by Greg Valliere, AGF Management Ltd.
CONGRATULATIONS TO U.S. MILITARY AND INTELLIGENCE personnel for killing the despicable terrorist Abu Bakr al Baghdadi; the world is a better place without him. Meanwhile, there are two big political implications:
1. A victory for Donald Trump: As always with Trump, there will be issues — what did he tell the Russians, etc. — but this couldn’t have come at a better time for the reeling president. Even though he said it was a “load of crap” to praise Barack Obama’s take-out of Osama bin Laden, Trump will take a victory lap. Obama got a temporary 6-point bump in the polls, and we suspect this will help Trump’s numbers for a couple of weeks.
2. Republicans Back in Line: This is the big political implication. Numerous Republican lawmakers were showing signs of insurrection, especially over Trump’s Mideast policies, but now they’re praising him. Chances of House impeachment are still high but already-slim chances of Senate conviction have slipped a bit in the past 24 hours; Trump’s GOP backing once again looks rock-solid.
BOTTOM LINE: Presidents usually control the agenda. The media may not like Trump, but he manipulates press coverage adroitly with hour-long press conferences that keep him in the spotlight. His self-promotion knows no limits, and an October surprise next year is a virtual certainty.
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WE THINK THE KEY FACTOR FOR TRUMP continues to be the economy, which may look decidedly mediocre in the next few days — third quarter GDP on Wednesday will probably be below 2%, and the unemployment report on Friday may look soft (under 100,000 non-farm payrolls), partly because of the GM strike.
WE DON’T ANTICIPATE AN IMMINENT RECESSION, but the economy is gradually decelerating, which should produce a very close call at the Fed this week. A 25 basis point rate cut on Wednesday is likely but not certain, as central bankers worry about squandering their dwindling ammunition — and as the stock market approaches record highs.
WE THINK JEROME POWELL’S press conference will dampen expectations for much more rate cutting. Trump will blast away at the Fed Chairman, but the president has a problem with many FOMC members, not just Powell. The markets could howl on Wednesday if there’s no rate cut, so there probably will be one — but the Fed’s “re-calibration” of rates is about over.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
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This post was first published at the AGF Perspectives Blog.
