Equities still a tightrope walk
Brainard Monday speech
That was likely also due to Fed Über-Dove Lael Brainard revisiting all of the reasons for the Fed to remain more patient than the hawks would prefer in her extensive Monday monetary policy speech. That was also critical as the last communication from a voting Federal Open Market Committee (FOMC) member prior to the Fed’s self-imposed "quiet period" prior to next Wednesday’s major FOMC meeting. That is a full projections revision and press conference meeting.
Brainard is not just some outlier; she is a key Janet Yellen confidant and supporter. There are also other Fed governors who are not convinced that the FOMC should be raising rates next Wednesday, especially in light of recent serial weak U.S. data.
Business more focused on structural reform
Consider the much greater importance of structural reforms expressed by Waste Management CEO David Steiner, who was a guest host on last Friday morning’s CNBC Squawk Box. As the head of a firm who needs to deal with regulations all of the time who also has solid real economy views on what drives investment, his comments in just one of the clips from his sojourn as guest host are worth viewing.
He is very pointed in noting that the next incremental rate move is not anything businesses will use to make investment and hiring decisions. That will be much more so related to tax policy and the regulatory environment. While not directly related to next week’s Fed decision, it is a very interesting chat on what is necessary to restore growth beyond anything the central banks are doing.
With any additional ad hoc Federal Reserve communication now on hold until after next Wednesday afternoon, the bottom line for late this week is the market response to the U.S. and global economic data. As we did not expect any surprises from the already dovish Swiss National Bank and Bank of England, it boiled down to the weak U.S. economic data that has so far seen a moderately constructive equity market response.
And in the current “bad news is good news” equities psychology, we suspect somewhat weaker than expected indications on important economic data like U.S. Retail Sales and Industrial production will continue to underpin the U.S. equities. There is also a relative reporting vacuum early next week prior to the FOMC decision and press conference.