Three cuts in a row is actually a pretty big deal

Outlook:

Everyone is gearing up for the Fed decision tomorrow, not the rate cut itself but rather the comments about what comes next. The WSJ astutely notes that the economy as a snapshot does indeed look okay, but as a streaming video, is clearly losing momentum. The Fed can choose to say the "mid-course correction" is succeeding and now we wait for more data, or it can say additional insurance is needed. Either viewpoint can be justified.

As reported yesterday, the current thinking is that three cuts is enough and the Fed will demur in December, despite Trump wanting endless cuts. Trump is undermining his own case for endless cuts by getting the China trade deal. He can't have his cake and eat it, too.

Besides, three cuts in a row is actually a pretty big deal. Any more and market observers may start talking about the Fed panicking. And yet Mr. Powell can't be too clear that December will be a hold, because there are some (there are always some) who will say the Fed is behind the curve and we have not yet seen the fallout from the tariffs, some of which come into force in December. Poor Powell.

Today we get Case Schiller house prices and the Oct Conference Board consumer confidence (which fell 9 points in September but was deemed to be "plateauing"). On the data front, the movers-and-shakers are yet to come—the ADP private sector jobs estimate, tomorrow, nonfarm payrolls on Friday and GDP and ISM. Funny, no one is talking about personal income and consumption and the derived PCE price deflator. Inflation/deflation are both just off the table, whatever lip-service the Fed delivers.

While the stock market is busy ignoring core conditions, big shot fund managers are meeting at a conference (in Saudi Arabia, of all places). Ray Dalio says the world is scary, under threat from "an explosive mix of ineffective monetary policy, a rising wealth gap and climate change" (Bloomberg). Dalio, like Jamie Dimon, says negative rates are the devil, and other important hedgies agree.

Here's the problem: we can't paint a Big Picture as long as the equity gang is gung-ho drunk and the political scene is divided in two. It will take a crisis for the important fault areas to come into focus. Right now we don't know what institutions are at risk. In the last crisis, the institutions are risk were the issuers of packages of subprime assets and their investors. What is it this time? Many people suspect the repo market, now being propped up by the Fed. While the repo situation smells fishy—actually, it stinks to high heaven—nobody can finger the culprits. If the Fed knows, it's not saying, and besides, it can "fix" it with cash. Can there be foreign sabotage?

Bottom line, the dollar is up a little and down a little as traders try to form a coherent worldview, albeit with one eye on the Disrupter-in-Chief. On the whole, the optimism over the China trade deal, the roaring stock market and the Fed rate cut ought to keep him quiet for a while, which leads to risk-off, which leads to dumping long safe-haven dollar positions. But don't count on it.

Politics: In the US, the ambassador to the EU is busily "clarifying" his earlier testimony to say yeah, it was a quid pro quo. As noted before, all we need is the quid, asking for something of personal political value. The House speaker has now scheduled the vote for Thursday that will nail down the intent to impeach and impress some to come forward. The House has also decided to forego the tiresome court battles over whether those subpoenaed to testify have any legitimate reason to refuse now that it has a court ruling saying there is no justification for anyone refusing. A court saying a formal vote is not needed and subpoenas must be respected was the trigger for the Speaker to call the vote and stop fighting subpoena refusers, who are now obstructing justice. Congress has no real teeth, but it doesn't look good on your resume.

Not needing that extra testimony is or should be frightening to the White House. One more person is coming forward today, an Army expert on Ukraine from the National Security Council with on-ground experience who was on the famous phone call and who validates the whistleblower account. The guy has a Purple Heart so it will be hard for Trump to dismiss him as an unelected bureaucrat from the Deep State conspiring against him.

Now for the Dems not to screw it up, as they so often do. The goal needs to be simplicity and clarity so bright that even diehard Trumpies can see the misbehavior. Impeachment is a political process and depends on public perception, as we saw with Nixon. When those polls start showing public opinion shifting, some Senators may find it in their self-interest to shift, too. Ah, wishful thinking. Meanwhile, Dem candidate Steyer is doing something really useful—running ads in Kentucky against do-nothing Senate leader McConnell.

Meanwhile, the press is hanging on to the story of the crowd booing Trump at a World Series baseball game, only slightly less loudly than they cheered for the guy who actually threw the opening pitch. Why did Trump not throw that first pitch like the other presidents before him? Possibly because he can't throw a ball 60 feet and can't be bothered to practice, something even Carter did. This is a guy who cheats at golf.

Finally, an FT story earlier in the month is coming back to haunt the White House. It said a Trump emissary to China had indeed asked for and gotten information about the Bidens. The guy tried to deny it but the FT reporter had an email from the emissary to prove it. So far it looks like the House is not going to use this second instance of Trump messing up foreign policy—a giant trade deal that jeopardizes the world economy, no less—for personal political gain.

 

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This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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