This Morning’s Log Entry

The market is basically directionless at the moment, with the S&P trading within a range from 2780 to 2820.

Brexit negotiations continue to weigh on sentiment, as the process is at a virtual standstill with parliament unwilling to agree to May’s proposal and the EU unwilling to renegotiate. Clearly, however, there remains little stomach for a no-deal outcome. The pound has taken a hit this morning as yesterday’s optimism (when May’s deal looked like it might have support) abated. My base case – further delays and a deal later this year – stands for now.

Bigger than Brexit are the U.S./China trade negotiations. The market gave up a notable rally this morning after Kudlow suggested that there’s no rush; that the process could take weeks or months. Thing is, and this is what has the market nervous, the uncertainty (read cancelled expansion plans, supply chain disruptions and notably waning sentiment globally), plus the measurable decline I’m seeing in global trade virtually everywhere, plus the billions per month hit the existing tariffs are levying onto the U.S. consumer, and the attendant weakness now emerging in the U.S. data virtually demands that they reach a deal sooner than later.

The best thing, in terms of the latter, at this juncture would be a strong selloff in U.S. equities. General conditions could withstand that at this point and it would inspire a speedier resolution.

The market will rally on news that a deal is forthcoming. It will rally further on news that the deal includes the elimination of all of the recently added tit-for-tat tariffs. If, however, as Trump promised last week, the deal has those tariffs remaining, the market, I’m certain, will sell on the news.


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