TRADING THE WEEK: Eyes on FOMC and Speakers

Traders Magazine Online News, May 1, 2017

John D'Antona Jr.

While trading activity picked up in the wake of heightened geopolitical risk, traders reminded that the looming Federal Open Market Committee meeting, economic fundamentals and bevy of speakers will keep the markets at bay.

Last week’s trading was a case of much ado about nothing, according to one trader, who said the weal GDP data, the marquee data release of the week, failed to stir up a great deal of interest. First quarter GDP rose at a 0.7 percent annual rate while the economy grew at a revised 2.1 percent pace in the fourth quarter. Economists polled by Reuters had forecast GDP rising at a 1.2 percent pace last quarter.

“The number was somewhat of a disappointment as we were looking for something better,” said a floor trader in New York. “Trump better find some magic in his bag to juice up the economy as he promised growth levels closer to 4%.”

In an interview on CNBC, Mohamed El-Erian said that the Trump tax reform/cut plan wouldn’t be enough to get the economy into a strong growth pattern, let alone 4%.

"Tax reform and the tax plan in itself is not sufficient to deliver 3 percent growth," a baseline number the president and his economic advisors have said they at least want to achieve, El-Erian said.

"You need more," he continued, such as the President’s promised $1 trillion in spending to upgrade the nation's infrastructure systems.

On tax cuts, El-Erian said, "The most important part is when do we get the details — not just of the tax plan itself, but of how it's going to move through Congress and get implemented."

Another trader in the Midwest added that with the employment situation still “strong” this could give the market a brief pause as it (the DJIA) lingers below the 21,000.

“I don’t see the market moving higher from this point until we see some more substantive growth numbers,” he said.

But growth could mean inflation rearing its ugly head, he cautioned.

“Faster growth could, and I mean could, push the Fed back into action quicker and with more force than we’re comfortable with,” the trader said.

According to market pundits, the Federal Reserve is not expected to raise interest rates at its short one day meeting this week. That means the interest rate setting body only has seven more months to adjust interest rates – and market experts still agree there will be two more hikes this year. But the Fed is reticent to move rates close to the winter holidays and around election time, which could really crimp its ability to not jolt the financial markets with sudden and close in proximity hikes.

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