This Morning’s Log Entry

As I type equity futures are moving nicely into the green, after trading lower for most of the evening. From Europe, Trump stated that he could add tariffs to an additional $300 billion of Chinese goods when the time is right, but added that China, and Mexico, really want to make a deal. The hint of deals, as opposed to the threat of more tariffs, is what traders keyed on this morning. 

Plus, the ECB has officially delayed a rate hike until well into 2020, which furthers the narrative that the world’s central banks see the deterioration we’ve been seeing for months and intend to keep monetary conditions easy, if not easier, going forward. 

The latter is clearly what’s keeping the market afloat this week. So much so that we’re in one of those bad-economic-news-is-good-market-news stretches. Case in point, yesterday’s nearly too-bad-to-believe ADP jobs number saw equity futures higher, while the much better than expected ISM Non-Manufacturing survey sparked an intraday selloff. I.e., bad news means yes Fed cut, good economic news means no Fed cut. Tomorrow’s BLS jobs number could be short-term huge.

While the Fed cannot keep an already-begun contraction from contracting, it can prolong even a slowing late-stage expansion, and, thus, traders are justified at this juncture in buying any news that points to Fed-easing.

The existential problem/risk is unequivocally global trade. The Fed can ease till the cows come home, and while stock prices will respond (given present conditions), it won’t circumvent the overwhelming damage of a protracted global trade war.

While of course I’m referring to the economy, and the equity markets, that “overwhelming damage” encompasses political outcomes for the perpetrator(s) as well: Therefore, being that Trump longs to be reelected, traders firmly believe that he’ll come to his senses relatively soon. Question being, will conditions hold up in the meantime?

I anticipate continued huge volatility, in both directions, for the time being.


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