Saturday, December 29, 2018

Next Week Will Be Interesting

Next week will be interesting, start to finish.

For starters, here's this morning's headline:

Trump hails call with China's Xi, says trade talks are making good progress...
Here's the tweet:
"Just had a long and very good call with President Xi of China. Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big progress being made!"
Barring any other seemingly consequential news between now and then, Monday morning's action in stocks will speak to the President's (and his advisors') credibility on the issue. You'll recall similarly positive commentary on several occasions throughout 2018 that was greeted warmly by the market, only to have it turn cold when statements were walked back, and/or when one of his advisors (Navarro or Ross) flipped the narrative with his own interpretation of events, conversations, etc.

Then, come Friday -- along with December's employment report -- all eyes and ears will be fixated on the commentary of Fed Chairman Powell, as he, Ben Bernanke, Janet Yellen and others will be powwowing on all things economic.

Let's say Powell softens on Fed policy going forward, you couple that with positive trade news and we could be looking at yet more of what we experienced last Wednesday and Thursday (+1,250 Dow points). If, on the other hand, he punctuates his latest commentary (expect two rate hikes next year, and zero flexibility on the balance sheet), well, scratch the odds of a repeat of last week (although, more positive trade news could overcome some of the fallout).

With regard to the Fed, I am definitely seeing some weakness in the data. Not, mind you, recession signals, but clearly a marked slowing of growth, and a souring of sentiment. So, yes, it makes sense that Powell would strike a dovish tune.

Like I stated in a recent post -- per the now somewhat murky economic outlook -- time is of the essence when it comes to putting the trade issue with China to bed.

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