall angst around his policy priorities. Here’s the clip:
For his part, Trump adviser (and newly-minted damage control expert) Kevin Hassett has a better handle on things, at least in terms of understanding that Apple’s warning has serious ramifications. Far from comforting, that’s even more disconcerting as it suggests that some members of Trump’s inner circle do “get it”, and seemingly don’t care.
In any event, BofAML is out with a new note that carries the headline “Macro guidance from Apple”. In a section called “Bellwether or false alarm”, the bank downplays the notion that the company is a proxy for the Chinese economy (which is a good thing) on the way to delivering a take that is perhaps even more disconcerting – at least for what it says about the outlook for the US. Consider this from the bank’s note:
Rather than think of Apple’s guidance as a bellwether for Chinese growth, we see it as part of a much broader picture. In particular, the weakness illustrates the many ways in which the US-China trade war can hurt the US as well:
- Trade war fears have already undercut the US equity market and fears of a hard landing for China add to that pressure.
- The trade war tends to weaken the renminbi, making a broad range of US products less competitive and lowering the dollar value of earnings overseas.
- Informal boycotting of US products adds further to the US-China trade deficit.
All of that runs directly contrary to what Trump said in the Rose Garden on Friday afternoon.
BofAML goes on to warn that while the US economy was relatively insulated from the effects of the trade war in 2018, that might be about to change.
“The US has tried to minimize the blowback from its tariffs by avoiding consumer products and either avoiding or giving exemptions for products without easy substitutes [but] looking ahead, the next moves would be much more painful”, the bank writes, adding that while “the US had a big offset to the trade war [in the form of] a double dose of tax cuts and spending increases, now, with the stimulus fading, confidence seems more sensitive to news that would have been ignored in the past.”
Finally, the bank reminds you that the US is much more constrained in its ability to respond to a slowdown, with fiscal policy now exhausted and the Fed pigeonholed by the threat of higher inflation and a still tight labor market. China, on the other hand, is “employing its full arsenal of stimulus tools—monetary and credit easing, a weaker currency, spending increases and tax cuts”, BofAML notes.
And remember, China hasn’t even begun to “kitchen sink it” (so to speak) when it comes to rolling out broad-based, pedal-to-the-metal stimulus.
The issue, as ever, is that as the fiscal impulse wanes stateside, the US economy is no longer immune from the global slowdown which, ironically, was in part a result of the Trump administration’s trade policies.
It was inevitable that the trade war would eventually boomerang back and Apple’s guidance may be the first (and best) evidence to support the contention that Trump’s foreign policy chickens are finally coming home to roost.