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Volatility is going to reign supreme this week. The biggest driver is going to be the Presidential debate. It is going to be a gut-wrenching affair, I fear, with each candidate swinging accusations, pounding on each other, and defending their prior records. I doubt that much civility will be present as each candidate takes swings at the other one. Make no mistake about it. How the debate turns out will affect both the bond and equity markets, and perhaps seriously.
There will be a myriad of opinions about the performance of each candidate, but the markets on Wednesday will give you a clear and concise view of Wall Street’s opinion. I advise having some available cash as we head into this important debate, and I continue on with my cautious approach as Tuesday night finally arrives.
The other debate taking place is at the Fed. My opinion is that there will certainly be a cut, but the question remains open as to whether it will be 25 basis points or 50 basis points. This announcement will also have a serious impact upon the markets and upon the economy in general. The housing markets will be impacted along with inflation in other sectors of the economy, and the costs to borrow money, I am afraid, may not be helped as much as some people expect. I am looking for a divergence here that may not be a welcoming sign.
Then on Wednesday we have the Consumer Price Index (CPI) announcement, followed by the Producer Price Index (PPI) announcement on Thursday. Inflation will be the main topic those two days, and judgments will be rendered as to whether the Fed is following the correct path or not. Wednesday and Thursday will be “finger-pointing” days.
In terms of more minor data and events this week, today sees the 1-year NY Fed inflation expectations series and July US consumer credit. Tomorrow sees the NFIB small business optimism survey, the latest UK employment data, China trade, Italian IP and a 3yr UST auction.
In any event, this week may not only shake your shoes but your perceptions. “Caution” is the byword for investments now. That is my opinion.
Original Source: Author
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