What’s going on in the world…
Market opens higher on the back of more impressive retail earnings. Lowes and Target are soaring in early trading. Many retailers have been left for dead. The American Consumer is still spending. They’ve just changed their behavior, opting for online purchases and more targeted physical stores. They seem to have abandoned the mall. Despite all of the calls for recession in the US, American consumers are still spending. They represent 70% of the economy. The US keeps holding in better than the rest of the world. Demand for American assets remains strong. That said, there is no great explanation for the strength. Retailers are a small fraction of the overall Market. Investors remain in waiting mode for Fed Chair Powell’s speech on Friday. The Fed will release its July meeting minutes today, showing how split members were over the decision to cut rates. They might prove to be more hawkish than what’s priced in. The Market is still assigning a high probability of lower rates, making it a near certainty of a ¼ point cut in September. The President is calling for a full 1% cut plus quantitative easing, measures normally used for a crisis, while he claims the US is far from recession. The Fed is feeling pressure, but the recent economic data and retail earnings are going to make it tough for the Fed to move aggressively. The Fed continues to be the key. There was nothing material on US-China trade overnight, though rhetoric from both sides continues to reduce expectations for a meaningful breakthrough. President Trump said yesterday that he needed to go after China for cheating on trade and that it could cause some short term economic pain, but it would be worth it. This is a departure from his constant comments that we are winning and the economy is unaffected. At this stage, the Chinese seem to prefer to wait this one out and take their chances in 2020, or beyond. President Trump said he is considering additional tax cuts, including a cut in payroll taxes and changes in the way capital gains taxes are calculated. Our Washington sources see little chance of the former happening given the current political environment (gridlock), and the capital gains issue is plagued by legal questions and, in their view, provides little political benefit to the President. Yesterday’s losses have been erased with this morning’s gains. The whipsaw action continues as this Market tries to figure out where we’re headed. Expect volume to slide and to remain range bound ahead of the weekend meeting in Jackson Hole. Energy is catching another bid as BMO calls for a big rally ahead for Chevron and Exxon, among others. Stocks are higher and Bonds are lower. Interest rates are ticking up. Oil is higher, the Dollar is lower and Gold is taking a breather. It’s the complete opposite from yesterday, in an orderly fashion. We’ve gotten used to this… Resolution probably won’t come before October.
Have a great morning,