Weighing The Week Ahead: What Determines The Agenda For Investment News?

  • Auto tariffs on the EU and Japan were postponed for six months.
  • Sea container counts continue to grow albeit slowly. (Steven Hansen, GEI).
  • Tariffs on steel and aluminum imports from Mexico and Canada were lifted. Axios suggests that this will make it easier for USMCA (aka NAFTA 2.0) to be approved.
  • Housing starts for April were 1235K (SAAR). This was better than expectations of 1200K and the upwardly revised March result, 1168K. Building permits were slightly better than expectations and the prior month. (First Trust).
  • University of Michigan Consumer Sentiment spiked to 102.4 from April’s 97.2 and expectations of 96.9. This was the preliminary survey and it was taken before the breakdown in trade talks. We’ll see how the final data hold up. Bespoke focuses on the consumer expectations portion of the index.

The Bad

  • Industrial production for April showed a decline of 0.5% badly missing expectations of a 0.1% gain. This compared to March’s gain of 0.2% upwardly revised from a loss of -0.1%.
  • US/China trade talks broke down. The NYT provided analysis of the stakes and the factors behind the collapse of negotiations. It is a well-sourced analysis providing a better inside look than we see from regular financial media. BTW, these stories appeared on Wednesday and Thursday morning, news everyone knew before Friday’s trading.
  • Rail traffic continues to slow. Steven Hansen (GEI) has his customary thorough look. It shows a slowing trend over various time frames, from one month to a year.
  • US action against Huawei will spark broad and unpredictable effects. The Heisenberg says it may be a “crossing the Rubicon moment” for the market. He mentions the stocks most affected as part of the Huawei supply change. There is plenty of additional background as well as this interesting matrix of possibilities from BofA. (Contra – The potential for upside was the subject of this WSJ opinion piece).

  • Leading indicators for April met expectations for a gain of 0.2% but were down slightly from last month’s 0.3%.
  • Retail sales for April declined -0.2%, worse than expectations of a 0.2% gain and much worse than March’s gain of 1.7%. I am scoring this as “bad” because business news featured the headline result, with the impact shown in the Quant Corner. Some skeptics assert that looking at a month-to-month seasonally adjusted change is not the best method. Steven Hansen (GEI) looks at the unadjusted sales and a three-month rolling average. Both approaches showed significant improvement as well as improvement year-over-year. Brian Wesbury also cites the need for smoothing and uses a year-over-year comparison. His concludes, “These numbers are nowhere close to recessionary.”

  • Earnings news was weaker. John Butters (FactSet) analyzes the larger-than-normal impact on companies that missed earnings expectations (-3.5% versus -2.5%). Gains from earnings beats were also worse (0.7% versus 1.0%). Finally, negative guidance for Q2 is 80% versus a five-year average of 70%.

The Ugly

Prospects for rural areas. Outmigration of those of prime working ages, technology changes in rural jobs, and a skills gap are behind the undeniable shifts. This leads David Swenson, Associate scientist of economics at Iowa State University, to conclude, Most of America’s Rural Areas Are Doomed to Decline.

The Calendar

The calendar is very light. Market participants will be heading for the exits early to enjoy a long holiday weekend. My major interest is in the homes sales data, especially for new homes. Some will closely inspect the Fed minutes to find hints of things not mentioned in the announcement and the press conference.

Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.

Next Week’s Theme

If you were going to pick a week to ignore financial markets, this would be the one. A dearth of data provides little to discuss on the economic front. A long weekend and the start of Summer beckon. I expect a quiet week that will end quickly for most. Unless, of course, we have some dramatic world event or a new name-calling tweet fight.

To use the time constructively, I suggest an important question at the heart of recent market moves: What drives the agenda for investment news?

Background

Unless you are a specialist in political science or mass communications, you probably do not even think about the agenda-setting process. That makes it an effective stealth process, happening without any real notice. When I was doing PhD studies, the sparse literature featured the power of political leaders in this realm. In years since, scholars have looked at the effect of the media in prompting political leaders. The next step was considering which came first.

In the social media era, many new possibilities have arisen. Let’s start with a few illustrations.

Agenda Setting Power

Whenever I try to analyze an important concept for investors, and it involves political actors, some readers rush to the defense of their heroes. Their motives cannot be impure! And I am not suggesting that they are. I am identifying a political skill in reaching objectives. It has nothing to do with the value of their policies, but it does affect what investors see.

  • All Presidents have the bully pulpit. Classic literature suggests that the President proposes, and the Congress disposes. In the last few years the President has acted, not proposed. The Congress has rarely questioned the action. Here are but a few examples.

    • Tariffs were originally justified as national security measures. Against Canada? Congress abdicated its traditional power on trade policy.
    • Trump has successfully framed the trade issue as a matter of lost jobs and decades of unfairness.
    • The President is happy to claim credit for economic strength and quick to blame someone if the data signal any faltering. Did you notice how the story shifted from the economy to the failings of the Fed? That is agenda setting in action. Everyone started talking about Fed Chairman Powell.
    • Market declines are frequently interrupted with a tweet expressing sentiment rather than fact. Saying that he is confident about China prospects or has a warm relationship with a foreign leader are great examples. The market usually reacts in the desired way.
  • Congressional leaders determine what gets to the floor. Even a casual review of Speaker Pelosi and Majority Leader McConnell will show what is happening.

    • Democrats use House control to conduct investigations, issue subpoenas, and pass bills for consideration of the Senate and possible veto.
    • Republicans use Senate control to block measures from even reaching the floor. They also regularly reject legislation from the House.
  • Democratic Presidential candidates have a noisy forum for a wide range of ideas.

    • Most of the ideas, especially from the liberal wing of the party, have no chance of becoming law before 2021, and little chance after that. Despite this fact, the mere discussion of something like “Medicare for all” or a wealth tax sends some into a tizzy.
    • This process is important, poorly crafted for fairness, and mostly irrelevant for current investor analysis.
  • Social media create issues, forcing MSM and political leaders to respond.
  • Mainstream media frames issues, even when there is no overt bias.

    • Who is selected as a guest?
    • Is the anchor or interviewer fair and objective?
    • And most importantly, what are the featured items?
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Dick Kaplan 1 year ago Member's comment

Always a pleasure to read this every week.