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iTrust Daily Insight

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29th October
iTrust Daily Insight
Edition 10.29.2019

October 29 — News and Analysis to Inform your Trading Day 

Halloween Fright Fest: The Fed, Big votes in Parliament and Congress and GDP and unemployment reports all due this week

Market data 1:30pm California time, 8:30pm London time

  • Bitcoin:  $9,403 (basically unchanged today after increasing ~30% the previous three days) (Source: Coinmarketcap.com)
  • Digital currency price movement today: mixed over last 24 hours; some up as high as 8%, others down 1/2% – 1% (Coinmarketcap.com)
  • Number of digital currencies with market cap over $1 billion: 13  (Coinmarketcap.com)
  • Market Capitalization of Bitcoin: $169.4 billion (Coinmarketcap.com)
  • Gold “F” futures contract: $1491 (source: Yahoo Finance)
  • Silver “F” futures contract: $17.83 (source: Yahoo Finance)
  • Copper “F” futures contract: 2.6905 (Yahoo Finance)
  • Oil “F” futures contract: $55.44 (Yahoo Finance) 
  • DJIA: $27,071 (down slightly)  (Yahoo Finance)
  • S&P 500: $3,037 (down slightly after hitting an all-time-high yesterday) (Yahoo Finance)
  • FTSE (main London stock index): 7,306 (down 1/3%) (Yahoo Finance)
  • Shanghai stock index: 2,954 (down 0.9%) (Yahoo Finance)
  • VIX (volatility implied in near contracts of S&P 500 futures in US): 13.2% (Yahoo Finance)
  • Probability of 25 bps cut tomorrow at Oct 30 meeting of US central bank (Fed FOMC): 97% — up from 20% early last month (source: CME Group’s “CME Fed Watch Tool”)
  • Probability O/N rates are unchanged from current rates (1.75%-2% target range) after Dec 11 FOMC meeting: 2%
  • Probability O/N rates are only 25 bps lower than now after Dec 11 FOMC meeting: 74% (source: CME Group’s “CME Fed Watch Tool”)
  • Probability O/N rates are 50 bps lower than now after Dec 11 FOMC meeting: 24% (source: CME Group’s “CME Fed Watch Tool”)
  • US 10 year Treasury yield: 1.84%  (WSJ.com)
  • US 2-10 yield difference: +0.20% (i.e., positively sloped — normal — yield curve) (WSJ.com)

Today’s big news:

  1. As if there wasn’t already enough already planned for tomorrow and Halloween for traders and investors to pay attention to, the US House of Representatives today scheduled a vote for Thursday (October 31, Halloween).  Members will vote whether to pass a resolution asking its committees to investigate whether President Trump should be impeached.  The resolution also spells out the steps to be taken as the impeachment continues.  We believe the markets expect each chamber of congress to vote generally along party lines.  In other words, we believe the financial, currency and commodity markets likely all expect the Democrat (opposition-party) -controlled House of Representatives to vote to continue its investigation.  We also think the markets expect almost no change the Senate would convict the president, which would be necessary to remove Trump from office.  The Senate is controlled by the president’s Republican Party. As events are likely to unfold according to market expectations, we believe there will be very little effect vis-à-vis changes in asset prices.  For the most part, it will be lots of possibly-even-entertaining political theater.
  2. On the other side of the “pond” (the Atlantic Ocean), the British Parliament is acting according to how almost all pundits are expecting them to act.  Expect a vote in the House of Commons requiring a new ballot measure asking the British population whether it now wants to stay in the European Union or exit the European Union according to what the current government was able to negotiate.  Voters will likely get to vote on the measure on December 12th.  In the run-up to the vote in the House of Commons, there will be lots of mostly-inconsequential-but-possibly-entertaining shouting and punditry.
  3. Probably of far more significance will be the expected 2:15pm (NY time), 1:15pm (Chicago time), 11:15am (California time) announcement from the US Federal Reserve (central bank) regarding US interest rates.  Interest rates are the rate at which money from lenders exactly matches money from borrowers.  The US central bank manipulates overnight rates charged / paid among the country’s largest banks.  The Fed manipulates these rates through “open-market activities” — the process of providing more or less overnight capital to the system that can be borrowed from overnight borrowers.  
  4. Tomorrow “the Fed” is widely expected to cut interest rates by another 25 basis points (a 1/4 of a percentage point) to a new range.  The new target range is expected to be 1.50%-1.75% from the current target range of 1.75%-2.00%.  The traders at the CME put this probability at 97%.  If the Fed surprises the markets and does NOT cut overnight US interest rates by 25 basis points tomorrow, prices on the stock market will likely go down a lot while prices at the US bond market would likely go up a lot.  
  5. If the Fed does cut interest rates by 25 basis points (25 bps) tomorrow then the Fed’s accompanying statement will be very important.  Traders will be looking for clues whether the Fed is likely to cut interest rates further in December (six weeks after tomorrow)
  6. Because the Fed sets interest rates for the global reserve currency, the US dollar and the US dollar is the means of trade for all gold and oil, literally the entire investment world will be watching the US Fed decision tomorrow
  7. Less important than the Fed’s interest rate decision tomorrow but first in time is tomorrow’s 8:30am (Washington DC time) / 5:30am California time report about 3rd quarter GDP growth.  Wall Street analysts are expected the July-August-September quarter to have grown 1.6%-1.7% from the previous quarter (on an annualized basis).  This will be the first of a few reports which later reports will include some important revisions; however, this first report will be widely analyzed as an indicator how the overall US economy is doing even with the US-China trade dispute
  8. The US is still the world’s largest economy and is also still the world’s largest buyer of many, many commodities.  As such, the state of the US economy is not only is a great barometer for many industries but is also a driver for many other countries’ economies
  9. Friday is the US “jobs report” — we learn what the unemployment rate was in October (the month about to end).  With the US experiencing near record-high stock market prices as well as near record-low interest rates and also near record-low unemployment rates — the stability of the 96.5% of the workforce currently WITH a job is one of the most important factors for investors to pay attention to

We are doing our best to keep you informed and to help you make good investment decisions based on your own analysis of these factors.  Even so, if there is any confusion about what we have written day OR how these factors can be turned into questions for your own consideration, please call us here at iTrust Capital.  We’d be thrilled  to get to discuss any of these issues with you over the phone.  Please direct all questions primarily to Blake Skadron.  If somehow Blake is not able to assist, a member of iTrust Capital’s Economics Team would be happy to chat with you directly.

Tim Shaler is Chief Economist of iTrust Capital.  He is a published Real Estate economist, was a portfolio manager and asset allocation expert at his previous firms and is an adjunct professor at Webster University. His MBA (Finance) and MA in Russian Economic History are both from the University of Chicago.

For all media inquiries, please contact Blake Skadron at b.skadron@itrustcapital.com.

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