We got some great news regarding the Fed last week. They expect inflation to remain stagnant over the next couple of months. This is good news because this would be a luxury for the Fed in that they can run the economy in a more controlled manner without inflation running away. We have also seen good liquidity and money supply. Money supply is up 8%, annualized, in the past 13 weeks. This tells us that easing is working.
Since August, the Federal Reserve has been expanded the balance sheet by $300 billion. This includes buying bonds and putting cash back into the markets. This consists of liquidity and is a part of easing. Since then, the S&P 500 has gone from a low in August of 2,822 to 3,113. Since that time the China trade talks have been back and forth. We still haven’t had any resolutions in this area. However, this is telling us that the market is paying more attention to the Fed than the China trade talks over time. Hopefully, with interest rates and inflation being down, the Fed won’t have to “stop the music”.
Over the weekend, some of the Federal Reserve data that we have been tracking is saying that some of these large company expenditures have been on the sideline as of late due to the China trade talks. However, the Fed is saying after interviews with the CEOs of these companies that these large projects are not off the table but have rather just been delayed until 2020 and 2021. One big reason for this includes the United States Mexico Canada Agreement (USMCA). These negotiations are still happening and need to be voted on. The Fed is saying even though a big political year is coming up that this could be signed in the next 6 months. This has evolved from the old NAFTA and has created efforts of finding new ways to do trades with these countries. This could give us a little bit of power heading into the next couple years and is something that is completely separate from the China trade talks.
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