(Washington)

The Fed has historically been the level-headed kid at the party, always trying to calm things down when they got out of hand. But that appears to no longer be the case, as Powell surprised even the most dovish investors with his very soft statements last week. What comes next may shock markets—some think the Fed will make a rare 50 bp cut in their July meeting. How the market would react is anyone’s guess (likely positive initially). “Historically the Fed has wanted shock and awe when they ease”, says the CIO of Northwestern Mutual Wealth Management.

FINSUM: The Fed seems like it wants to go big, despite the fact that unemployment is at record low levels and prices are stable. The central bank clearly wants to keep the bull market rolling.

(New York)

The bearish stream of warnings from Morgan Stanley continues unabated. The bank’s wealth management CIO has just made another big call for the firm, saying a correction is likely. Lisa Shallett of MS Wealth management says that the Fed is trying to fight the end of the cycle, and it will likely prove too hard to do. She believes that a recession and correction are highly likely in the next year and that stocks will drop by at least 10%. That said, she advises investors to buy further intro underperforming sectors.

FINSUM: Morgan Stanley says explicitly that they think the bond market’s call on the economy is more correct than stocks and that an economic hard landing is likely coming.

(New York)

Second quarter earnings season is about to begin, and nobody has much expectation for good news. Analysts across the board expect earnings to shrink, brining back the first profit recession since 2016. Materials, technology, and consumer discretionary are set to get hit the hardest, but the majority of sectors are likely to see losses. Analysts estimate the average earnings decline for the S&P 500 will be 2.8%.

FINSUM: It will be interesting to se if this has any effect on stocks. Given it is so telegraphed, we don’t think there will be a big impact unless the losses are much steeper than expected.

(Washington)

Goldman Sachs thinks the Dollar might be in a for big surprise. On top of his grumbling about the Fed not lowering rates quickly enough, President Trump has been tweeting about the unfair advantage that other countries have in lowering their value against the Dollar. Trump apparently wants a weak Dollar to help the US compete more effectively in the global economy. Accordingly, Goldman Sachs think there is a good chance that Trump uses some special tool to intervene and weaken the currency, such as through the Treasury department.

FINSUM: This is not as unprecedented as it sounds. Even Powell has said the Treasury is the traditional power in charge of exchange rate policy. This would likely have a big impact on markets.

(Washington)

After the “trade truce” at the G20 it was looking more like the US and China may get a trade deal done soon. However, news out recently says otherwise, as China has not boosted its purchases of US agricultural products. Such a move was a key tenet of the agreement Trump apparently struck with Xi at the G20, but Beijing has not followed through on the promise. Trump complained publicly about this yesterday, but China denies they ever made such an agreement.

FINSUM: This seems small and petty but it is precisely not the direction that one would like these talks to be headed in.