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January 29,30, 2019 FOMC Meeting

In a Nutshell:  â€œIn light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate…”

Decision: Fed funds rate target range remains at 2.25% to 2.50%.

The Fed has decided that it no longer has to do anything.  No, it hasn’t declared victory, but it has capitulated to the will of the markets and the reality of a slowing world economy.  The members, and especially Chair Powell, will sharply disagree with that characterization, but basically, the FOMC gave the markets everything it hoped for: No rate hike, a clear indication that conditions would have to change for the Fed to hike rates again and a willingness to slow the normalization of the balance sheet.  All this came after having indicated just four months ago that the Fed was a “long way” from getting to neutral.  Since then there has been exactly one rate hike, which is hardly a long way.

So, what has changed?  First, the tariff/trade war with China has harmed not just Chinese growth but the world economy as well.  Europe is suffering and U.S. economic growth is moderating.  When the three largest economies are in a slowdown, it is time to stop, look and listen.  Then there was the market meltdown.  First, the culprit was the Fed raising rates too much, but that made absolutely no sense.  Rates are still low, unless you think zero interest rates are normal.  Then the Fed’s reduction of the balance sheet was attacked, since it was reducing liquidity.  But the Fed’s balance sheet is still way too large, so that was a red herring.  Basically, investors wanted to blame everyone but themselves for the meltdown and they succeeded in pinning it on the Fed. 

So, where is the Fed now?  First, Mr. Powell, by saying the “case for raising interest rates has weakened somewhat”, basically changed the paradigm.  Now, the Fed has to see there is a reason to hike rates.  Mr. Powell indicated that inflation is likely to be the key.  So, as long as inflation remains well contained, the Fed is on hold.  That should anchor short-term rates at a lower level than expected.

As for the balance sheet, which is more technical but still important, the pace will continue, though it could be changed, and the end point will be a lot higher than expected.  The Fed will likely stop reducing the balance sheet, nicknamed quantitative tightening or QT, about a half trillion dollars above where previously expected.  That is about nine months sooner. 

The markets, not surprisingly, loved the FOMC statement and the Fed Chair’s press conference as they gave investors everything they wanted.  And there is good reason to show caution, as the outcome of the trade situation is still not clear.  But it sure looks like this Fed Chair may believe in a triple not dual mandate: Maximum employment, stable inflation and a solid equity market. 

 (The next FOMC meeting is March 19,20 2019.) 

INDICATOR: January Private Sector Payrolls and December Pending Home Sales

KEY DATA: ADP: 213,000; Construction: 35,000; Manufacturing: 33,000/ Pending Sales (Monthly): -2.2%; Over-Year: -9.8%

IN A NUTSHELL:  “Even in the face of the partial government shutdown, January job gains could be better than expected.”

WHAT IT MEANS:  The broken record that I am keeps saying that the underlying economy remains solid and the issues with the equity markets are not the result Fed tightening or a realistic estimate on when the next recession could start.  So, it’s time to start focusing again on the economic fundamentals and Friday’s jobs report should give us some insight into how businesses reacted to the political absurdities versus the real economy.  If the ADP estimate of January private sector payroll growth, the shutdown may have been much ado about nothing.  The employment services firm’s reading of job gains came in above expectations.  The increases were widespread, with small, medium and large firms adding similar numbers of workers and just about every industrial sector hiring as well.  What is eye opening was the continued outsized jump in manufacturing and construction payrolls.  Together, they make up less than 16% of private payrolls, but the rise in those sectors accounted 32% of the January increase.  That surge is not sustainable.  In addition, firms that fall into the 500 to 999-worker range have also been adding workings at an elevated pace.  The implication is that job gains may remain good, but don’t expect continued large increases in private sector employment

As for the housing market, well things don’t look that good.  The National Association of Realtors reported that pending home sales eased again in December and were off by nearly ten percent from the December 2017 level.  For all of 2018, pending sales were of by 3.5%.  You have to sign contracts to have closings so the consistent drop in pending sales signals future weakness in existing home sales.

