Maybe it’s just me.
Or actually, I know it’s not just me, because I’ve read similar commentary from multiple analysts and traders on Friday who seem to agree with some version of my take both on Richard Clarida’s CNBC interview and on Donald Trump’s afternoon trade comments.
It’s not at all clear to me that Clarida was attempting to dispel the notion that the Fed won’t ultimately create restrictive policy depending on how the data evolves. I don’t think that’s what he meant on Friday when he said we’re “close to neutral”.
On Trump, I’m admittedly inclined to doubt the veracity and, perhaps more importantly, the sincerity, of anything that comes out of his mouth. His Friday comments on trade sounded like everything else he’s said on the subject since April – “maybe things will work out, but if they don’t, then that’s ok too.” That’s not a direct quote from Friday, but it actually is at least partially a direct quote from his previous trade banter as he’s very fond of reminding everybody that if reconciliation isn’t possible, well then so be it.
Read our take on Clarida and Trump
All of that said, if you believe that both the Fed and the President learned something from October, when ongoing trade jitters conspired with Powell’s “long way from neutral” comments to rattle equities, then I suppose it’s possible to interpret Friday as a relent from Clarida (on behalf of Powell) and Trump (on behalf of, I don’t know, the crazy badgers who live in his brain and whisper to him all day, maybe).
In that context, it’s worth noting that on Friday afternoon, JPMorgan’s Marko Kolanovic was out with a brief update and in it, he says the following:
In line with our previous research, we think that equity market sentiment is held back by two key risks: the Fed hiking beyond the neutral rate and escalation of global trade war. Today, there are significant positive developments on both of these market risks. Fed vice chairman Richard Clarida indicated that the Fed may stop at the neutral rate (rather than continue hiking beyond the neutral rate), which might be interpreted as an effective “rate cut.” The second development is Trump’s statement that he may not need to impose more China tariffs and that the “China list is pretty complete, four or five things left off” (from the original list of 142 requests, i.e., 96% of items have been addressed). Naively interpreting the likelihood of a deal by the number of items addressed would indicate a significantly increased probability of a trade deal.
The reference to “previous research” there is a nod to Kolanovic’s contention that while systematic de-risking, option hedging flows and, ultimately, hedge fund deleveraging were the “fuel” for the October selloff, the proximate cause (or, the catalyst) was politics.
“It was essentially a miscalculation and a conflict between the US Administration and Fed going into important midterm elections”, Kolanovic wrote on November 7, adding that “going into the election, the US administration perhaps miscalculated that the NAFTA deal would be enough to prop up market sentiment, and that the Fed would provide dovish ‘cover’ for the trade war.”
Depending on how you interpret Friday, it’s possible to paint Clarida’s comments and Trump’s remarks as the first signs that both of the “responsible” parties for the October rout are now attempting to correct their mistakes.
So, again, maybe I’m wrong.
Maybe we saw the light at the end of the tunnel on Friday.
Time will tell.