With geopolitical theatre (trade war posturing, central bank comments, FBI raids of Presidential lawyers, etc) grabbing all the headlines this week, it’s easy to forget that there is still some potentially market-moving economic data scheduled for release.
Equity markets are green this morning and trying to set a tone for the last day of the quarter. All eyes have been on the 200-day moving average lurking just below at 2588.25 today and yesterday was yet another failed attempt to take it out. We expect this consistent hold to shift the fear in the market into value seeking as money managers and funds look to put some dollars to work in an attempt to make the quarter look, well, not so bad.
There are a lot of risks that financial markets have shrugged off during the last couple of years to the amazement at times of investors, but the prospect of a trade war is clearly not one of these. European markets are following Monday’s lead from the markets posting substantial gains this morning, while U.S. futures are pointing to another strong start on Tuesday. It has become clear that the main target of Donald Trump’s tariffs on steel and aluminum was China, with a number of other countries being granted extensions and possible exclusions since the announcement, while the threats have intensified toward Beijing.
The FOMC members will gather today for a two-day meeting. It will be the most important event this week, since Powell will chair the meeting for the first time. Gold investors want to get to know him better as the uncertainty makes them a bit nervous.
A reconstituted Federal Reserve under new leadership will face tough challenges in the year ahead. Monetary normalization is well underway, with the Federal Open Market Committee (FOMC) having raised the Federal funds rate five times since it left the zero lower bound two years ago and started shrinking the bloated balance sheet built up through three rounds of bond buying.
The goal in trading is to get ahead of the herd. It’s best to anticipate what’s going to happen in the next five to 60 days and focus on major events. Is the top analyst going to upgrade a stock before earnings? Will global macro traders try to position hawkish or dovish around the next FOMC statement? Will the next crop report show more supply or demand? These are the questions; the answers to which will move markets.