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Trump will deliver the delayed State of the Union address tonight. Here's what we at Axios will be watching. He's also expected to nominate David Malpass, one of the World Bank’s sharpest critics within his administration, to be the bank's president.
Illustration: Sarah Grillo/Axios
Measures of sentiment, like January's consumer confidence survey, continue to show negative expectations for the economy, even as actual economic trackers, like the monthly U.S. jobs report, keep coming in strong.
Economists say when that happens it usually signals a downturn is coming, Axios' Courtenay Brown writes.
Why it matters: "People are getting cautious and that can be a self-fulfilling prophecy at times," Charles Schwab's chief fixed income strategist Kathy Jones tells Axios.
Still, those worries have not yet shown up on key readings of the economy.
The government shutdown has delayed more recent readings of consumer spending, but economists don't expect downbeat sentiment to translate into tighter pocketbooks just yet.
The bottom line: Most reports are backward looking, so the effects of a downbeat consumer could still be coming.
Be smart: We saw this kind of data divergence in 2016. There was not a recession, but economic growth did slow.
The two major market horror stories in 2018 were Turkey and Argentina, with both economies sputtering towards recession and on the verge of currency crises.
The two countries' policies to address the crises have played out like a strip from Goofus and Gallant, except that Goofus has emphatically triumphed.
Background: Investors have long urged countries to fight economic instability and currency falls by increasing interest rates, assuring central bank independence and relying on the IMF and international organizations for goodwill loans.
On one side: On Aug. 29, Argentina as Gallant asked the IMF to speed up payments of the $50 billion bailout package it had agreed to with the country. On the same day its central bank, led by technocrat Nicolas Dujovne, raised benchmark interest rates to a stupefying 60%. (Interest rates had been as low as 22.75% just 4 months earlier.)
On the other side: Turkey as Goofus has defied economic experts and raised its interest rates only once since the lira fell to the weakest level in its history. The country hiked rates 6.25% to bring its policy rate to 24%.
The results: The lira has strengthened more than 20% from its Aug. 28 level. Argentina's peso has fallen more than 15%.
"I'm puzzled because I don’t think anything has really changed in Turkey," Win Thin, head of global currency strategy at Brown Brothers Harriman, tells Axios. "Part of it I think is just that quest for yield, though I'm not sure why people would pick Turkey over Argentina. It's frustrating if you're following fundamentals."
Two weeks ago, we wrote about the end of quantitative tightening, highlighting the European Central Bank and Bank of Japan's reversal of expectations to end their stimulus programs and begin reintroducing above-zero interest rates to their respective economies.
The market also is expecting U.S. monetary policy to ease, with Eurodollars futures pricing an interest rate cut from the Fed as more likely than a hike this year as early as December.
On the fiscal side: The U.S. is coming off of close to $2 trillion in government stimulus; Japan recently signed its largest budget ever; and in Europe Italy and Spain are ramping up public spending, France has pledged to cut taxes and increase wages, and Germany is considering tax cuts.
What they're saying: "Global stocks kicked off 2019 with a bang ... A key impetus: a big shift in policy expectations across the globe," BlackRock’s Global Chief Investment Strategist Richard Turnill wrote in a note to clients.
What's next? The easing of financial conditions globally are likely to stabilize growth in the second half of 2019, Turnhill says.
Yes, but: "We caution against chasing the rally in risk assets, particularly in areas vulnerable to growth downgrades, geopolitical risks or sudden shifts in supply/demand dynamics."
After months of downward revisions, analysts now expect the S&P 500 to post a year-over-year earnings decline in the first quarter, according to FactSet. As recently as Sept. 30, analysts predicted the earnings growth rate for the current quarter would hit 6.7%, Courtenay reports.
Yes, but: Companies are up against a high bar, thanks to a boost from corporate tax cuts last year.
The bad news: As more companies release soft guidance, expectations for first quarter earnings — and the rest of the year — may only get bleaker.
President Donald Trump and Fed Chair Jerome Powell in the Rose Garden in November. Photo: Jabin Botsford/The Washington Post via Getty Images
Jay Powell celebrated his 66th birthday Monday night at an "informal dinner" with President Trump, Treasury Secretary Steven Mnuchin and Fed Vice Chair Richard Clarida.
The group discussed "recent economic developments and the outlook for growth, employment and inflation," according to a statement released by the Fed.
Why it matters: Meetings between Fed chairs and presidents are not unheard of, but Powell has faced unprecedented criticism from Trump about the Fed's interest rate hikes.
The details: Politico reports that Monday was the first time the two have spoken since Powell was sworn in as the central bank’s chair last February, and that the meeting, which was scheduled on Friday, lasted an hour and a half.
History: Virginia Hamilton was the author of 41 books, including "M. C. Higgins, the Great," for which she won the U.S. National Book Award and the Newbery Medal in 1975. Hamilton received the Laura Ingalls Wilder Award for her contributions to American children's literature in 1995.
She was awarded the international Hans Christian Andersen Award, the highest international recognition bestowed on an author or illustrator of children's literature, in 1992.
Hamilton published her first book in 1967, and it was named an American Library Association Notable Book and won the Nancy Bloch Award. She also won the Newbery Honor Book and the Lewis Carroll Shelf Award in 1971.
Hamilton's other awards include the Boston Globe–Horn Book Award and The New York Times Outstanding Children's Book of the Year.