Weekly column: Can anyone argue for rate cuts amidst political turmoil?

Review

It was a pretty quiet week overall, considering the previous week’s breakouts to new highs in many markets following Uranus’s ingress into Gemini on July 7. However, this could be construed as normal market action in the wake of such large gains. In the US, the S&P and Nasdaq made modest new all-time highs again, but these are still unconfirmed by the DJIA. As this intermarket bearish divergence continues to build, it is sending a warning to market bulls that a rather significant correction could transpire at any moment. In Europe, it was a mixed bag with many indices settling near unchanged. The UK FTSE was the only standout, gaining 1.3% on the week. It was much the same for the Asian stock markets as well.

In commodity land, the Crude Oil market ended the week lower but not before putting up a fight. Gold hit what could be the final major cycle crest on Monday, July 14, before a steeper decline to a primary cycle low begins. Unfortunately, last week’s price action following Monday’s high of 3389.30 didn’t do much to signal that this decline has begun. However, we do note that we still have bearish intermarket divergence between Gold and Silver after the latter ripped to fresh 13-year highs while Gold remains below its all-time high of 3509.90 achieved in April of this year. As a farmer, I am certainly biased here, but the best commodity markets may have been the grains this past week. Corn looks to have put in a primary cycle low with Monday’s key reversal and finished the week almost $0.30 off the lows. Soybeans were also strong, finishing up almost $0.50 off the lows. The rally was most assuredly welcomed in the Ag community, as I suspect many producers are very undersold this year.

In crypto currencies, Bitcoin consolidated its gains from the previous week, but the real story was Ethereum, which shot up to fresh 6-month highs. This was largely due to favorable legislation being put through Congress that could lay the foundation for crypto to be integrated into a larger part of the financial system.

Short-term geocosmics

“US President Trump has recently shown an eagerness to change the media narrative. The narrative changed yesterday with speculation about the future of Federal Reserve Chair Powell. That shift might be expensive. Trump declared they had been “surprised” by Powell’s appointment. Trump originally appointed Powell.”

—The Dangers Of Being Surprised, UBS morning audio comment by Paul Donovan.

I am sure most are familiar with the acronym “TDS,” which is short for Trump Derangement Syndrome. The term is often hurled by Trump supporters towards some of his strongest critics, and not in a positive way. But to be honest, the term could just as easily be applied to some of his most staunch supporters, who blindly follow the president unquestioningly. When reading the above quote, I can’t help but wonder if President Trump himself is suffering from a form of TDS? The jokes seem to be writing themselves these days!

“After this week’s events, the question is whether anyone can advocate for US rate cuts without being seen as a political puppet? Yesterday, Federal Reserve Governor Waller offered some (debatable, but valid) economic points in favor of US rate cuts, but the position is politically tainted. The problem for the Fed and markets is that the US administration’s policy continues to create considerable uncertainty about the economic outlook.”

—Can Anyone Argue For Rate Cuts?”, UBS morning audio comment by Paul Donovan, July 18.

Trump has been a harsh critic of Powell in recent weeks, publicly berating him for being too slow to lower interest rates. He has even threatened to fire the Fed Chair, although I am fairly certain he doesn’t have the power to do so without probable cause. In his defense, Powell has publicly stated his reservations on lowering rates are based on Trump’s tariff policies and the potential inflationary effects they may have down the road. The rhetoric between these public figures is unlikely to get much better with Mercury (the Trickster) now retrograde from July 17 until August 11. This time period can often be fraught with misunderstandings, broken lines of communication, and is not the best time to start or enact a new policy (such as cutting interest rates). After all, with inflation reports and expectations again starting to flare, who really would even want to?… Oh yeah!…that guy. 

In financial markets, when the “Trickster” is retrograde, we often see choppy market action with reversals every 2-4 days. Technical signals also become less reliable along with fake-out moves above and below support and resistance zones. As a rule, we generally do not initiate new position trades during this time. However, the interest rate markets (specifically T-notes) seem to like changing directions during planets’ stationing retrograde or direct. Since March 1, T-notes have formed an isolated high or low within 3 trading days of a planet in our solar system changing directions. This was usually followed by a tradable rally or decline. I bring this up because last week we had Saturn turn retrograde on July 12, with Mercury joining the party on July 17. T-notes were in the time band for a major cycle low and fell right to trendline support on July 15 following the CPI report. If T-notes can hold the lows of this past week, a tradeable rally (lower longer-term interest rates) just may be in the offing. I wonder how that will go over with President Trump?