MARKETS AND FED POLICY IMPLICATIONS:  Today’s data reinforce the view that businesses are still seeing strong demand and as a result, are hiring more workers.  But there is also growing weakness in the housing market.  The FOMC is finishing off its meeting and we should know the members’ thinking in a little while.  Caution is likely the operative word, though the ADP jobs report, if born out by a solid government number on Friday, would not support that attitude.  The economy is in good shape, for the most part.  What is failing is government policy and that is creating chaos that is hurting the equity markets.  The Fed, in my view, is overreacting to the equity market issues.  But I want to hear what Mr. Powell has to say before making any further comments.   

November Private Sector Jobs, NonManufacturing Activity, Layoffs and October Trade Deficit

KEY DATA: ADP: +179,000/ ISM (NonMan.): +0.4 point; Orders: +1.0 point/ Layoffs: 53,073/ Deficit: $0.9 billion wider

IN A NUTSHELL: “The labor market remains tight and that could be the major reason we see a slowdown in job gains.”

WHAT IT MEANS: Today was a major data dump as a number of releases were held back yesterday due to the national day of mourning. Tomorrow is Employment Friday and the usual Wednesday ADP private sector job report was released today. It showed solid hiring occurred in November, but at a slower pace than had been the case. While middle and large-size firms added to payrolls strongly, small businesses have not been hiring lots of workers. This may be due to their inability to match the higher wages being paid by the larger companies. I suspect the government’s report will mirror this slowdown.

That a lack of workers may be behind any job gain slowdown could be inferred from the latest report on economic activity in the services and construction sectors. The Institute for Supply Management’s NonManufacturing Index rose in November, which was surprising. New orders continue to expand sharply, creating burgeoning order books. That should keep activity strong for an extended period. Despite the growing demand, hiring expanded at a somewhat slower pace. It is not as if firms don’t need the workers, they do. They may be finally hitting the wall that most economists expected to see months ago. It is hard to hire when there are not a lot of workers available.

Despite the strength in the labor market, layoffs have been increasing. Challenger, Gray and Christmas reported that worker cuts have rose sharply this year. The November number jumped by over 50% from the November 2017 total. For the first eleven months of the year, layoff announcements have soared by over 28%. While the economy is strong, not every industry has benefitted and the changing industrial structure has led to a restructuring of worker needs.

Maybe the biggest uncertainty about the economy is trade. Last week, I wrote that I thought the trade deals and announcements were more puff than pastry. It looks like the markets think that is possible. And the widening in the trade deficit in October didn’t help. Adjusting for prices, both exports and imports were down. The trade battles are not adding to growth, at least so far, and it is unclear how they will be beneficial in the long run. Undoubtedly, the Chinese are looking to diversify their supply chains to limit dependence on the U.S. and to open other markets for their goods. That can only lead to reduced exports to China in the future.

 MARKETS AND FED POLICY IMPLICATIONS: The markets are in disarray while the economy remains in good shape. Are investors looking at the wrong thing? Yes and no. To the extent that the uncertain messages being sent about the status of trade negotiations with China are creating fear, there is every good reason to mark down values. That is especially true if you believe, as I do, that values were probably too high to begin with. Little risk was priced into them and the markets may have gotten ahead of themselves. I noted that a few months ago and it looks like that is starting to hit home. But I don’t agree that the Fed’s normalization policy or the potential inversion in the yield curve should be taken as signs the economy is about the crash and burn. If the economy were so strong as so many say, why would an extra 25 or 50 basis points make a major difference? That is the difference between three or four moves next year, which so many say are threatening, and one or two increases, which commentators and business leaders claim are non-threatening. Seriously, you cannot have a robust economy and a fear of an additional half percent increase in rates. The two are inconsistent. I know, consistency is the hobgoblin of little minds, but sometimes you need an argument to hold together. The Fed bashers just don’t have a consistent argument. As for the yield curve (10-year minus two-year) inverting, that is where consistency is foolish. You have to understand why the curve is inverting. In the past, the Fed was always jamming on the breaks. That is, the funds rate was way past neutral. Even if the Fed does raise rates one full percentage point next year, the rate will not be much, if anything, above neutral. The inflation-adjusted fed funds rate has to be significantly higher than it is currently. Indeed, it is still negative, and the curve normally doesn’t invert under these circumstances. If it did, it would not be because the Fed tightened excessively. So, the markets need to look for other scapegoats. I go with the over-valued market theory created by the belief that the tax cuts would produce an extended period of excessively high growth. When you get your economics from politicians, it appears you not only get the economy you deserve but the markets you deserve as well.

