A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Citi economist Catherine Mann argued that markets are making too much of the temporary U.S. China trade truce and also notes that Citi does not expect any Federal reserve rate cuts this year.
The latter is a decidedly non-consensus view that implies significant weakness for a market already pricing in help from the central bank,
“The temporary trade truce is vulnerable to further escalation and tariffs on the additional $300bn Chinese imports could be almost ready to go if negotiations fail… Meanwhile, 2020 could be a ‘deal-maker’ year with the US presidential election and US growth set to moderate. Rates markets continue to price around 75bps of Fed cuts for this year but our US economists expect no cuts. They do see a significant probability of a cut in July but the likelihood is lower with the Trump-Xi ceasefire, while the ISM manufacturing decline is unlikely to alter the Fed’s view but ISM non-manufacturing could call for some ‘insurance’ “
“ @SBarlow_ROB Whoa. Citi expects no Fed cuts for 2019?” – (research excerpt) Twitter
“China says existing U.S. tariffs must be removed for a trade deal” – Reuters
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Bloomberg reports that the Toronto housing market is heating up again.
This brings up an important question raised by Citi credit strategist Matt King, namely why aren’t rent and housing affordability counted as inflation?
I admit I haven’t fully thought through the policy implications, but the Bank of Canada would be far more likely to hike rates if it were.
“@SBarlow_ROB " loaves of bread and other items in the CPI basket may be affordable, but housing and pensions for a great many people are not" – (research excerpt) Twitter
“Toronto home sales jump again, nudging prices higher and narrowing affordable options for buyers” – Bloomberg
“More Canadians are drowning in debt, filing for insolvency” – Babad, Report on Business
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Barclays U.S. equity strategist Maneesh Deshpande is far more bullish than Citi as a “market melt-up” is now his base case for the S&P 500,
“After the truce in the U.S.- China trade war post the G20 meeting in Osaka, the “melt-up” scenario we had outlined previously is now our highest probability outcome, leading us to update our 2019 S&P 500 price target to 3000… we believe that the fed will still embark on an easing cycle. The weakness in global manufacturing continues unabated and the subdued inflation and softening inflation expectations will likely prompt some “insurance cuts” from the Fed. Fed fund futures are still pricing in an 80$ probability of one and a 20$ probability of two cuts in July… historically the fed has not surprised the market.”
“@SBarlow_ROB Barclays: Melt-up is now base case” – (research excerpt) Twitter
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Tweet of the Day:
Diversion: “Seinfeld is 30 years old. Here are 5 ways it changed television” – Vox
Newsletter: “Taylor Swift and everything you love will be turned in to dividend income” – Globe Investor
Scott Barlow