This Evening's Log Entry

Stocks completely gave up what was an impressive move further above what had been stiff resistance. The selloff was in response to news that Chinese trade negotiators were backing away from what had been pre-commitments on issues around intellectual property. Followup articles reported that China’s threatened reversal is inspired by the U.S. not committing to the rolling back of tariffs introduced by the Trump administration.

Per our current base case, a deal that doesn’t include a complete rolling back of tariffs will likely be a sell-the-news event for equity markets. So, if China’s pushback assures a tariff rollback, today’s news is ultimately good news.

Asian markets are off across the board this evening, the Australian dollar is weaker (although housing data came in soft today, exacerbating the China-inspired selling), and U.S. equity futures are down roughly a quarter-point on average.

While the latest on trade will remain prominent in tomorrow’s news, the Fed meeting will be the headliner. Overall soft (but not scarily so) general conditions, general angst and financial market risk virtually demands that the Fed echo, if not enhance, its recent dovish tone. Thus, trade angst notwithstanding, markets should welcome tomorrow’s Fed announcement. My only hesitation is that the consensus is entirely on that (the dovish) side of the boat. I.e., any hint of hawkishness could see stocks notably lower.