Daily Market Color

Trade Uncertainty Eases While Political Drama Dominates the Close


Risk Assets Gain on Hope Trade Tensions Will Ease

All three major US equity indices closed higher on the day, as investors were optimistic on the possibility  that the trade tensions between the US and China would ease.  The NASDAQ had the best day of the three gaining 0.49%. The DJIA and the S&P 500 climbed 0.24% and 0.21%, respectively, with the S&P hitting a new record high.  US Treasuries maintained a steady selloff throughout the trading session before paring a portion of the losses following the Cohen/Manafort announcements.  Yields/swap rates finished 1-2 bps higher across the curve, with the 10yr US Treasury Note closing at a yield near 2.83%.  In foreign exchange markets, the US Dollar (USD) fell 0.8% vs the Euro (EUR) and the British Pound (GBP).  Crude oil futures rose on the day, gaining 1.3%, to close at $67.32/barrel.  This is on the back of news that the US will release 2% of the Strategic Reserve, indicating that supply may be tight and therefore putting supply side pressure on oil prices.    



Helping to ease a portion of the trade uncertainty, today Commerce Secretary Wilbur Ross hinted that tariffs on automobile imports may not be imposed as quickly as initially envisioned (or at all).  Last month Ross had targeted the end of August for the Commerce Department to complete its review of the national security threat caused by car imports, after which time the administration could finalize its decision on the tariffs.  However, this morning it was announced that it is “not clear the report will be out at the end of the month” amid ongoing discussions between the US and its trade counterparts of the EU, Canada, and Mexico.  The news comes as a relief to the auto industry, whose executives have been lobbying to Washington over the past month to strike such tariffs. 



Trump Weighs in on Rates (Again)

Last month President Trump caused quite the market frenzy when he publicly criticized the Fed’s approach to monetary policy – an action not typically taken by the POTUS.  He further expanded upon this stance yesterday in an interview with Reuters in which he continued to express disappointment with the gradual hiking of interest rates, especially as trade negotiations with China and Europe remain outstanding.  “We’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated,” Trump stated.  Fed fund futures continue to point towards the probability of two more quarter-point hikes in 2018, and the Fed is certainly expected to maintain its independence from the views of Trump involving its setting of monetary policy.



Federal Courts Update

Today there were key developments in two cases with political implications for President Trump.  First, there was a plea deal entered in the government case against Michael Cohen, a longtime attorney for Mr. Trump, on charges including bank fraud, tax fraud and campaign finance law violations.  While the deal does not include an order of cooperation with federal investigators, Cohen can choose to cooperate in exchange for a reduced sentence.  The plea arrangement includes a recommendation of 3-6 years of incarceration for Cohen.


It is important to note that this case did not include any charges related to the Russia investigation headed up by Robert Mueller.  However, Mueller’s team did discover the illegal activity and, realizing this was out of their jurisdiction under the scope of the special counsel’s power, handed off the case to the US Attorney’s Office for the Southern District of New York, which is headed up by an appointee of President Trump.  As part of the agreement, Cohen admitted to making payments for the principal purpose of influencing the presidential election at the “direction of the candidate”.


In federal court in Virginia, after days of deliberation the jury reached a guilty verdict on 8 of 18 counts against Paul Manafort, who was at one time the manager of the 2016 Trump presidential campaign.  While likely to be much shorter, he could face up to 65 years of jail time on these counts. Manafort was found guilty on charges including tax fraud, bank fraud and violations of rules around foreign bank accounts.  The jury was deadlocked on the other 10 charges for which he was not found guilty, resulting in a mistrial on those counts. 

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