Sterling’s negative response to what was always expected reveals a skepticism in the FX world

Outlook:

Just about every currency posted an inside day yesterday—neither a higher high nor a lower low than the day before. This means professionals are re-thinking their positions and where they want to be at the new year. As noted above, sterling's negative response to what was always expected—Boris sticking to the timetable—reveals a skepticism in the FX world not seen in equities—nothing actually got fixed. Brexit is not a fix. Phase One is not a fix. It's not that traders are unwilling to dump dollars; it's that traders want more information about what longer-term holders are going to do, and that evidence is just starting to come in.

As for Phase One not a fix, Bloomberg is not alone in noting that "much of its content has yet to be released or confirmed by the two sides. Like a previous agreement inked this time last year, there are some gaps in what the nations say about the new deal, and, in particular, what China has promised to do. U.S. Trade Representative Robert Lighthizer brought a copy of the 86-page agreement to a briefing with reporters last week, but so far no one outside the negotiating teams has seen the details. The Chinese press conference unveiling the agreement was light on facts." What we don't know: the date of a signing ceremony. What is the real number of US exports China will buy? The US says $200 billion more. China doesn't name a number. The US says at least $40 billion of farms goods; China doesn't name a number. The US claims the deal addresses intellectual property, but China "doesn't specify any new measures." China also does not address forced technology transfer or currency manipulation.

Bottom line—there is no trade deal. There is an announcement that was intended to outshine impeachment, but failed. Now the US has to scramble behind the scenes to make something of the announcement. China wins. Not by outsmarting the US, but by the sheer force of Trump impeaching himself. China is in the catbird seat and not about to disclose that the deal is a sham. It's going to let the drama play out.

Then there is Boeing's decision to halt production of the 737 Max aircraft, for an indefinite period, presumably to be determined by the Federal Aviation Agency. Economists are scrambling to determine the effect on durables, industrial output, and GDP, although so far employment will not get hit. The WSJ and others cite a contraction by 0.6% in Q1 GDP.

Today we get Nov industrial output (after a 0.6% drop in manufacturing in Oct), housing starts and permits, and Jolts. We like Jolts. It shows the number of jobs looking for workers, rather than the number of workers looking for jobs, as Gittler at ACLS puts it. See his chart. The top is in.

Then there is the momentum idea from Oxford Economics. We don't know how this is calculated but it has the ring of truth about it. The chart is from the Daily Shot.

These two charts summarize that while recession per se may be off the table, "slowdown" is here and all too real. To the extent the US gets credit for a more resilient and robust economy than anyone else, and US growth props up the dollar, this could be ending. Others will get lower growth but it's not the differential itself that counts—it's the direction of the trajectory. The UK and Germany may be halting their downward slide and bottoming out just as the US starts sliding. Perhaps this is what the long-term currency investors are ruminating about. We have already seen a willingness to go for some emerging markets—not all, but some.

Here's the problem—historically, when the market turns its back on the dollar, it's for a long, long time. The dollar can't recover no matter how good the data, and the winning currencies at the time the dollar is out of favor can survive some dreadful blows. We've seen it before, as in the period pre-Grexit. We are not calling the end of the dollar dominance, but we can see it on the horizon.

Politics: The House determines the procedural rules today (how many amendments can be added, etc.) and the House votes tomorrow to impeach Trump. This is only the third impeachment in US history and garnering more public attention by the day. Pundits are still mulling over the Sunday poll by pro-Trump Fox News showing 50% favor impeachment and removal while a falling number, now 41%, oppose. Biden would beat Trump 48-41. Fox commentators and guests may be ideologically addled, but its polling is as good as anyone else's.

According to betting at PredictIt, the Democratic candidate will be Biden. He is gaffe-prone, out of date, and uninspiring to the younger set—his bus has the motto "No malarkey!" for heaven's sake. But no one doubts his honesty, understanding of the concept of public service, and sincerity on civil rights, and he can bring out the black vote. It's too early to talk about the final contender, but if it's Biden, that means the VP spot must be a woman, a black or the gay guy. Kamala Harris, who dropped out a few weeks ago, qualifies on two minority points. We'd rather see her as Attorney General indicting the pants off Trump and Booker as VP, but that would put two sometimes tongue-tied guys up there. Klobuchar and Mayor Pete would do just fine, too. Whatever. It will be a battle of the decent against the indecent.

Talk that Trump will back out of debates is wishful thinking on the part of Republicans. Trump would never pass up the chance to be on network TV for free.

It's not going unnoticed in the White House that today a Pakistani court sentenced former Pres Musharraf to death for high treason and subverting the constitution, charges that sound awfully similar to the charges against Trump (and no wonder—they come from the US and the US version comes from the UK). Reuters reports "The charges stem from Musharraf's imposition of a state of emergency in 2007, when he was facing growing opposition to his rule. Under the emergency, all civil liberties, human rights and democratic processes were suspended, from November 2007 to February 2008. He resigned later in 2008, after a political party that backed him fared poorly in a general election, and he has spent much of the time since then abroad."

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