The holiday shortened week will give a temporary reprieve to the strengthening dollar as most bond and currency traders take time off before the year-end push.
A bit of an explainer for some readers.
The strengthening dollar against other currencies makes import items more expensive, but it is also a trigger for higher bond yields, which increases costs of servicing the debt. Now the argument goes that the cost of servicing the debt is less with a stronger dollar, but the strength is temporary.
In December, when the Fed raises interest rates, which is almost a certainty, it should weaken the greenback, but send Treasury interest rates higher. So cost of capital will be higher for mortgages, car loans and the like, causing a further fall in those sales. You won’t see any type of appreciable interest in your savings deposits as a result to offset that rise in debt service.
Where the stock market goes is pretty simple. Just like last year, when the Fed went 0.25 percentage points in Dec. the stock market went higher, because of year-end window dressing.
This is the practice of making portfolios look good for the year-end statement to clients and then after New Year’s equities will sell off on the rate hike. It’s a time-honored tradition on the Street.
So I don’t expect much market-moving news this week. After Wednesday’s market close and well before Monday’s opening bell we should get President-elect Donald Trump’s announcement of Secretary of State and perhaps Treasury Secretary as well.
This will give markets a reasonable time to digest the news, without whipsawing the markets.
Just some thoughts on the cabinet positions. The Trump Administration needs to have Ted Cruz and Jeb Bush in it to thwart any type of insurrection in four years.
Jeb Bush has not come up in any conversations since the animosity between the two is legendary , but I would think the State job might tweak his interest and help with the resume. Cruz’s name has been floated for Justice and that might make sense given his temperament.
I don’t think JPM’s Jamie Dimon will take Treasury job, but I do see Steve Mnuchin in that spot. He does have the necessary Goldman Sachs background (lol) and he has worked for George Soros, which means he has a globalist agenda to offset Trump’s nationalistic campaign rhetoric. This is what I meant last week when I wrote “Meet the new boss, same as the old boss.”