Markets dither on noise await Fed signal

Summary

Dithery market sentiment partly reflects a lack of clear signals for direction compared to extensive geopolitical noise.

Oil, Fed, Trump in the mix

Intermittent weakness is led by sickly crude oil prices, themselves prone to the ebb and flow of supply uncertainty mixed with concerns that a production rebound may be faster than expected. In turn, the dollar, European markets and U.S. equity index futures take turns to dip in and out of the red. Seasonally lower trading volumes play their part. An inconclusive perspective on U.S. inflation and therefore rates and ultimately the greenback plays another. Major market voices (e.g. Goldman’s chief economist) and FOMC members alike (e.g. Neel Kashkari) are now debating the true meaning of the flattening yield curve. Fed chair Jerome Powell has repeatedly been cool about the topic and is unlikely to add much further food for thought in his testimony later. The market has not made up its mind either, but bouts of pessimism on the outlook are becoming more frequent, judging by a sluggish turn by yields and the dollar. U.S. President Donald Trump’s bewildering stance on just about everything is a further complication, though is becoming the least unpredictable piece of the puzzle.

Netflix miss, Teflon Tesla

Netflix’s subscriber forecast miss was almost certainly just a small dent to the streaming pay TV growth story. From a wider market perspective though, the timing is unfortunate, as the earnings season builds to a peak. Disappointment by the first report from high-growth large caps that are outpacing a sluggish S&P 500, could cast a long shadow. The antics of Tesla’s increasingly ‘mercurial’ CEO are also among possible triggers of a pause in entrenched bias for growth shares. Tesla stock does have a Teflon quality much like its CEO, despite a long list of eccentric utterances that present varying degrees of difficulty for the board. With offending tweets deleted and stock rising in after-hours trade, Musk could avoid being hauled over the coals again - so long as threatened legal action is unfulfilled. Neither Netflix nor Tesla are likely to move the dial on the market’s prevailing ‘style’. Still, with investor wariness heightened after two months of turbulence and high-beta valuations barely lowered, the bar for quarterly performance could well be higher now.

Powell the positive

The dollar has duly slipped ahead of Powell’s appearance this afternoon, leaving sterling, among other majors, to fill the vacuum on the basis of a firm though not spectacular showing by the UK jobs market. Data showed unemployment steady at a 40-odd year low and wage growth matching expectations albeit it slipped to the slowest in six months. There’s little reason to expect similarly firm euro and Loonie and a building Aussie bid to fade before Powell speaks. However, a pattern of shooting currencies first and selling the dollar later has been established over recent Powell appearances. The greenback is likely to reflect again, for a spell, the Fed chair’s unabashed message of resounding U.S. economic growth. Cautions about trade policy may also be repeated. If so, they will be in the context of their neutral impact on the economy thus far.