Fed Governors Sound a Note of Caution… In the minutes from their last meeting, the Fed governors noted the lack of inflation and discussed waiting for new data before raising rates in 2019.
What it means – This was just what investors wanted to hear. After raising rates three times in 2018, investors worried that the Fed would be tone deaf to the market and global growth turmoil early this year.
The words of caution in the minutes allowed investors to breathe a sigh of relief and push the markets higher. As the stock indices climbed on Wednesday, they marked the highest gains in January since 2010, and clawed back a chunk of the losses from December.
The Shutdown Continues… The federal government has been closed for business for 21 days, with no end in sight.
What it means – President Trump walked out of a meeting with Congressional Democrats after determining that they had no intention of agreeing to fund an expansion of the border wall between the U.S. and Mexico. The president is considering declaring the situation a national emergency, which would allow him to use military funds earmarked for construction to build the wall.
Government employees displaced by the shutdown missed their first paychecks on Thursday.
About three dozen lawmakers have announced they will either forgo their paychecks during the shutdown, or forfeit their pay back to the government, in solidarity with government workers. Fewer than 10% of the 535 Congressmen have made the pledge.
Oil Shoots Higher As Saudis Near Supply Cut… Saudi Arabia publicly committed to cutting oil production by several million barrels per day. Oil prices moved up on the news, before falling back a bit on lower than expected U.S. inventory draws.
What it means – Crude prices have been falling for months as the U.S. pumped more oil and OPEC kept supply at high levels. The OPEC-plus group agreed to cut supply to the agreed 2016 quotas, but they didn’t implement the cuts until this year. Investors are anticipating less supply and driving up prices. West Texas Intermediate and Brent Crude prices are back above $50 and $60, respectively.
One countertrend is U.S. inventory, which dropped less than expected on Thursday morning, and distilled inventories were sharply higher. This news weighed a bit on energy prices.
But overall, it looks like the long-term slide is over. If the OPEC-plus group can stick to their supply quotas, oil prices should move higher, with Brent Crude prices moving above $70.
Consumer Prices Eased 0.1% in December… The consumer price index dipped slightly last month, and the annual inflation rate dropped 0.3% to 1.9%.
What it means – Weak energy prices pulled inflation lower at the end of the year. Excluding food and energy, core inflation ticked higher in December by 0.2%, and remained steady for the year at 2.2%.
Overall, the numbers were boring, which should be good for the markets because higher inflation would have raised the specter of higher interest rates. Now that the Fed has reiterated its “data dependency” several times, we’re left watching every data point, looking for a clue as to what the Fed will do next.
Trade Talks Continue… U.S. and Chinese trade negotiators met this week, and both sides reported progress.
What it means – Some issues are easy, like cutting tariffs on specific industries and goods. Some issues are easy to talk about, such as abiding by WTO regulations and not stealing intellectual property, but hard to verify. As the self-imposed March deadline looms, expect the talks to take on a bit more urgency. The Chinese economy is slowing down, and with the dust-up over the border wall and government shutdown, President Trump needs a win.
When the trade war is settled, the markets should jump for a few days at least.
About Three Dozen Congressmen Pledge to Renounce Pay During Shutdown… Some have pledged to hold off on funds, essentially delaying their pay, which is what happens with federal employees out of work due to the shutdown. Other Congressmen have opted to donate any earnings during the shutdown to worthy causes. One House Member, Brian Fitzpatrick (R-Pa.), has reintroduced his “No Work, No Pay,” bill which would eliminate Congressional pay during government shutdowns.
Notably, Alexandria Ocasio-Cortez (D-N.Y.) said several times before the shutdown that she wouldn’t take pay during such a time but has not committed to forgoing her income.
Instead of making a show of not receiving income, it would be much more constructive if the Congressmen simply did the job they were elected to do.
Data supplied by Dent Research/Delray Beach Publishing
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