Daily Comment (May 1, 2019)

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] Happy May Day, the international Labor Day! It’s also Fed day. Here is what we are watching:

The Fed: The president continues to press the FOMC to cut rates.[1] So far, his demands have not had much effect, although we can make a cogent case that the financial markets are clearly signaling that a rate cut would be justified. It appears support for Stephen Moore is deteriorating in the Senate.[2] Although Moore is well-connected in the GOP, he has apparently made some enemies along the way and his comments about women are turning out to be rather damning to his support. Moore may fail to get nominated, but we still expect Trump to put doves in the two remaining governor positions. We still would not be surprised to see Larry Kudlow get the nod.

As far as today’s meeting goes, there is little chance of a rate move but we might see some technical adjustments to free up reserves in the banking system. We expect Powell to deal with questions about falling inflation in the press conference, but he should be able to deflect these to the early June meeting when policymakers are going to discuss changing the inflation target.

The mess in Venezuela: Yesterday, Juan Guaido called on the military to revolt against the Maduro regime.[3] It had the look of a staged event;[4] in other words, Guaido seemed to have gotten some assurances that there was support for an overthrow,[5] otherwise his actions bordered on treason. There are lots of reports in the media, which are difficult to substantiate, saying that a coup was indeed in place but Guaido may have moved prematurely.[6] In any case, as the dust clears, Maduro is still in office and Guaido’s position appears even shakier. Maduro supporters have violently pushed back against the opposition.[7] Although Guaido continues to call for protests, it looks like the bulk of the military are remaining loyal to the regime.[8] The situation remains fluid but Maduro seems to have more staying power than Washington expected. As long as turmoil continues, it will be a supportive factor for oil prices.

China trade deal:There are reports that the U.S. has watered down its demands for preventing Chinese cybertheft in order to get a deal finished.[9] We continue to closely watch USTR Lighthizer. His longstanding goal was to address China’s trade practices but we would expect him to resign if he is forced to negotiate a deal that he opposes. If he does, it might reduce the otherwise positive impact that an agreement would bring.

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