October Wholesale Prices and Mid-November Confidence

KEY DATA: PPI: +0.6%; Energy: +2.7%; Food: +1%/ Sentiment: -0.3 point

IN A NUTSHELL: “Despite the surge in producer prices, there are few indications that inflation will accelerate sharply.”

WHAT IT MEANS: Is inflation something the Fed should be concerned with? It doesn’t currently believe so and today’s Producer Price Index increase really doesn’t change things very much. First of all, the large rise was driven by jumps in energy and food. Petroleum costs have hit a downdraft and it isn’t clear that food prices will continue to rise sharply. Also, the change over the year in the index has decelerated over the past few months. That is not say the October report did not contain any potential issues. Transport costs are increasing and with growth strong, they are likely to continue putting pressure on distributors. Construction expenses are skyrocketing. And price pressures in the pipeline are picking up. Add to that rising labor expenses and firms will have to start determining if demand is strong enough to support faster increases in prices. I suspect that is what will happen, so look for consumer prices to begin accelerating slowly over the next few months.

Consumer confidence remains on the moon. That’s not quite Mars, but pretty close. The University of Michigan’s mid-month reading of consumer sentiment fell only modestly in November. Still, the index is on track to record the highest level since 2000. The bubble hadn’t burst yet and confidence did crater afterward. A similar result occurred when the housing bubble burst. If the economy tails off over the next year, as expected, look for confidence to start deteriorating.

MARKETS AND FED POLICY IMPLICATIONS: The Fed, as expected, made no change in rates yesterday, in part because the members were fairly sanguine about inflation. They noted that “On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.” In other words, the strong growth they see is not threatening. But that doesn’t mean there is no reason to raise rates in December and going forward. Remember, the Fed is simply trying to get back to neutral, which Chair Powell has stated is far from the current level. To the members, as long as there are no deflationary pressures at work, the need to move to neutral will dominate. And also remember that the Fed has a dual, not a triple mandate that would include the stock markets. So if increasing rates has a negative impact on equity prices, so be it, unless it sets off a major stock market correction. Why that would happen with an economy that is as strong as the current one and which is being propelled by massive fiscal stimulus is something I cannot figure out – and something that doesn’t seem to worry the Fed right now. So, look for further rate hikes in 2019, even if growth moderates, which it likely will.

September Consumer Confidence and August Home Prices

KEY DATA: Confidence: +2.6 points/ Home Prices (over-Year): +5.8%:

IN A NUTSHELL: “Consumers are so exuberant that even the limited income gains will not stop them from spending, at least for a while.”

WHAT IT MEANS: With income gains lagging badly, it is doubtful that consumers can keep spending at the pace they have been lately. But that doesn’t mean consumption will fall off the cliff, at least not right away. The Conference Board reported that household confidence rose in October to its highest level in eighteen years. The robust job market is underpinning the buoyant attitude about not only the present situation but also expectations. Indeed, the report noted “that consumers do not foresee the economy losing steam anytime soon. Rather, they expect the strong pace of growth to carry over into early 2019.” Families may not have a lot more money to spend, but they will still go out and buy anyway.

As for the housing market, it is going the opposite direction of confidence. Though the S&P CoreLogic Case-Shiller national index rose solidly in August, the gain on a year-over-year basis fell below 6% for the first time in twelve months. Price gains had surged in the 2012 – 2013 period, but the increases were overdone. The rise in home costs then decelerated to more reasonable levels in late 2014. From then on, they steadily picked up steam until early this year. Now, we are likely in a slow deceleration phase that should not lead to a crash since sales are not faltering greatly.

MARKETS AND FED POLICY IMPLICATIONS: When people feel good about the future, they are more willing to spend and right now, they are really happy about current and future economic activity. They think that the current job market is really great, though they a bit more uncertain about the next six months. Still, there is not a lot of fear out there and that is good for the economy. And it is another reason that most economists don’t expect growth to fall off the cliff anytime soon. Even the problems in the housing market are more controlled than last decade, as sales remain at reasonable, not greatly elevated levels. Thus, we should not be saddled with lots of homes sitting vacant, as we were when the housing bubble burst. Taken together, today’s data are actually positive, since they point to a solid household outlook but only moderating, not collapsing housing prices. The Fed, which meets next Wednesday and Thursday may take note of the softening housing market, but not express any great concern. It will likely signal another rate hike is coming.

