I spent the past week in Knoxville, Tennessee, watching my daughter\u2019s basketball team
\nplay in a national tournament. I am the unofficial scorekeeper of the team, which makes
\nthe experience even more interesting, as I track the games on a variety of metrics.
\nWhat I found is that the risks to my daughter\u2019s team were different in each game,
\ndepending on the abilities of the opposing team. It reminded me that various market
\nenvironments present different risks and, just as quickly as one game ends and a new
\ngame against a different team begins, so too can environments change.<\/p>\n
And that\u2019s what we saw last week. One major risk that I have worried about for a year
\nnow was the potential for the next European Central Bank (ECB) president to be a
\nmonetary policy hawk. I felt that would create a significant headwind for European
\nmarkets, given that current ECB President Mario Draghi\u2019s dovishness had driven down
\nsystemic stress during his tenure. However, that risk dissipated last week with the
\nnomination of Christine Lagarde for the ECB presidency. <\/p>\n
Lagarde was a long-shot candidate, with pundits expecting Jens Weidmann of the
\nGerman Bundesbank as the most likely choice. Weidmann, who historically had been a
\nvociferous critic of quantitative easing, softened his rhetoric in recent months in an
\napparent attempt to secure the ECB position. However, in the horse trading that is a
\npart of determining who is nominated to EU leadership roles, French President
\nEmmanuel Macron was able to secure the nomination for his fellow French citizen,
\nLagarde. <\/p>\n
Like Federal Reserve (Fed) Chair Jay Powell, Lagarde is not an economist but does
\nhave relevant experience given her current role as the leader of the International
\nMonetary Fund and in her past experience as the Minister of the Economy, Finance and
\nIndustry. Based on all that I know of her and in particular from her statements in recent
\nyears, I believe she is the most likely to continue Draghi\u2019s dovish policies. I also believe
\nshe has the potential to be a visionary as leader of the ECB. She has long recognized
\nboth the disruptive and positive qualities of cryptocurrencies, blockchain and financial
\ntechnology in general. She is likely to work toward greater regulation that could
\nultimately lead to greater adoption. What\u2019s more, she is a career politician who may
\nironically be better equipped to fend off growing attempts to politicize central banks.
\nAll in all, I believe a key risk for European markets has dissipated.<\/p>\n
As one risk recedes, another emerges<\/strong><\/p>\n But just as one risk dissipated, another appeared. That happened on Friday with the However, I believe the Fed could certainly justify a rate cut. First of all, average hourly The good news is that we could get a greater understanding of the risks facing markets We should learn more about what the Fed may do as we move closer to the July 30-31 I spent the past week in Knoxville, Tennessee, watching my daughter\u2019s basketball team play in a national tournament. I am the unofficial scorekeeper of the team, which makes the experience even more interesting, as I track the games on a variety of metrics. What I found is that the risks to my daughter\u2019s team were […]<\/p>\n","protected":false},"author":1,"featured_media":81282,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1655,2073,1943,1651,1437,2087],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/81284"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=81284"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/81284\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/81282"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=81284"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=81284"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=81284"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nrelease of the US employment situation report. It showed that job creation in June was
\nvery strong: 224,000 non-farm payrolls were added in the month, which was much
\nbetter than expected. This strong jobs report raised questions about whether the Fed
\ncould justify cutting rates in July, which sent stocks lower. After all, the market had
\nassumed the Fed would be loosening monetary policy in the short term, which has been
\nan important catalyst for the recent rally in stocks. And so now a new risk \u2014 that the
\nFed won\u2019t be able to justify a rate cut in the coming months \u2014 has arisen.<\/p>\n
\nearnings remain relatively tame at 3.1%1\u2014 well below where they would normally be at
\nthis stage in an expansion, suggesting inflation is likely to remain well contained. And
\nwhile June\u2019s jobs report was a blowout, it comes on the heels of more modest reports.
\nThe three-month average job gain for the second quarter, factoring in downward
\nrevisions to April and May, is slightly below the three-month average for the first
\nquarter and far below the three-month average for the fourth quarter.1 Alternatively,
\nthe Fed could simply choose to raise its inflation target, as various Federal Open Market
\nCommittee members have suggested in the last several months. While there is always
\nthe risk that the Fed will not get as accommodative as the market hopes for, it will likely
\nerr on the side of giving the market what it needs.<\/p>\n
\nthis week through the words of Powell, who gives his semi-annual Humphrey-Hawkins
\ntestimony to Congress. He will likely get questions on a few topics currently in the
\nnews, including how he could justify a rate cut in the near term given relatively strong
\neconomic data such as Friday\u2019s jobs report \u2014 as well as the politicization of the Fed
\ngiven recent disparaging comments from President Donald Trump, and reports that the
\nWhite House had attempted to find a way to demote Powell. We were reminded just
\ntoday that the politicization of central banks could be a very real risk given Turkish
\nPresident Recep Tayyip Erdogan\u2019s firing of his central bank governor.<\/p>\n
\nFed meeting. In the meantime, I believe that signs point to an accommodative Fed. The
\nECB risk factor has gone away, but I don\u2019t believe another has emerged in its place.<\/p>\n","protected":false},"excerpt":{"rendered":"