Big Week Ahead — China Trade Talks; Powell on GDP; White House Infrastructure Meeting
Author: Greg Valliere
April 29, 2019
THE MOST CRUCIAL STORY for markets in this new week is whether U.S-China trade talks will move toward a conclusion. Treasury Secretary Steve Mnuchin and a high-level U.S. delegation are in China this week, amid signs that there’s still more work to do on an enforcement mechanism and China’s subsidies to its state-owned companies.
WE NEVER THOUGHT THERE WOULD BE A DEAL before May, so a final snag or two isn’t surprising. We think Mnuchin will make some progress, laying the groundwork for a final round of talks when the Chinese return to Washington on May 8. A signing ceremony is likely by Memorial Day, with good news and bad news. The good news: a long, nasty trade war will be avoided; the bad news: we’re not sure the final pact will contain genuine structural reforms by China.
TRADE UNCERTAINTY — ESPECIALLY WITH CANADA AND MEXICO — remains one of the few dark clouds in the Goldilocks U.S. economic scenario; approval of the NAFTA replacement deal has stalled in Congress. But that won’t be enough to derail what looks like an accelerating U.S. economy.
ALL EYES ON JAY POWELL: The Fed Chairman will meet the press on Wednesday, after the FOMC meeting concludes. We suspect he will sound slightly more bullish on the economy, but he always has been upbeat; there’s no recession in sight. Persistently low inflation is the bigger concern, a major reason why the Fed can stay on the sidelines for months to come, with no rate hike until winter or later. As for a rate cut, Powell may hint that’s not coming.
WE GOT PUSHBACK from some readers who disagreed with our upbeat take on Friday’s GDP report. Obviously the high level of inventories will have to be worked off, but the first quarter ended with strong signs of life from consumers. Growth in the second quarter probably won’t top the 3.2% first quarter level, but the monetary and fiscal stimulus in the pipeline is extraordinary, and 2-1/2% GDP growth this year still looks like a low bar to clear.
TRUMP, PELOSI AND SCHUMER TOMORROW: What could possibly go wrong when these three meet? Plenty, but that won’t stop them from sitting down on Tuesday at the White House to discuss an infrastructure bill. Trump has been hinting that he wants a $2 trillion bill, and the Democrats will gladly comply if a deal can be struck on their terms — labor protection, sensitivity to climate change, etc.
THE BIG ISSUE, OF COURSE, IS HOW TO PAY for an infrastructure bill; the Democrats want to raise the top corporate tax rate, but that’s not going to happen. Trump wants private sector funding, which could be part of a final bill. Our odds: 30% chance of passage this year, but bitter partisanship makes any kind of deal unlikely (the Mueller report will stay in the headlines for months to come).
THERE’S ONE AREA OF AGREEMENT: Spending more money, a theme everyone in Washington seems happy to embrace. Stimulus is the new mantra, here and abroad, as politicians seem to be warming up to red ink; call it Keynesianism or the Modern Monetary Theory, whatever — interest rates are so low that running higher budget deficits is all the rage.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2019 AGF Management Limited. All rights reserved.