The thing about politics is nobody knows anything. We learned that in November 2016.
There’s a particularly high degree of ‘know-nothingness’ in Washington these days. That creates a lot of uncertainty.
Markets are reacting to it…and that’s really good news for us, actually, because it makes our work that much easier.
I don’t much care either way for ‘MAGA’, walls, coal, or even tariffs, for that matter.
I do concern myself with how those things might impact markets — the US treasury market, in particular.
Usually, we focus on stuff like the upcoming reports on the housing market. We’ve seen signs of weakness in June and July, so August will provide an important set of data.
But still, markets are moving more than ever to political winds.
We saw that on Monday, as stocks opened lower on worries of an escalating trade war with China.
And yet, this morning the S&P 500 Index gapped up to a new intraday all-time high.
Volatility: It’s our friend.
Of course, it’s not so much the S&P 500 we’re concerned with. Its yields on US government debt we follow.
They move, too, sometimes a lot…
Our attention now is on that housing data.
It’s not likely to have much impact on the 25–26 September meeting of the Federal Open Market Committee. The Fed is pretty much locked in for another quarter-point rate hike next week.
But inflation pressures did abate last month.
Both the headline and the ‘core’ Consumer Price Index (CPI) readings came in below consensus forecasts. Headline and core producer prices were also short of estimates.
Headline CPI came in at 0.2% against an expectation of 0.3%. Core CPI, which excludes food and energy prices, was up 0.1% versus a consensus estimate of 0.2%.
August’s Producer Price Index (PPI) declined by 0.1% versus an expected gain of 0.2%. Core PPI was also down 0.1% against a forecast gain of 0.2%.
And while retail sales were up in August, it was the smallest gain in six months.
Nonsense and Cents
More weakness in a critical part of the broader economy might/should give our monetary policymakers pause.
But we don’t know how the Fed will interpret the data. Indeed, the Fed doesn’t know how the Fed will interpret the data.
It must be concerned about raising the cost of money this late in a recovery cycle. But it also must be concerned about having ‘dry powder’ in case of another downturn.
Dry powder means room to cut interest rates, in short. So, it has to raise rates before it can lower them.
Makes perfect sense…
Well, I’m glad for the nonsense.
Because it’s the uncertainty — and the volatility that comes from it — that creates opportunity.
For Harry Dent Daily