The Fed Stays The Course

Image result for stay the course

  • FED stays the course – Rates to remain low thru 2020
  • Christine Legarde takes the stage as ECB President
  • UK elections remain in question – Will BoJo succeed
  • Trade War 4.0 – Will Trump impose Dec tariffs?
  • Feast of the 7 Fishes – #7

Federal Reserve Keeps Interest Rates Steady, Sees Long Pause – WSJ 12/12/19

Jay Powell spoke and the markets embraced it. At the conference – Jay said:

“Our economic outlook remains a favorable one”.

And then indicated that the 10 members of the rate setting committee voted unanimously to leave rates unchanged for the next year. Projections showed that most of the officials think rates at 1.5% – 1.75% are low enough to continue to stimulate growth and would expect rates to rise once or twice in 2021.   Now, before you get all worked up about the possibility of rising rates in 2021, the language in the committee’s statement suggests that the threshold for another CUT in rates is much lower than the threshold for the Fed to RAISE rates. Boom, the indexes ended the day higher with the Dow up 30 points or 0.11%, the S&P adding 9 points or 0.29%, the Nasdaq adding 37 points or 0.44%, and the Russell tacking on 20 cts or 0.01%.

Now notice that with all that good news the market didn’t SURGE higher, and that’s because it’s just about at fair value for the end of the year. Investors expected what they heard so there isn’t any real reason to take the market that much higher from here based on any FED expectation. He was clear, he was boring (which is good), and he was reassuring.

Next up is the trade conversation. What’s up with that? The market appears to think that a delay is in the works and that the negotiations are ongoing and that everyone is playing nice. What the market doesn’t want is the tone of the conversation to change, if we don’t get a deal and tariffs go up, then you will hear more analysts discussing the risk to the economy, the risk to earnings etc. That will cause some investors to take profits from some of the highflying sectors as they wait to see what’s next. And that will cause the market to come under a bit of pressure, but will then create new opportunities as well. If we get a delay, then that will provide for more upside in the days ahead.

And the whole impeachment conversation? Having little to no effect on the trading mood. While the House will vote to impeach, no one is expecting the Senate to follow suit. This exercise is all part of the 2020 election cycle. Each side trying to position themselves ahead of the primaries. Now the republicans are sticking with Donny. There are no challengers, while the Democrats have 17 people vying for the nomination. So they need to jump on the “anti-Trump” impeachment bandwagon. Markets and investors will not really be paying attention until after the Super Tuesday primary on March 3rd. At this point, it will become much clearer who is left standing and then the conversations will turn to what sectors and industries will thrive or suffer. Remember that most of the candidates have an issue with Technology, Financials, Healthcare and Energy so those are sectors that will be at the top of the conversation.

Next up, is the debut of the new ECB (European Central Bank) President, Ms. Christine Legarde. She is set to give her first policy statement this morning from Frankfurt, Germany. Now she has had about two months to get her feet wet and so this debut performance is important. She has pledged to do a wide strategy review while assuring the markets that the current ECB monetary plan will remain in place. Her announcement will most likely be a repeat of what we saw yesterday from the FED.

Overnight global trading is beginning to slow as we enter the final two weeks of 2019. With the FED and the ECB assuring the markets that there are no changes for the foreseeable future, investors will now wait for the next trade headline. And it does not feel like it’s going to be a disaster at all. Remember, this is now 23 months of an ongoing “war” and the world economies have not collapsed at all. Period.

Today’s economic data includes PPI month/month– exp of +0.2%, Ex food and energy of +0.2% , PPI year/year of 1.3% and 1.7% respectively. Initial Jobless Claims of 217k and Cont claims of 1.678 million.  Although, let’s be serious. It is Dec. 12, no one is really paying attention to the economic data until next year.

They will be paying attention to what happens today in the UK. Remember the elections are taking place, so who will be the next UK Prime Minister and what does that mean for BREXIT? In yesterday’s note, I pointed out that while BoJo may win, he is likely not to get a majority. That means that it will be another three years of BREXIT negotiations. Oh boy, think of all of the fun we’re gonna have now.

FTSE +0.66%, CAC 40 +0.12%, DAX +0.19%, EUROSTOXX +0.27%, SPAIN flat, and ITALY +0.23%.

US futures are a bit higher. Dow futures are up 15 points, S&P +3, Nasdaq +9 and the Russell +2 points.  The market wants a deal, skinny or not, they want something. If the rumors are right, we will get something. In the end, the majority do not want to impose more tariffs on China, Lighthizer, Mnuchin, Kudlow all working hard to avoid that. If China doesn’t come to the table in good faith, then Donny will hit them with more tariffs. T – 4 days. Although I think we get the 11th hour deal over the weekend. It’s Christmas. Will it be Santa Donny or Grinch Donny?

Oil is doing nothing really, staying in the tight range it established over the last week. $58/$60. News that the IEA (Int’l Energy Administration) projects that there will still be an oversupply of oil into 2020.  The latest cuts enacted by OPEC and OPEC + may not be enough to stall that increase in supplies generated by US shale production and fringe nations that do not abide by the OPEC decision. On a side note, Saudi Aramco did reach a $2 trillion valuation earlier today as that issue traded higher again. But remember, there is not a big float, and the Saudis that “participated” in the IPO have probably been instructed NOT to sell a share of stock no matter where it trades!

Take good care.

Kp

Send your feedback here: AskKenny@sevenfigurepublishing.com

Follow me on Twitter: @KennyPolcari

%d bloggers like this: