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The Global Markets Weekly: Trump Versus Powell?
Trump Versus Powell?
President Trump’s shot across the Federal Reserve’s bow is better read as Trump being Trump than a real assault on the central bank’s independence, and should not be expected to impact policy. Political pressure is nothing new for Fed Chairs, accustomed to referring back to mandates when deflecting pointed questioning from members of Congress. Some suggest the Fed may err toward more hikes rather than fewer so as not to seem beholden to the president. That sort of expectations double-cross would be as much a loss of independence as ceding to the President’s wishes, making it unlikely as well.
As differences of opinion on the FOMC itself suggest, there are good reasons for a variety of policy rate paths as conditions evolve. As Powell’s testimony indicated last week, the evidence supports continued removal of stimulus “for now”. Drivers include supportive financial conditions, a resilient financial system, fiscal tax and spending tailwinds, and better global growth, despite some uncertainties. Trade war risks for now remain a source of uncertainty to which the Fed will react, not anticipate.
If the Federal Reserve pauses in quarters ahead it will be because the risks it has outlined loom larger (more than a few Fed officials would prefer to move cautiously at the moment), and if they move more quickly it will be because of relevant reasons, which do include fiscal stimulus at an unconventional point in the business cycle.
The coming week includes a number of key releases in the Eurozone including the ECB decision and regional PMIs. Rate differentials continue to favor the dollar but that is not news with the ECB on the sidelines in terms of major policy pivots over coming months. PMI data have been softening since the start of 2018, and could impact those expectations. U.S. Q2 GDP should be strong but is also old news. Where DE differs from consensus and the Fed is in our expectation that momentum remains more robust into yearend and 2019.
Elsewhere on the S&P 500 earnings front, results are tracking in the 21-22% range with likely slippage higher if a higher-than-normal beat rate persists. Expectedly-strong current results are less important than outlooks, but those expectations may grind higher if DE’s scenario of firmer-than-consensus growth over coming quarters plays out.
Coming Week’s Key Indicators and Events
| Release | DE / Consensus | Comment | |
| U.S. | Q2 GDP (Fr) | 4.1% / 4%
|
Solid rebound after moderate Q1, consumer spending picks up toward 3% or better after 0.9% Q1. Solid capex, trade and inventories add too. |
| Euro | Jul Manuf PMI (Tu)
Jul Svcs PMI (Tu)
ECB Decision (Th) |
-0.2 to 54.7/-0.3 | Reasonable to expect no rate moves until late in 2019? No waves at the decision this week, data to determine thinking in coming quarters. |
| Japan | Tokyo CPI (Fri)
|
BOJ in two weeks. Yield curve tweak ahead to support bank profits? | |
| China | Little data, watching trade war. | ||
| Turkey | Rate Decision (Tu) | +125bps/+100bps | Soaring prices, chaotic and unreliable policy backdrop. |
[private]gmw_0720[/private]
Research Studies
DE | Sinai Economic and Market Perspectives | Seeds of A Sovereign Debt Crisis Planted – 02/03/21
[private] [/private] Seeds of A Sovereign Debt Crisis Planted Allen Sinai* The U.S. and Global economies have undergone a fiscal/debt revolution of huge import from which there will be no turning away! The main catalysts read more
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