Monday, January 28, 2019

Today's Log Entry


Fed meeting this week: No change in rates, “patient” and “data dependent” will be the message; a statement that they’ll use all tools when needed (including balance sheet) will be given in the Q&A. Anything less dovish will likely spark a selloff in equities.

Brexit: T. May will not allow/propose a no-deal Brexit. While she’ll suggest publicly that “no deal” is in play, there’s just no way. And that virtually has to be the sentiment shared by players on both sides of the debate; as no deal would be utterly devastating for UK markets, the UK economy, and would ripple through global markets in a most negative fashion.

Trade war: Trump is extremely sensitive to the equity market, and has received the message that no deal would be devastating. It’ll become clear over the next few weeks that he’s moved into the Mnuchin camp and away from Lighthizer/Navarro. I suspect he’s telling Lighthizer to get this thing put to bed. Any commentary conflicting with the above will be met with sharp selling of stocks.

Earnings: The bar has been reset low. Bottom line beats will remain 60%+, top line beats will remain soft. Outlooks will be mixed, citing global headwinds…

Data: Jobs number this week should be decent, but not a repeat of last month’s 300+k. Other data will likely be mixed, particularly non-US data -- reaffirming global macro risk and justifying softening stances by major central banks.

Other: Month-end rebalancing – after a strong January thus far – could see the market trade lower this week. Particularly if there are any hiccups in the trade talks, a surprisingly less-dovish Fed announcement, or notably disappointing earnings announcements to spook would-be buyers.

Summary: Beyond this week, probabilities suggest that a consensus view that the Fed will remain easy enough, that the trade war is nearing its end, and that low recession odds will prevail should keep the market alive -- although a test of the 12/24 low remains in the cards. 

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