When I survey markets and themes right now it's painfully difficult to find any clarity. Trump is extremely difficult to predict and right now we're waiting on two big decisions:
1) Whether to join the war with Iran
2) How to conduct the trade war
Both could materially worsen or get better at any point. So far the trade war isn't yielding any deals and today we learned that Japan isn't even bothering with a scheduled July 1 meeting. Earlier in the week a report said the EU was resigned to 10% tariffs but that might only embolden Trump to push for more. Meanwhile, we still haven't gotten a clear look at the effects of tariffs to date on prices and activity.
Some other major factors of uncertainty:
3) The economy
Powell was surprisingly upbeat on the economy but today Waller came out and warned about a potential fall in employment, which isn't exactly robust at the moment.
4) The budget
There is a solid belief in markets that a budget deal eventually gets done but there are still many fights to fight and it's not clear how well the bond market will swallow the inevitable rise in deficits. Maybe it's not a huge risk but these negotiations are always the toughest at the end.
Even if you have a strong view on two or three of these items, the other one could blow up in your face. I believe that's why equities are reluctant to make new highs and most other assets are range bound.
This article was written by Adam Button at www.forexlive.com. Read More Details
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