This Morning’s Log Entry

The Fed, per yesterday’s post-meeting commentary, shares our view on the state of general conditions. Powell’s comments regarding the present lack of inflation (transient), despite doing a bit of a number on stock prices (as I hinted it might in yesterday’s entry), were, all things considered, right on the money. That said, this morning’s strong productivity report suggests that there’s possibly room for certain pressures to run (notably) before we see above-Fed target (2%) inflation.

The Fed didn’t share our view, however, all that long ago, as we feel that they didn’t hike nearly enough when the hiking was good (2017 for example); thus, we can only hope that the economy re-accelerates enough to get them back into hiking mode in the not too distant future (again, we agree that now is not the time). I.e., there is indeed a recession somewhere in our future; if one happens to occur anytime soon (it’ll be due to a protracted trade war, btw) the Fed has very little of the traditional ammo with which to address it.

Stocks are struggling to find direction this morning; headlines suggest traders are grappling with the Fed’s quelling of rate cut expectations. Well, perhaps, but, if so, that’s a very light headwind that I suspect will abate before today’s session ends.

A potentially huge development, however, that surfaced yesterday was news that a U.S./China trade deal may be inked as soon as May 10th. Said news included a prediction that some of the 10% tariffs on $200 billion worth of goods will remain, as well as all of the 25% tariffs on $50 billion worth “until after the 2020 election” (talk about willing to admit political motivation [dangerously ill-conceived motivation in this case I’m afraid]!). Had the news read that a deal is imminent and that the tit-for-tat tariffs will be terminated, we’d be staring down an absolute monster rally this morning. The fact that we’re not staring down an epic selloff (due to tariffs remaining) simply reflects a holding off in wait for some clarity. Suffice to say that the uncertainty, at a minimum, serves as a market ceiling – or, let’s say a muting of otherwise potentially strong earnings-related gains — until more (the extent to which tariffs will remain) is divulged.

Tomorrow’s jobs number of course could move the needle, but, again, sustainable upward moves will have to wait for clarity on the future state of global trade.


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