29 Oct TRADE, MONETARY POLICY AND FIRES
Equity markets are pricing about a 90% probability the Fed will lower interest rates on Wednesday. In my view the global headwinds that pushed the Bank to cut rates in July and September have abated somewhat, a partial abatement that includes easing of US-China trade tensions and Brexit uncertainty.
I think I can write with certainty that if no action is taken, equities will trade considerably lower.
In some regards the Fed is in a no win situation, trying to push back from the belief the Committee is being bullied by both the President and “the market.” The only way to break this proverbial cycle is to do the unexpected.
Changing topics, what will be the outcome of the California fires? As widely known, the largest California utility has shut off power to more than 3 million people in an attempt to avoid wildfires. As reported the current fire may have been sparked by electrical lines.
This strategy may not have worked. Not only are people in the dark (and are angry), fires are still occurring.
As widely known California utilities have been mandated to invest in Green Energy. The end result of this government mandated spending is the syphoning of funds away from regular maintenance. California’s electrical rates are already two times higher than the national average thus the ability of the utilities to raise rates to meet all demands is hindered.
In my view, California is a microcosm of the demands that are now being levied by the long arm of government. The ideas sound great but how are they paid for, an environment amplified by the litigiousness of today’s society.
What will happen today? Will yesterday’s trade inspired rally falter? Will Treasuries rebound from the current selloff, the result of a possible trade deal that might ease economic uncertainty?
And then there are earnings. Several high profile firms nominally missed expectations.
Last night the foreign markets were down. London was down 0.83%, Paris down 0.05% and Frankfurt down 0.13%. China was down 0.87%, Japan up 0.47% and Hang Sang down 0.39%.
The Dow should open nominally lower as some the largest earnings releases occured yesterday and today, some of which posted mixed results. Moreover there is tomorrow’s Fed meeting. A rate cut is expected. The 10-year is up 3/32 to yield 1.84%.