Financial Review

Closing In

…Fed minutes show no preset course. Michael Cohen flips. Mueller closes in. G20 – Putin meets MbS. Trump meets Xi. Nothing gets resolved.
Financial Review by Sinclair Noe for 11-29-2018

DOW – 27 = 25,338
SPX – 6 = 2737
NAS – 18 = 7273
RUT – 5 = 1525
10 Y – .01 = 3.04%
OIL + 1.12 = 51.41
GOLD + 3.40 = 1225.10



Stocks were mostly lower today. The Dow and the S&P 500 moved into positive territory with about an hour of trading, but then rolled over in the final 10 minutes.


On Tuesday, Federal Reserve Vice Chair Richard Clarida delivered a speech and he sounded dovish. Yesterday, Fed Chair Jay Powell delivered his own dovish panegyric of Fed propriety. Today, the Fed published the minutes from the most recent FOMC policy meeting. The main headline from the minutes is that almost all Fed officials saw another rate-hike “warranted fairly soon.” The Fed discussed modifying language on “Further Gradual” hikes while expressing its greater reliance on incoming data. Specifically, the minutes state: “Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook; such a change would help to convey the Committee’s flexible approach in responding to changing economic circumstances.”


The minutes reveal the Fed is very aware of recent market volatility, saying: “In their discussion of financial developments, participants observed that financial conditions tightened over the intermeeting period, as equity prices declined, longer-term yields and borrowing costs for most sectors increased, and the foreign exchange value of the dollar rose. Despite these developments, a number of participants judged that financial conditions remained accommodative relative to historical norms.”


The bottom line from the Fed minutes: “Monetary policy was not on a preset course; if incoming information prompted meaningful reassessments of the economic outlook and attendant risks, either to the upside or the downside, their policy outlook would change.”


Special counsel Robert Mueller has obtained a guilty plea and an agreement to cooperate from Michael Cohen, Trump’s former attorney and fixer. Cohen was intimately involved for years in the Trump Organization business, making deals and putting out fires. If he’s telling Mueller everything he knows, Trump could be in serious trouble. Cohen is now admitting that he lied to Congress about some key matters involving his former boss. In a nine-page filing, prosecutors laid out a litany of lies that Cohen admitted he told to congressional lawmakers about the Moscow project — an attempt, Cohen said, to minimize links between the proposed development and Trump as his presidential bid was taking off. Cohen falsely said efforts to build a Trump-branded tower in Moscow ended in January 2016, when in fact discussions continued through that year. Among the people Cohen briefed on the status of the project was Trump himself, on more than three occasions. The upshot is that Trump had deeper financial interests in Russia while running for president than he has acknowledged up till now.


In the document filed today with Cohen’s guilty plea, the Mueller team explains that while Cohen testified and said publicly that the Moscow project was abandoned before the Iowa caucus in early 2016, that was in fact false. Cohen pleaded guilty to a slew of federal crimes in a separate case in the Southern District of New York in August, implicating Trump in a nondisclosure-payment scheme in dramatic court testimony. Since he pleaded guilty in New York, there have been numerous reports that Cohen has been voluntarily cooperating with Mueller and interviewing with investigators on numerous occasions.


That’s not the only part of the investigation that’s heating up. A draft plea deal suggests that Roger Stone, a Trump confidant who regularly communicated with the campaign, had conspiracy theorist Jerome Corsi reach out to WikiLeaks, the Russia cutout that released the hacked emails. It appears Corsi contacted WikiLeaks about the stolen emails and then passed Stone advance information about the emails, information Stone could then pass to the Trump campaign. The emails between Corsi and Stone show they knew WikiLeaks “possessed information that would be damaging to then-candidate Hillary Clinton and that Organization 1[WikiLeaks] planned to release damaging information in October 2016.” In short, the case for collusion, at least in part, posits that Russia hacked the emails and gave them to WikiLeaks to release at an advantageous time, and that “Corsi got information on how WikiLeaks planned to use the emails and passed it to Stone, who he knew was in regular contact with the Trump campaign.”


Earlier this week, the deal between the special counsel and former Trump campaign chairman Paul Manafort broke down dramatically, as Mueller accused Manafort of repeatedly lying to his team and FBI investigators in breach of his cooperation agreement, while at the same time providing information to Trump’s team of defense attorneys. And last week, Trump submitted written answers to Mueller in response to questions about collusion between his campaign and Moscow. It is possible that Cohen’s cooperation with Mueller will impact his sentence in the separate case in New York. Cohen is scheduled to be sentenced for his other crimes on Dec. 12.


