Note Précis July 18,2018: A Chockful of Developments – A chockful of developments range from politics to policy to growth and into corporate reporting season. In politics, it has already been extraordinary. The emergence of checks and balances is overdue but does remain to be seen. The potential impact of the faux pas of late exceed those of a Russian prime minister thumping his shoe at the United Nations or later, its president snubbing counterparts at Shannon. Currently as superpower, the U.S. President appeared to raise questions of commitment to power balances. On trade, U.S. tariffs have been raised for European and other allies. U.S. initiations have sparked tit-for-tat tariffs potentially on hundreds of billions in trade between it and China, as the latter raises firm response in equivalence.
The IMF WEO report of July 16, 2018 does envisage world GDP growth closer to 4% annually. Emerging country growth appears closer to 5% per year but most heft appears from India and China, both being in the 6 ½ – 7 ½ % range. Many other emerging countries have far less. Suggestions appear growth could be cut 0.5% from tariffs. Subsequent to the U.S. Federal Reserve semiannual Monetary Policy Testimony to Congress of July 17,2018 with a PCE Deflator of 2.3 % and on being data driven, we still see Fed Funds of 3.5% as appropriate into Q2/2019, albeit even if a terminal rate.
Even by current cycle standards and certainly by those of prior cycles, market reactions appear obtuse. However, the sense of suspended disbelief could soon lift and would likely be experienced first in elevated volatility. In contrast to the many points of time in this cycle when simply beating oft reduced consensus was regarded as success, we believe there is an urgency to focusing on revenue delivery and financial strength as corporate and indeed country results are released over the next several weeks. The Financials remain crucial to market direction.
StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e