"I Have Not Been Very Focused On That"

By Michael Every of Rabobank

Yesterday, CNBC asked US Commerce Secretary Raimondo, “What are you hearing will happen if dockworkers strike and it goes longer than a week?” This was referring to the ILA union action which logistics experts say would be calamitous for US and global logistics, yet which at time of writing was hours away from beginning after an improved 50% pay-rise offer was rejected. Her reply: "I have not been very focused on that." Most in markets haven’t been very focused on it either.

Indeed, there are so many things for markets to not be very focused on that there’s competition for their lack of attention.

Japanese stocks collapsed 4.8% yesterday as China’s soared 8.1%. Neither focused on their real politics. Japan’s new hawkish PM Ishiba is a former defence minister who wants an Asian NATO with nukes; but markets are taking ‘hawk’ to mean on rates when he just called for loose monetary policy - and a snap election for 27 October. In China, markets think the CCP is supporting “fictitious capital” and housing speculation rather than the 75th anniversary of the People’s Republic of China today, and a narrative for why GDP can meet or beat its 5% target without questions being asked. What we’ve seen is no bazooka, but markets aren’t focused on the fact that if it were, commodities would do what Chinese stocks are, lifting global inflation.

Fed talk went two ways. Chicago Fed President Goolsbee (also former chief economist to Volcker, then senior economist/senior fellow for Democratic thinktanks, columnist at left-leaning Slate magazine, and Obama appointee to the Council of Economic Advisors: the same focus should be on every central banker) was clear: “**RATE CUTS!**” This was cheered by markets appalled at the idea of a politicized Fed. Yet Fed Chair Powell stressed if the economy performs as expected there will be just two more 25bps cuts this year, was confident the labour market is solid, said “policy will move over time toward a more neutral stance,” so no rush, and made clear, “We are not on any preset course. The risks are two-sided, and we will continue to make our decisions meeting by meeting.” Markets focused on Powell for a moment, then recalled Goolsbee.

The RBA was involved in another local press headline, this time involving a global investment bank being barred from future confidential briefings with its top officials after details of it were leaked by one the attendees via Bloomberg chat. But don’t focus on this as nobody ever gets the inside view from central banks. Ever. Move along, nothing to see here.

Israel began a limited ground invasion of Lebanon aimed at rooting out Hezbollah tunnels so tens of thousands of displaced Israelis can return home. PM Netanyahu bolstered his coalition with a right-wing party, struck Houthi port and energy facilities again, and spoke to the Iranian people of his desire for peace once Tehran’s regime is changed, which may come “sooner than people think.” Iran’s foreign minister stated, “The countries of the region are capable of defending themselves against Israeli attacks, and there is no need to send Iranian forces,” either a bluff or a retreat from its Axis of Resistance; yet Iranian militias in Iraq fired rockets at a US base there again. Former president Ahmadinejad admitted Iran set up a security division to root out Mossad agents in the country- but the person running it was one (a more credible explanation for Israel’s successes than the Iranian cleric claiming it harnesses the power of genies). Overall, while the situation is fluid, markets lack of focus seems to have paid off for now. Yet Russia-Chinese-Iranian tech cooperation that could lead to Tehran having its own nuclear ICBMs say quite the opposite.

Europe has seen another far-right government election gain, this time in Austria, where the Freedom Party got 28.9% of the vote, becoming the first such party to win the most seats in parliament since WW2. What’s perhaps a relief for the EU is that the far left only scored 2.4%. On that basis, the combined ‘populism scorecard’ is around 1 in 3 voters, when in some parts of Europe, it’s edging up towards 1 in 2. But let’s not focus on that kind of thing when we have rate cuts to put on the family table! Everybody knows that rate cuts destroy populism, right? That’s why we (checks notes) didn’t see any increase in populism during the low-rates New Normal(?)

Markets hoping "I have not been very focused on that" holds true for the US election too are also perhaps in for a shock soon. Opinion polls now mostly tell readers what they want to hear, but properly parsed their collective data still suggest our US strategist Philip Marey’s base case of a Trump win holds true. Which markets are not pricing for anymore, it seems.

Yet Philip notes a potential case for a 50bps Fed cut in November is if the US election is contested. After the 2020 vote and count, court cases, Krakens, and January 6, the last thing markets wanted to see is a tweet from Elon Musk with 60 million views talking about this being the last US election if Trump loses (vs. if he wins, as heard from Democrats) due to the White House bringing in “illegals” to vote in swing states. Or California making it illegal to ask for voter ID. Or the DNC filing a lawsuit against the Georgia Election Board to block their ruling that all votes need to be hand counted to match machine totals. Or Arizona’s Democratic Secretary of State admitting 218,000 ballots were already sent out erroneously without proof of US citizenship. Or the US FCC voting 3-2 to allow a “Soros-backed group” to purchase 200+ radio stations, prompting one Republican Commissioner to tweet: “The Commission’s decision today is unprecedented.” Or equivalent accusations of Republican shenanigans. Let’s hope whoever wins on November 5 does so clearly enough that we don’t need that extra 25bps in the subsequent Fed cut: because it’s not going to help in some scenarios markets aren’t focusing on.

But today we officially start to get the real election mud thrown with the tradition of the ‘October Surprise’. Tonight’s vice-presidential debate between Walz and Vance is already muddied by the Congressional Committee on Oversight and Accountability addressing CCP influence requesting the release of classified DHS information obtained during an investigation into Governor Walz preceding his elevation to vice-presidential candidate, implying, or smearing, his many trips to China over the years might have had motives unrelated to education. I’m sure there will be other visceral attacks by/on both men, as well as innuendos ‘couched’ in just the right way. It would be nice to get some better articulations of the economic policies we might expect too from the Harris/Walz camp, as well as how the Trump/Vance ones aren’t wildly inflationary: but so far nobody seems to have been very focused on those kinds of things.