September Consumption and Income

KEY DATA: Consumption: +0.4%; Disposable Income: +0.2%; Prices: +0.1%; Ex-Food and Energy: +0.2%

IN A NUTSHELL: “The slow income growth may not be stopping consumers right now, but it is likely to start doing so very soon.”

WHAT IT MEANS: The issue facing us right now is whether the economy can sustain the strong growth we have seen for the past two quarters. The income data don’t seem to support that likelihood. Consumption expanded briskly in September, led by a surge in durable goods spending. But demand was solid across all categories and it has been strong for most of this year. So, what’s the problem? It’s all about sustainability and that comes from income. Personal income growth has tailed off with wage and salary gains moderating. Farm income fell sharply, likely the result of the trade battles. But the yin and yang of farm income is not my greatest worry. What is truly worrisome is the savings rate, which has declined consistently since February. The September rate was 6.2%. Using recent income distribution data, if the top 20% saved just 12% of their income, a very conservative estimate, the bottom 80% would have no savings. If the second highest income group had savings rate at the average, also conservative, the middle and bottom two income groups would have a negative savings rate of nearly 6%. In other words, to maintain the consumption levels we have been seeing, most households have to be dissaving and that is simply not sustainable. And while inflation remains fairly tame, any acceleration in price increases will simply put further pressure on consumption.

MARKETS AND FED POLICY IMPLICATIONS: While the tax cut-induced spending sugar high continues, the end is likely near. And the problem remains spending power. While some businesses have been announcing sharp increases in wages, especially the minimum wage, that attitude has not been adopted universally. Thus, we have yet to see any acceleration in wage and salary gains. Instead, the added spending seems to be coming from savings and there is simply no way that can continue much longer. It is also hard to imagine that inflation will not continue to accelerate, further reducing spending capacity. The year-over-year gains in real/inflation-adjusted earnings will start decelerating early next year, not only because of inflation but also because the impact of the tax cuts will already be in the income numbers. While investors and some stock market pundits and politicians rail at the Fed for raising rates, it’s the issue of worker compensation that is really the greatest concern. I know this sounds familiar, I write it several times a month, unless wages and salaries, not just benefits, start increasing faster, we are headed back by to a 2% to 2.5% economy. The Fed would actually love that growth pace as it is sustainable. That way, they can raise rates to the neutral level without having to start stepping on the brakes. Stronger growth, though, could force them to hike rates even more. Indeed, the members have already warned that is possible. So watch what you wish for as no good economy goes unpunished.

August Existing Home Sales and Leading Indicators, September Philadelphia Fed Manufacturing Index and Weekly Jobless Claims

KEY DATA: Sales: 0%; Prices: +4.6%/ LEI: +0.4%/ Phila. Fed (Manufacturing): +11 points: Claims: -3,000

IN A NUTSHELL: “The housing market looks to be the only soft-spot in a solid economy.”

WHAT IT MEANS: Second quarter growth was strong, it looks like the economy expanded solidly in the third quarter and if the measures of future growth have any validity, the good economy will continue into next year. But then there is housing. Housing sales are going nowhere, unless they are going down. Existing home demand was flat in August as increases in sales in the Northeast and Midwest were offset by weaker activity in the South and West. Both single-family and condo purchases were flat as well, which is really weird. I hope the National Association of Realtors didn’t mess up the data. As for prices, they are still rising moderately. However, the rate of gain is easing and it should continue decelerating.

Despite the issues with the housing market, the outlook for the next six months is very good. The Conference Board’s Leading Economic Index rose solidly in August after strong gains in June and July. Growth should remain at or possibly above 3% for the rest of the year. However, the report did provide a note of caution: “The US LEI’s growth trend has moderated since the start of the year.” But most economists have cautioned that the strong second quarter increase was not likely to be sustained.

Manufacturing was another sector that seemed to be on the brink of a slowdown. Output gains were slowing and the trade battles were helping. But the Philadelphia Federal Reserve Bank’s manufacturing Index popped back up in early September, as orders rebounded. Hiring picked up and shipments increased. Confidence, though still high, continues to fade, which is inline with national indicators about the sector.

Jobless claims fell again last week. The level is the lowest since November 1969. No more needs to be said.

