Trade Prep: A Political Takeover
The stock market blasted out of its funk late last week thanks to a little help from the Fed.
The Dow ripped higher by nearly 750 points Friday as Fed Chairman Jerome Powell admitted the Federal Reserve could pump the brakes on its rate-hike schedule during the first quarter.
“Mr. Powell said markets have tumbled in recent weeks and aren’t expecting any Fed rate increases this year because investors are placing greater weight on risks to the outlook that haven’t yet shown up substantially in U.S. economic data,” The Wall Street Journal reports.
“Those risks, he said, include slower global growth, weakness in China, trade tensions and ‘general policy uncertainty coming out of Washington.’ U.S. data so far remain on track to sustain recent economic momentum, he said.”
Frankly, I’m sick of talking politics. But that’s the reality we’re dealing with in the markets right now. Policy uncertainty, as Powell notes, is taking its toll on investor confidence.
Here’s how it’s shaking up the markets at the start of a new trading week:
The partial government shutdown continues to limp along.
The media are floating rumors that Trump will declare a national emergency to circumvent congress to get his border wall as the government shutdown enters its third week.
The wall isn’t my main concern — and I’m guessing most investors don’t have a horse in this race. But if the border wall remains a point of contention and prolongs the shutdown, it could have a major impact on your pocketbook.
As tax season approaches, the IRS will accept returns and payments, MarketWatch notes, but it will not issue tax refunds during a shutdown.
Early filers beware! The 2013 shutdown caused $2.2 billion in delayed refunds to taxpayers, MarketWatch notes, and $1.5 billion to businesses.
Meanwhile, we could see new developments in the trade war as early as today.
A U.S. delegation is in China right now to attempt to broker a trade deal and steady world markets. As we discussed Friday, these will be the first official trade talks since December, when Trump’s “Tariff Man” tweet appeared to spark a wave of selling leading up to the holidays.
At this point, it’s difficult to tell which side is more desperate for a trade truce. But the Chinese delegation might have signaled its readiness to negotiate early this morning as Vice Premier Liu He unexpectedly showed up to the first day of talks, Bloomberg reports.
“Liu is the top economic adviser to Chinese President Xi Jinping, who led previous negotiations in Washington that produced a deal that President Donald Trump then repudiated,” Bloomberg notes. “China had previously said the talks would be led by a lower-ranking official from the Ministry of Commerce.”
I’m sure China would love to get a deal on the table as quickly as possible. After all, the Shanghai Composite is down 30% from its January 2018 highs.
Turning to U.S. markets, the Trump administration is undoubtedly watching how the major averages will respond to Friday’s bounce.
We know Trump & Co. closely watch the market. Remember, this administration has said from the start that it would look to the stock market as a “report card” for how their economic policies are performing. So they can’t be too happy with what they’ve witnessed over the past three months.
I’m sure it’s especially maddening that economic data continues to come in hot, as evidenced by Friday’s jobs numbers. But Trump has already pivoted from celebrating his economic and stock market wins to blaming the sagging market on Democratic election gains:
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From the trade war to Trump’s war of words on Twitter, we could continue to see more wild market action this week as the news unfolds. Since last year’s market stumble, Treasury secretary Steven Mnuchin and top economic advisor Larry Kudlow have tried to soften Trump’s rhetoric and talk stocks higher. We’ll soon see if Trump’s team jumps back into the fray if more tough talk tanks the market…