Pick your War: Trade War, Fed War, Cold War

Investors will continue to listen to the war of words between President Trump and China on a potential trade war as earnings chugs along. On the economic front, we have University of Michigan Consumer Sentiment, Durable Goods Orders and US Advance GDP.

 

Fed War: Between a currency war, Trade war, we now have a potential Fed war as President Trump said he is “not thrilled” about interest rate hikes. Let us remember about the meeting between President LBJ and the Fed when LBJ grabbed the Chairman and demanded he keep interest rates low to fund the Vietnam war, which he did. So much for independence. If we see the Fed not be independent, the US Dollar will weaken along with the markets.    

Earnings: Earnings continues with 175 S&P 500 companies and 11 Dow components scheduled to announce earnings this week. So far, 87 S&P 500 companies have announced earnings. Traders will continue to see individual stocks have huge price swings if a company’s earnings outpaces or fall short of what the street expected. For the companies that have already announced earnings, 74% reported revenue above expectations while 84% have reported earnings above expectations. This week has some heavy hitters including Coca Cola, McDonalds, and Exxon.

GDP First Release: On Friday (7/27), we get our first release of US GDP for the 2nd quarter. We get 3 releases per quarter, Advance, Preliminary and Final. The first release is the most impactful. If the reading comes in above 3%, which is Trump’s target to get the economy moving, expect to see markets increase. There is always the wildcard of trade wars impacting the number which could disappoint the street, sending markets lower.

ECB Press Conference: On Thursday (7/26), Super Mario Draghi will have a press conference. The market believes that Super Mario will not raise rates at the meeting and will keep interest rates near lows through the Summer. The consensus is for interest rates to rise next year once before Draghi retires in December of 2019. Should Draghi announce rates rising faster or at this meeting, we can expect a knee jerk reaction of European markets falling on the thought of less free money, than higher, showing that the economies can stand on their own 2 feet.

Manufacturing PMI: PMI readings from across the globe are also due out this week. Traders will watch these readings as potential weak readings could cause central banks to take further steps to stimulate their respective nation’s economies. Lately these readings have been slumping so the latest readings could be the result of central banks tightening monetary policy.

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