PMI’s around the world have been falling, and why should the US be any different?

Outlook:

The ISM report was a wake-up call that the US economy (and stock market) is vulnerable to the Trump trade wars. PMI’s around the world have been falling, and why should the US be any different? Well, the US is different. For one thing, manufacturing is less than 15% of the economy, vs. much higher numbers in places like Germany. A downturn or recession in manufacturing does not necessarily imply a pan-economy recession when services are the Biggie. Besides, Boeing and some tech companies have an outsized effect on manufacturing data—special cases.

Yada, yada. If one big, bad number can have the effect we saw yesterday, think what a series of such data could do. Granted, traders would quickly become accustomed to a series of bad data points, but that’s not the issue—the issue is what does Trump do about it? Going into an election year, any president seeking reelection needs a robust economy (think Bush I). Trump in particular needs a stock market that is not on the ropes because of his policies. Trump already blamed Fed chief Powell.

This implies that when China trade talks start up again next week, Trump may be more flexible than recent pronouncements would lead us to think. Or maybe it implies some other initiative, like pressuring the Fed again or announcing a tax or infrastructure plan. Fingers are crossed in Washington that today’s ADP report is favorable and not what the forecasts indicate—a slowing in job growth. It will be followed by the Friday release of nonfarm payrolls. We can predict the number of angry tweets based on how bad the ADP and NFP numbers turn out to be. Is there a betting market on that?

Assuming the ADP and NFP numbers are on the low side, as now expected, are they dollar-negative like the ISM report? Yes, probably. We may get some push-back from Fed speakers, with another batch due today, NY Fed Pres Williams, Richmond Fed Pres Barkin and Philadelphia Pres Harker. Here’s the problem: only one voice counts and it doesn’t belong to any of the Feds.

Still, we are reluctant to predict a turnaround in the dollar. Shocking breakouts to the downside, but false and fleeting. Development of a dollar negative scenario takes more data and a longer time horizon. We find the Atlanta Fed GDP forecast of interest. The Atlanta Fed sees GDP in Q3 slipping from 2.1% (Sept 27) to 1.8% as of yesterday.  Green shoots have withered, or as Bloomberg puts it, where is “stall speed.”

The bottom line: reduce the size of trading positions. Pull in your horns.

Politics: The Trump administration is pulling its same old tricks of obstructing justice by refusing to let people testify or deliver documents, with dozens of existing cases still tied up in court. Congress has weak retaliatory power—it can claim contempt of Congress but if it’s a criminal matter, it depends on the Justice Dept to follow up and that’s not happening because the Attorney General is in Trump’s pocket. He, along with others, need to worry about being charged with crimes the minute a new president comes in, if that is what we get in Nov 2020. If contempt of Congress is a civil matter, Congress can impose a fine. We are curious to find out why Congress doesn’t have the master-at-arms arrest the recalcitrant and stick them in the jail in the basement and then just forget to charge them for a while.

Still, the inspector generals of Intelligence and now the State Dept are standing up on their hind legs. Today we get testimony from the State Department's inspector general who will presumably clarify the role of Crazy Rudy and maybe how that military aid to Ukraine got suspended, plus some other issues.

Trump has been broadcasting his ignorance of the constitution and the law all over the place, saying he deserves to know the identity of the whistleblower (the law says he does not) and we better watch out for a civil war, presumably by his white supremicist supporters. One Republican is switching sides, maybe—Iowa’s Grassley, who co-wrote the whistleblower law and is going to defend its proper application. One senator said that if the impeachment vote in the Senate were a secret ballot, Trump would be convicted.

To demonstrate Trump’s extreme anguish over being impeached, he now proposes we shoot illegal immigrants in the legs to prevent them crossing the border. The sad thing is that the Trump base probably thinks this is a good idea.

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This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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