Argentina hosts the G20 summit this weekend. G20 member nations were still struggling to reach agreement on major issues including trade, migration and climate change as world leaders began arriving in Buenos Aires ahead of a summit starting on Friday. Trump cancelled a planned meeting with Russian president Putin but a meeting with the Chines president Xi Jinping is still on. Putin reportedly has scheduled a meeting with Saudi crown prince Muhammed bin Salman. The meeting between the two leaders is happening at a critical time for both Russia and KSA.  They are struggling to defend their share of the global oil market from producers in the Texas oil patch. Meanwhile, falling oil prices – Brent crude futures for delivery next month traded below $60 a barrel on Wednesday – are putting pressure on both countries’ budgets. Though Putin has repeatedly brushed off these concerns, saying Wednesday that Russia is “fine” with oil prices at $60 a barrel, not long after he said something similar about oil at $70.  Though MbS could risk arrest on ‘war crime’ charges as soon as he steps off his plane, the Khashoggi scandal and the international backlash against what’s seen as MbS’s heavy handed rule likely won’t factor into discussions between the two leaders.


Russia may reduce oil output along with OPEC, which would help to alleviate some of the price-suppressing global supply glut. The EIA reported on Wednesday that U.S. stockpiles rose by 3.6 million barrels in the week ending November 23, exceeding expectations and marking the 10th consecutive week of inventory increases. Gasoline that costs less than $2 a gallon can now be purchased at least one gas station in 20 U.S. states. You can thank “the bear market in crude oil” for that fact.


The US and China have been engaged in a trade war since July, with tariffs and takedowns flying back and forth with an increasing intensity. The consequences stretch well beyond the economies of the two global superpowers. Countries in the Asia-Pacific are among those directly hit with US steel tariffs and, perhaps more importantly, indirectly via tariffs imposed on Chinese goods that so many Asia-Pacific regional supply chains feed into. Pouring oil on the fires ahead of this week’s critical meeting between Trump and Xi, China’s Ministry of Finance and Commerce called on the US to put a stop to its “destructive” policies.


Trump earlier this week pledged to raise tariff rates on hundreds of billions of dollars in Chinese imports as early as January 2019. Even the most staunch US security allies like Australia have spent years effectively staking out a position on trade that now stands at polar opposites with the US’s position. The potential for relations to fall apart sometime over the weekend are higher when the two sides choose to trade barbs, rather than goods. Instead of concentrating on finding a trade breakthrough, the opposing administrations are intensifying hostilities in the lead-up to the summit.


Volvo executives told reporters at the Los Angeles Auto Show today that Volvo is slowing the pace at which production is being ramped up in at their factory in Charleston, South Carolina.  The change will also slow down hiring. Volvo is scaling back plans for its new assembly plant just outside Charleston as a result of the trade war triggered by Trump. The $1.1 billion factory opened earlier this year and was expected to earmark about half of its capacity for export markets, including China. But the Chinese market for American-made vehicles has largely dried up as a result of tariffs the Chinese have enacted in response to Trump’s import tariffs. Volvo confirmed plans to shelve an initial public offering potentially worth $30 billion. Volvo previously blamed Trump’s trade wars for postponing the share sale.


Police and the public prosecutor’s office raided Deutsche Bank’s offices in Germany as part of a probe linked to the Panama Papers. The bank is being investigated on money-laundering suspicions raised by a 2016 data leak. Deutsche Bank is suspected of aiding some 900 customers in setting up offshore companies in tax havens, where some $354 million is believed to have been laundered. In August, Deutsche Bank uncovered shortcomings in its screening process to fully identify clients and the source of their wealth. And in 2017, the bank was fined nearly $700 million for allowing money laundering.


Personal income rose 0.5% in October, topping last month’s pace of a 0.2% increase. Personal spending also edged higher in October, rising 0.6% for the month against expectations of 0.4%. Personal spending rose at a 0.2% pace in September.


The core personal consumption expenditures (PCE) index rose slightly less-than-expected in October at a rate of 1.8% over last year. Core PCE excludes volatile food and energy prices, and the Federal Reserve uses the metric as a signal of underlying price trends. Over last month, core PCE rose 0.1%.


The National Association of Realtors reports pending home sales fell 2.6% month-over-month in October. This marks the 10th consecutive month of declines in pending sales, which are based on contract signings. The results follow Wednesday’s report from the Commerce Department that new-home sales fell 8.9% in October.

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