Trump is likely to manufacture a new outrage that raises uncertainty and perception of risk

Outlook:

The White House is said to be rattled and upset about the impeachment inquiry and how fast it is disclosing bad and criminal behavior by Trump and cronies (who really are remarkably stupid and careless). The problem is that when Trump feels threatened, he lashes out.

His modus operandi is to throw a bunch of unrelated and often false counter stories against the wall, not to see what sticks but just to confuse and befuddle any voter not paying close attention. This is not really an actual defense and a far cry from anything you can call a strategy, but it tends to work for him because in a free country, the voter is free not to pay attention to politicians' shenanigans. Those in financial markets are paying attention because Trump is likely to manufacture a new outrage that raises uncertainty and perception of risk.

Case in point: Goldman finds that Trump's insults against Powell do not move the Fed funds futures by a statistically significant amount, but some trade war tweets do.

As noted above, stock markets are on edge as opinion thrashes back and forth about the putative Oct 30 rate cut. October can be a bad month for equities, although the historical record favors gains (down in 27 years gone by but up in 42 years). Still, the S&P is lower than it was at the time of the last rate cut on Sept 17.

We can hardly go on believing that rate cuts always and forever lift equities. This doesn't mean a crash in October unless Something Else happens. It also doesn't mean the markets, including equites and FX, are conditional on US data. They are, probably, more conditional on the feeling surrounding the China trade war than the actual economic outcomes of the China trade war, which are insufficient to cause consumers, two-thirds of the US economy, to change their behaviors.

Americans ahead of a putative recession are not behaving like the British ahead of a putative no-deal Brexit—stockpiling, cutting spending, raising savings. We're all right, Jack. That's the takeaway from most Fed speakers ("we are in a good place") and likely what Fed chief Powell will repeat today at the meeting of the National Association of Business Economists.

We don't fear inflation, which we get on Thursday. Ahead of that release, we get PPI today, but in the US, unlike other places, PPI does not lead CPI. In August, services prices rose while goods price fell.

We think the only way the dollar retreats is if the US and China have been deceiving us to have ever-lower expectations of a trade deal, and then we actually get one. But at the same time, the financial war side of things may be heating up and become an offset to any trade deal that might get done, or an additional stimulus to higher uncertainty if a trade deal does not get done. Bloomberg reports the Trumpies are still talking about banning some capital flows to China, specifically by US government pension funds. As we wrote last time this subject came up, havoc will ensue because so many index ETF's include China. We find this threat realistic.

Follow-Up: We worried yesterday that consumer credit would balloon, but we got it wrong. August's total was up $17.9 billion m/m after the blockbuster $23 billion in July. It was still more than forecast ($15 billion, Bloomberg) and non-revolving did post a gain of $19.8 billion. Non-revolving debt includes student loans and car loans. The drop in revolving-credit shows "households are trying to keep their budgets in check," or at least that is the Bloomberg writer's deduction.

Politics: Michael Bloomberg ran an op-ed at the site saying Trump is simply not going to stop abusing his office for personal political gain, and what is Congress going to do about it? More like Romney should stand up and name it "wrong and appalling." But Bloomberg is missing a point: just as many Dems criticized Clinton for bad personal behavior, they didn't support impeaching him. We see the same thing now—what constitutes a "high crime and misdemeanor" is imagined to be subjective, so let the Republicans excuse Trump's behavior. Bah.

The Associated Press has a story from a Giuliani associate claiming Trump fired the universally admired and capable ambassador to Ukraine to get a replacement "more open to aiding their business interests." The business interests belong to a set of Florida Ukrainians who donated heavily to the Trump campaign.

Commentator Josh Brown from Ritholtz at reformedbroker.com notes "Watergate is the wrong comparison. 100 years ago, President Harding's Sec of Interior was caught accepting oil company bribes while awarding drilling leases on Federal land. This was known as the Teapot Dome scandal. When it came out, Harding had a heart attack and died. The Sec became the first ever US cabinet official convicted of a felony. He did 9 months in New Mexico state prison."

We have been wondering when Teapot Dome would come back to public attention, mostly (we admit) because were reminded of it by the Duchess' uncle having been embroiled in it on "Downton Abbey," in reruns on PBS. A side issue is whether Energy Sec Perry, who is rumored to be resigning next month, is entangled. We'd guess he is too dumb to have invited into any cabal.

The Ukrainian guys were invited to speak to the House Intelligence Committee later this week. Won't that be fun. They are using Trump's lawyer Dowd, who quit after saying he couldn't let Trump testify to Mueller in person because he couldn't keep him from lying. Dowd is thinking about defying the request, which of course results in subpoenas if they don't show. Watergate was a spring shower compared to this hurricane.

Note to Readers: Next Monday, Oct 14, is a national holiday in the US, Columbus Day, and technically the federal government and banks are closed, although many banks stay open for trading, including FX. The NYSE and Nasdaq are open on Veterans Day and Columbus Day (but closed on Good Friday, go figure). The Chicago Mercantile Exchange will be open, so FX futures will trade. Bottom line—no holiday for us, but watch out for reduced activity.

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