Markets regain footing after Cohn quits

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Published Date 3/7/2018

Gary Cohn quit yesterday on major differences between free markets and possible trade wars and protectionism. Markets nervous about what a trade war in global markets will do to the US and the big DJIA companies. The DJIA down as much as 350 points today before bouncing back a little. If there is any consensus today, it is that Cohn’s resignation is confirmation Trump will move on China tariffs; 25% on steel and 10% on aluminum.

25 years of speaking out about US trade deals being at US expense; Trump now making his move. Markets so fearful that logic and sense are being buried when thinking about trade. Many don’t believe a major protectionist trade policy that is panicking markets now will occur as is thought. Hopefully, better trade deals will come, and the US will benefit compared to the deals that have not been the best for the US for years. At the same time, few believe backing away from global trade is good for the US. If trade a trade war does happen, one could expect, a run-up in inflation, the Fed and other central banks forcing rates higher, consumer prices higher, wages not as positive as was expected two weeks ago.

About the stock market; The correction has been underway for weeks now and increased fuel added last week on trade. Can’t blame the trade stuff for the fall in stock indexes, it was inevitable and now not pleasant to watch. Meantime, no significant changes in interest rates at the long end since the beginning of the year. Mortgage rates are higher, but stable the past three weeks. The FOMC meeting is 13 days away; the Fed will move the Federal Funds rate up 0.25%.

Employment on Friday usually gets a lot of media; nothing about it now with trade the topic. News usually focuses on one thing, not often two issues. ADP jobs better than expected this morning; most every economic release this year has been better or at least in-line with estimates and confirms the economy is growing. Likely the Feb employment data will also be generally in-line with consensus estimates.

Tomorrow only weekly jobless claims (230K +8K after dropping to the lowest claims last week since 1969.

Jan consumer credit weaker than was expected; +$13.9B about $2.6B less and down from +$19.2B in Dec. Credit card use almost evaporated, +$0.7B. Consumers had been drawing on their credit cards at a steady rate with revolving credit running at 6% annualized growth. Can’t make anything significant from it yet; either consumers are consolidating and paying off holiday spending, or consumer limits have been reached, or that card rates back to double digits. Keep it in mind when income and spending data are reported.

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