Political stuff is an acknowledged driver these days

Outlook

Today the US features consumer confidence, the Richmond Fed, and the start of the Jan FOMC. We also get earnings from a slew of big companies including Boing and GM, with the Big Tech names starting tomorrow (Microsoft, Meta, Tesla).

Political stuff is an acknowledged driver these days. Trump is holding back the name of his Fed chief nominee for when he needs to capture the limelight. This time it’s Rick Rieder at BlackRock. He has never worked at the Fed and it’s not clear if this is an advantage or a drawback.

We need to fear Trump’s setbacks as a poke in the rear to do something more awful. The threat against Canada worked for only a while—the CAD faltered for a bit but is now higher than before the tariff threat.  Similarly, the tariff threat against S, Korea failed to keep the Kospi stock index from a nice gain. And of course the retreat from Minneapolis is epic—democracy at work, not that anyone at the White House has any respect for democracy.

Of unknown meaning, the Supreme Court went away for a month without deciding on Trump’s emergency power to impose tariffs. It meets next on Feb 20. Debate rages on whether this means it’s chickening out or gathering strength to do the right thing and declare it invalid. This gives the wily Trump team even more time to find the replacement basis.

We await evidence of a spine in Congress over cutting back the giant allocation of new money to IC. Another government shutdown seems an unlikely outcome but so does a big enough number of Trump loyalists to pass the cuts. Trump’s abject reversal is purely political ahead of elections in November.

Forecast

The US and the dollar are being thrown around in a tornado of shocks. The upcoming stories are not particularly shocking—the Fed decision is well known and given the lack of fear over the two latest tariff threats, Trump will likely keep his trap shut on that front.

But two things: tigers and stripes. Trump can’t sit still, like any other 4-year old. He will do something Big to distract attention from failed tariff threats, Minneapolis and yes, Epstein.

Second, the FX breakout is authentic but all breakouts suffer a corrective reversal at some point. We worried that it might be today as a Turnaround Tuesday. It’s out there.

A final thought might be that the US-Japan intervention threat is just noise and some brave traders will poke that bear.

Bottom line, we would pare positions. Fear of that correction is about to start.