MARKETS AND FED POLICY IMPLICATIONS: The economic data are taking a back seat to the political/economic issues, in particular, trade concerns. You know things are crazy when investors say that the new tariffs are not as bad as was feared so let’s party hardy. Really, new tariffs and counter measures are something to celebrate rather than fear? The Chinese are masters at the non-tariff tariff and those are being imposed. Also, saying that the stimulus package will overcome the tariffs only implies that the tariffs will slow the economy from what we could have had without them. Regardless, today’s numbers were mixed. It was nice to see the economy should expand solidly over the next six months, but that is a surprise to no one. The housing market’s blues will likely only get worse as the Fed will be continuing to raise rates, starting next week. Oil prices are slowly increasing, which is further impinging on the purchasing power of the average household. So yes, the markets are booming and that is great, but unless that wealth is spent, it means little. And the average household is not spending those gains, as they are either not getting much of them or they are in their retirement accounts. So, I continue to warn that as we move through next year, conditions should deteriorate and if the trade skirmishes (my phrase, I used it months before Jamie Dimon) heat up and Chinese growth slows, the world and yes, U.S. economy will feel the pain.

July Trade Deficit and August Help Wanted OnLine

KEY DATA: Deficit: $50.1 bil. ($4.3 bil. wider); Exports: -1%; Imports: +0.9%/ HWOL: -46,300

IN A NUTSHELL: “The widening trade deficit will restrain growth in the third quarter.”

WHAT IT MEANS: We shall see if all the machinations going on over tariffs and trade deals ultimately lead to a narrowing of the trade deficit, but for now, the shortfall seems to be rebounding after an initial decline. The July trade deficit surged, which was expected, though the widening was larger than expected. A decline in imports was not a surprise as the rush to export soybeans led to a temporary jump in agricultural shipments. That unwound in July. However, exports of aircraft and consumer goods also declined. Overseas sales of vehicles and industrial products were up. On the import side, demand for just about everything except pharmaceutical products increased. Energy was not a major factor in the results.

Online want ads faded a touch in August. The Conference Board’s measure was down and a chart of the last year looks like a very scary roller coaster. But it starts and ends at roughly the same point, so it looks like the level is stuck in a range. Unfortunately, that range is well below the highs put in at the end of 2015. What does that mean for job growth? Probably little as it is doubtful that firms have cut back because they are looking for fewer workers. More likely, there is recognition that they can fill only so many open positions at a time, so the decline in ads probably reflects the supply of workers not the demand for workers.  

MARKETS AND FED POLICY IMPLICATIONS: The large widening of the trade deficit in July is likely to be sustained and trade will probably restrain growth this quarter. This is important because the narrowing in the trade deficit added 1.2 percentage points to growth in the second quarter. My best guess as of now is that trade may reduce third quarter growth by between one-quarter and one-half a percentage point. That is a swing of roughly 1.5 percentage points, meaning if everything else stays the same, GDP growth would be in the 2.5% to 2.75% range. But everything is not equal. Vehicle sales were soft again in August. Vehicles boosted growth in the second quarter. A decline in the third quarter would restrain overall growth by about 0.25 percentage point compared to the second quarter. To get to three percent, we need stronger government spending and much faster business investment. That is why I have been warning that third quarter growth could come in lower than many expect. While investors should take heed, Friday we get the August jobs report. I suspect that will be the focus of attention, at least when it comes to hard economic data. The consensus is for a rebound from the more moderate July number but still below the roughly 215,000 monthly average seen so far this year. But it is the wage number that is really important, as wage gains remain limited. It could run hot, which would be just another reason for the Fed to hike rates.

July Income and Spending and Weekly Jobless Claims

KEY DATA: Consumption: +0.4%; Income: +0.3%; Prices: +0.1%; Ex-Food and Energy: +0.2%/ Claims: +3,000

IN A NUTSHELL: “Continued spending should keep growth at a solid pace.”

WHAT IT MEANS: Third quarter growth looks like it will be solid, but how strong is a different question. We got a hint as consumer spending held up solidly in July. Most of that came from growing demand for services. It is unclear from the report precisely what was bought, but given that July’s temperatures were well above average (according to NOAA) much of the spending may have been on utilities. Softening of vehicle sales led to a decline in big-ticket item purchases. On the income side, wage and salary gains remain solid but the rise over the year continues to decelerate. Inflation-adjusted wage increase was the smallest in eighteen months. In other words, purchasing power of workers is improving, but at a declining pace, which raises questions about the sustainability of strong spending. The savings rate declined a little more than expected. Households may be maintaining their spending levels by pulling from savings. As for inflation, it increased moderately, excluding food and energy, and was at the Fed’s 2% target.

