- Fed officials will have opportunity to explain recent policy shifts at two conferences today
- Trump will meet Chinese trade negotiators today as markets hope for deadline extension soon
- UK makes no progress with EU on backstop compromise
- U.S. political turmoil possible next week
Fed officials will have opportunity to explain recent policy shifts at two conferences today — Six Fed officials will speak today at 2019 US Monetary Policy Forum in New York, sponsored by the University of Chicago Booth School of Business. The keynote address will be delivered by Vice Fed Chair Richard Clarida. San Francisco Fed President Daly and NY Fed President Williams will appear on a panel to discuss a report entitled “Prospects for Inflation with a High-Pressure Economy.” Fed Governor Quarles and St. Louis Fed President Bullard will appear on a panel to discuss the topic of the future of the Fed’s balance sheet.
Two Fed officials will speak at another conference in New York today, the Conference on Quantitative Tools for Monitoring Macroeconomic and Financial Conditions, sponsored by the NY Fed and the Atlanta Fed. Atlanta Fed President Bostic will deliver opening remarks and NY Fed President Williams will deliver closing remarks.
Fed officials will have an opportunity today to discuss their rate-pause and the abrupt change in their balance sheet policy. Wednesday’s minutes from the Jan 28-29 FOMC meeting said that “Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year.”
The markets are now expecting the FOMC within the new few months to announce that they are ending their balance sheet reduction plan by late this year. That is an abrupt change from Fed Chair Powell’s comment after the December FOMC meeting that the balance sheet program was on autopilot with essentially no end in sight. The markets can only assume that the Fed was spooked that its balance sheet reduction program might have been a significant cause behind the sharp drop in stocks in Q4-2018.
Trump will meet Chinese trade negotiators today as markets hope for deadline extension soon — President Trump today will meet with Chinese Vice Premier Liu on the last day of the 2-day US/Chinese trade talks. Mr. Trump’s meeting would mirror Chinese President Xi’s meeting last Friday with the U.S. trade negotiators in Beijing.
The markets are eagerly waiting to see if President Trump will extend next Friday’s (March 1) deadline for the US/Chinese trade talks. Mr. Trump will be in Vietnam next week for a 2-day summit on Wednesday and Thursday with North Korean leader Kim Jong Un. Mr. Trump will be back in Washington on Friday when he could address the US/Chinese tariffs, either extending the deadline or proceeding with the threatened hike in the tariff to 25% from 10% on $200 billion of Chinese goods. Alternatively, he could announce a deadline extension as early as today after his meeting with Mr. Lui, or he could make an announcement early next week before leaving for Vietnam.
Reuters on Thursday reported that U.S. and Chinese officials are working on six different Memorandums of Understanding on various trade topics in addition to a 10-item list of other measures mostly including China’s promise to purchase commodities and other goods.
UK makes no progress with EU on backstop compromise — There was no discernible progress towards a Brexit compromise when Prime Minister May met with European Commission President Juncker on Wednesday or when Brexit Secretary Barclay and Attorney General Cox met with their counterparts on Thursday. UK-EU talks on the backstop are scheduled to continue next week.
At this point, Prime Minister May has nothing new to present to Parliament by this coming Tuesday. Yet she has promised a Brexit vote on Wednesday, which is when there may be enough support for the Cooper amendment that would extend the March 29 Brexit deadline if there is no Brexit agreement by March 13. There appears to be a majority in Parliament only to prevent a no-deal Brexit on March 29, but no majority for any Brexit separation agreement that the EU will accept.
Bloomberg on Thursday reported that the EU expects Ms. May to request a 3-month Brexit deadline extension if Parliament votes to approve a Brexit separation plan since Parliament will need time to approve the enabling legislation. If there is no Brexit separation agreement, then EU officials expect Ms. May to request a longer deadline extension, assuming she does not go through with her threat to force a no-deal Brexit on March 29. The betting odds for a no-deal Brexit by April 1 are still at 7/4 (36% probability), according to oddschecker.com.
U.S. political turmoil possible next week — Politics could roil the markets next week since former Trump attorney Michael Cohen is scheduled to testify publicly on Wednesday before the House Oversight Committee on topics including President Trump’s compliance with campaign finance and tax laws and conflicts of interest. Mr. Cohen will not comment on Russian matters in his public testimony since those issues remain under investigation. Mr. Cohen is also scheduled to testify in closed-door hearings on Tuesday before the Senate Intelligence Committee and on Thursday before the House Intelligence Committee.
The markets are also waiting to see if this week’s CNN and Washington Post reports come true that Special Counsel Mueller could issue his final report on the Russian investigation to Attorney General Barr as soon as next week. The markets may not actually find out much about Mr. Mueller’s conclusions when he issues his report, however, because that report to the Attorney General is confidential and is not even automatically available to Congress.
Mr. Barr is then required to provide a brief report to Congress that summarizes the findings in the confidential Mueller report. However, it remains to be seen when Mr. Barr might deliver his report or whether he discloses anything more than the bare bones of who was charged in the investigation, with no comment on issues relating to persons not charged. There is also the outside possibility that the Mueller prosecutors could go out with a bang by announcing a last raft of indictments before closing up his investigatory shop and leaving the prosecution and trials to regular federal prosecutors.