Market Commentary

» Posted by on Feb 28, 2019 in Announcements, Shop Talk, Uncategorized | 0 comments

Stocks are steady to slightly lower this morning as traders continue to digest yesterday’s heavy wave of testimony in Washington.

Two of the main driving forces in the market as of late have been positive trade negotiations with China and the change of rhetoric by the Fed. It just so happened, two of the most important players in those areas were called to testify in Washington.

Top U.S. trade representative Robert Lighthize, testifying before the House Ways & Means Committee, told the congressional group that the U.S. and China still had hard work ahead to settle their trade dispute. Lighthizer said, “it is too early to predict the outcome” of negotiations between Washington and Beijing, and that “significant structural changes” were needed to the Chinese economy. Lighthizer also said, “there’s no agreement on anything until there is an agreement on everything,” but that the talks had spent a lot of time on the currency issue and “I think there will be something on it.”

Federal Reserve Chair Jerome Powell finished his second day of testimony telling Congress the central bank would stop shrinking its $4 trillion balance sheet at some point this year. The Fed Chair also seems content on pausing further interest rate hikes until more strength can be seen in the U.S. and global economies.  Really nothing that we hadn’t already heard, but it was nice to receive further confirmation of their plan.

The “wild-card” yesterday was obviously President Trump’s former lawyer Michael Cohen, who was also testifying in Washington yesterday. He called President Trump a “conman” but said he had no direct evidence Trump colluded with Moscow to bolster his White House campaign ahead of the 2016 election.

Once the trade realized there was not going to be any new bombshell dropped by Cohen the market seemed to relax a bit.

As for today, fourth-quarter GDP data is scheduled to be released. Keep in mind, this is a month later than usual due to the recent government shutdown. There’s some talk U.S. growth might have pulled back to a slow jog, perhaps dropping below 2% growth between October and December of last year.

Don’t forget the stock market was back on its heels, the Fed was hiking rates, housing sales and new construction had slowed, tariff talk was in full-swing, a portion of the government had shutdown, and both business and consumer spending might have paused for a moment.

For what it’s worth, in the second-quarter of 2018 GDP growth was estimated at 4.2%, third-quarter growth fell to 3.4%. The good news, is if the number can come in a bit stronger than bears are forecasting, there’s still a chance we could see +3% annual growth, something that hasn’t happened since 2005.

There’s six Fed members out on the speaking circuit today, so look for additional Fed headlines to help influence the trade.

We are also keeping a close eye on escalating tensions between India and Pakistan. From what I understand, Pakistan airspace remains closed for the second straight day and is disrupting thousands of flights worldwide.

Many airlines diverted or re-routed their flights and some had to make stops to take on extra fuel to complete extended journeys that avoided Pakistan airspace.

Tensions between India and Pakistan, had been heating up for the past couple of weeks, but escalated massively this week when the Pakistan air force shot down two Indian jets over the disputed border region of Kashmir.

Pakistan claims to have captured one of the Indian pilot and now things are becoming even more dicey.

As for how it impacts the U.S., Afghanistan seems to be the first area of concern. The U.S. still has troops on the ground in Afghanistan which shares a border with Pakistan and continues to struggle with terrorism activity.

India’s general election is coming up and the rising tensions could affect the campaign plans of Prime Minister Narendra Modi.

Remember, India is considered a strategic ally and an important part of our nations defense strategy across the Asian region. We need to keep an eye on this potential powder-keg!

 

 

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