Jobless claims rose modestly last week and remain around historic lows when adjusted for labor force size. So, I will repeat what has been said for this entire year and most of last year: The labor market is incredibly tight, despite what the limited wage increases imply.

MARKETS AND FED POLICY IMPLICATIONS: July was hot and if this past week is any indicator, August may have been hotter. Households are probably burning through their utility budgets to keep cool. While that is likely to mean the August spending number will be good, it is the rest of the consumption gains that will determine the real meaning of the data. Right now, it looks like third quarter consumer spending will be solid but significantly slower than the robust rise posted in the second quarter. It is likely the trade deficit will widen given the wild swings in things such as soy exports. It will take a huge increase in business investment to get growth anywhere near the 4.2% second quarter number. Going forward, the impact of the tax cuts on household spending growth will wear off. I doubt that investors will look that far into the future. Earnings are strong and pricing power is growing. If that power is used, inflation will accelerate. But until we actually see that happen, few will likely worry. The few who will be concerned make up the Federal Reserve. The next FOMC meeting is September 25-26. I still expect a rate hike at that meeting and another one in December.

July Consumer Prices and Inflation-Adjusted Wages

KEY DATA: CPI: +0.2%; Over-Year: +2.9%; Less Food and Energy: +0.2%; Over-Year: 2.4%/ Real Hourly Wages (Over-Year): -0.2%; Real Weekly Earnings (Over-Year): +0.1%

IN A NUTSHELL: “Consumer inflation is accelerating faster than wages, limiting household spending power.”

WHAT IT MEANS: With trade issues swirling, Turkey’s currency collapsing and uncertainty about the state of the world economy rising, it would be nice to see some comforting U.S. economic numbers. I am not sure we got that today. The Consumer Price Index rose moderately in July, but it wasn’t the monthly change that really made people take notice, it was the year-over-year gain that is of concern. The rise from July 2017 was the largest since July 2011, right after the surge in energy costs. Energy has rebounded recently as well, but not nearly as much as it did earlier in the decade. Excluding food and energy, the so-called core index, prices were up the fastest in a decade. So, it is hard to say that inflation is now tame.

As usual, the details of the report contained some oddities. Energy prices fell, but oil costs jumped. Gasoline price declines kept the gains down. Transportation prices jumped and shelter costs continue to rise sharply. The surge in home prices is leading the way. In addition, vehicle prices, which had been restraining consumer costs, are now driving them up. On the other hand, there was a large decline in drug costs. Really? I wonder what kind of medicinal drugs they are smoking in Washington (hehe). It looks like restaurants are pushing up prices more slowly than they had been.

With inflation approaching the magic 3% (not that it means a whole lot), consumers are becoming pressured to continue buying more goods. Real (inflation-adjusted) wages went nowhere in July and over-the-year, they were down. That is, household purchasing power is declining. Even when you add in rising hours worked, income was up minimally since July 2017.  

MARKETS AND FED POLICY IMPLICATIONS: The economy boomed in the spring, fed by rising after-tax income for both businesses and households. And that sugar high should continue for a while. But stronger demand is causing consumer prices to rise faster. While the Consumer Price Index is not the best measure of inflation (the Fed prefers the PCE, the Personal Consumption Expenditure deflator), it is one way of looking at costs. What is worrisome is that the potential inflationary impacts from the tariffs have not had a chance to move through the system. The combination of strong consumer demand, tight labor markets and tariff-induced cost increases points to even higher inflation over the second half of the year. The next reading of the PCE comes out on August 30th. If that index shows faster inflation as well, which I expect, it could lock in not just a rate hike in September but also one in December. As for investors, inflation is just one concern they are trying to deal with. Turkey’s currency implosion and its potential impact on European banks is another. And there continues to be a slow but steady ramping up of the trade skirmishes, especially with China. So the best thing to say is that uncertainty is likely to reign for quite some time and that means we are in for some bumpy days ahead.