COT Blue: Blame May 29, Not Trade War

I have to hand it to my colleague Joe Calhoun. In recent months, he’s been able to almost perfectly predict the Trump Administration’s response tactics to all this trade war stuff. Back in July, it was mere comments on the dollar. Not long thereafter, aid to farmers caught up in the China dispute. When that happened, Joe predicted it wouldn’t be long before NAFTA.

According to my record keeping, Mr. Calhoun is now three for three. You might only give him half credit for this latest one since technically the current NAFTA news only includes Mexico and doesn’t yet touch Canada. Yet. With the midterms approaching, you can see where all this is going.

That was pretty much Joe’s point all along. Politics is somewhat predictable in this way. And it reveals something else perhaps more relevant to what’s going on. Is this all really trade war stuff?

The political math adds up in that direction. The Trump administration has been messing with China which would only create collateral domestic damage. Betting on a booming economy, in the data anyway, the President need only clean up the rough spots. He’s doing it and one right after another.

Unlike earlier in the year, however, markets aren’t impressed; at least, those markets that actually count (stocks have no bearing on the real economy). The eurodollar futures curve, for one big example, wasn’t at all impressed and barely budged on today’s NAFTA news. In the all-important EDM 2020-EDM 2021 inversion, it had lessened intraday by all of 1 bps.

The curve was inverted at Friday’s close by 4 bps in that place and during trading today it corrected to at best – 3 bps (as of this writing, the inversion is back to -3.5 bps).

Moving away from politics and political optics, markets don’t care about trade wars. They do care about what has in the recent past greatly harmed global trade. They’ve got bigger problems both in the rearview as well as still on the horizon. While Jay Powell’s Fed keeps feeding the media “technical adjustments” and the prospects of further moves along those lines, we keep finding May 29 everywhere.