Submitted by Taps Coogan on the 5th of December 2018 to The Sounding Line.
Evenflow Macro’s Marc Sumerlin recently spoke with Rick Santelli to discuss the outlook for Fed policy and the recently transpired trade meeting between the US and China, warning that the negative press coverage of that meeting was likely overdone.
“Last week the Fed did set up the possibility of a pause after the next rate hike in December, and it’s looking much more likely that we are going to have a terminal Fed Funds rate between 2.5% and 3% at the most… We’ve had continued weakness in housing and then, with the big selloff of oil in November, you’re going to get a softening in energy investment as well, and together housing and energy investment is about 10% of the economy, and so that takes down a little bit of the upside possibility for 2019… We look at what happened over the weekend (the Trump-Xi Trade meeting), which I think is actually a big deal, and I think that the press stories are too negative about it. You had a leader to leader meeting and you had everyone present in the room to see what that agreement was. So, it really increases the ability to implement that agreement when both the hawks and the doves are all in the room together. So this was a pretty big event… The biggest risk for China is if they have a big devaluation of their currency. Capital outflow… would reprice domestic real-estate and could collapse their economy, and so their agreement to stabilize their currency coming out of this does diminish some of the downside risk to the world…”
Markets took a hard dive yesterday, in part due to the ambiguity about just what, if anything, was agreed to during the Trump-Xi G20 trade meeting. Some are speculating that China may not have agreed to any concrete concessions in exchange for a forestalling of higher US tariffs and that the temporary deal has been over-hyped by the US. Even a Chinese pledge to buy more American goods says nothing about whether China is willing to end its campaign of forced technology transfers, IP theft, and state subsidies for technology industries, the real objectives of US trade negotiations.
President Trump is ostensibly, and somewhat perplexingly, waiting until after the funeral of former President George H.W. Bush to provide details, creating ample space for further speculation. Given the markets sharp reaction to simply the suspicion that the deal was misrepresented, one can imagine quite a bit of volatility in either direction depending on what the actual state of affairs is.
There is more to the interview so enjoy it above.
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