U.S. stock indexes hit new highs on Monday as trade war fear wanes, but there are still troubled clouds on the horizon as traders wait on the Fed, writes Adam Button.
The S&P 500 hit a record on Monday as commentary from executives so far points to a modest economy, but not a recession. The pound rebounds to the 1.2890 level after UK Labor leader Corbyn announced his party's backing for a December election. One of the final inputs for the Federal Reserve is release of the October consumer confidence report from The Conference Board, which slipped from 126.3 to 125.9. Pending home sales edged up 1.5% from 1.4%, while house price data was mixed.
UK December Elections
Labor Leader Corbyn finally agreed to holding a general election in December on certainty that there will not be a no-deal Brexit. Now we move into several votes amending elections laws. The rationale explaining GBP's moves nearing elections has been discussed in last week's piece.
Stocks are in the spotlight after Monday's record high in the S&P 500, breaking the double top at 3029. The jump came on the anniversary of Black Monday exactly 90 years ago – an event that led to an 89% drop in the Dow.
There are historical parallels with the trade war and rising protectionism but some lessons have certainly been learned. President Trump has halted his offensive against China and a Phase One deal is now likely fully priced in. Given the proximity to the 2020 election, the likelihood is that we get an extended pause. Central banks have also learned lessons with a wave of global easing accompanying the trade war.
Yet there are similarities as well. The global trend of voters shifting to the fringes is well-underway. In a state election in Germany over the weekend, Merkel's Christian Democratic Union finished in third place behind far-left and far-right parties. Huge protests have erupted in Chile, Lebanon and Hong Kong. Westminster is so dysfunctional that an election is held up on a three-day discrepancy in voting dates.
The break in stocks signals some resilience in the economy. Commentary from CEOs outside of the hard-hit automotive industry talk about slowdowns, poor investment and sluggish orders but few are bracing for a recession.
Looking ahead, Wednesday's looming FOMC decision will probably keep a cap on volatility in the day ahead. The market is pricing in a 92% chance of a cut but the odds of another move in December have fallen to 22%.
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
