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Reuters reported that U.S. stock index futures rose to record intraday highs on Tuesday as oil prices surged and investors assessed earnings from top U.S. retailers.

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The theory is share prices are being driven higher by a strong oil price and retailers who are reporting better than expected store sales. Wal-Mart Stores, Inc., Macy’s, and Home Depot sales are all up on robust consumer demand. If stock prices were supported on consumer confidence alone, we could see an argument for this bull run in share prices to continue.

Stocks are up

Stock prices continue to rise thanks to strong retail sales and oil prices. Source Adobe Stock/Tiagozr.

There is plenty of optimism around. Donald Trump’s much-vaunted infrastructure projects are expected to create significant demand and have an inflationary impact on the economy… when they eventually see the light of day. 2018 At the earliest is our expectation since few are shovel-ready and all will have to get past Congress first. Meanwhile, though, the economy is adding jobs at a steady rate and unemployment is low.

Oil Supply

However, if Reuters is right and shares are being driven higher in part due to the oil price, we have a few concerns. The oil price was driven higher by the Organization of Petroleum Exporting Countries‘ production cap agreement last year, an agreement to which both major OPEC producers and 11 non-OPEC countries like Russia signed up to in an effort to reduce excess production and bring the market into balance by the summer. (more…)

President Donald Trump’s administration is mulling changes to how the U.S. calculates trade deficits. A change could be made that would show more movements of goods between free trade agreement countries, the Wall Street Journal reported recently citing people involved in the discussions.

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The leading idea under consideration would exclude from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged, the sources told The Wall Street Journal. These would not be traditional transshipments, generally done to disguise a country of origin, but rather shipments that are manifested to include the country of origin but simply move goods through a trade agreement country.

Economists say that approach would cause trade deficit numbers to go up because it would typically count goods as imports when they come into the country but not count the same goods when they go back out, known as re-exports.

Trump has been highly critical of trade deals including the North American Free Trade Agreement (NAFTA) with Mexico and Canada. By using a metric that widens the trade deficit, it could give him political leverage to make sweeping changes, the newspaper reported.

If the government adopted the new method, the deficit with Mexico would be nearly twice as high.

The effect of such a change would be particularly stark on data involving countries that have free trade deals with the U.S., this person said—and in some cases the new methodology could even change a trade surplus into a trade deficit.

Trump trade officials said the idea is part of an early discussion and that they are examining various options. It is unclear whether the administration would adopt any new approach for measuring trade as part of official government data, or just use the higher deficit calculation to make the case for new trade deals.

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“We’re not even close to a decision on that yet,” Payne Griffin, the deputy chief of staff at the office of the U.S. Trade Representative told the Journal. “We had a meeting with the Commerce Department, and we said, ‘Would it be possible to collect those other statistics?’”

The Journal reported that career government employees at the USTR’s office complied with the request to prepare data using the new methodology but also noted their objections.