To kick off a new trading week, pre-market indexes are hovering around breakeven, with the Dow up slightly and the Nasdaq down just as much, with the S&P 500 right around 0%. Clearly, investors are waiting on developments this week which have the potential to not only move market narratives, but those of global security as well. In no way is this more present in traders’ minds this morning than regarding tomorrow’s meeting between President Trump and North Korean leader Kim Jong Un.
Markets shrugged off the most recent episode of global diplomatic tension on Friday, when Trump’s tempestuous relationship with many of the other members of the G7 (Group of 7 countries: the U.S., U.K., Canada, Germany, France, Italy and Japan) going into weekend talks in Quebec. What started off in the red with one eye on the behaviors of the world leaders gave way to the strong narrative of historically healthy U.S. growth and labor market. So although Trump was not able to iron out wrinkles between he and his G7 partners — calling, for instance, Canadian Prime Minister Justin Trudeau as “dishonest and weak” — investors felt they could afford to look elsewhere for inspiration.
Regarding tomorrow’s scheduled meeting with Trump and Kim in Singapore, we’ll see if market participants can bring themselves to look the other way. At issue will be North Korea’s aggressive nuclear warhead policy and he U.S.’s imposing sanctions on the dictatorship’s economy. Sandwiched between U.S. ally South Korea and major U.S. trading partner China, North Korea and its geopolitical realities have been near the top of U.S. foreign policy for generations. Should tomorrow’s meeting take place, it will be the first time Kim will have met with any of the leaders of the free world.
In his latest Global Week Ahead post, Zacks Chief Strategist John Blank had this to say about the coming summit: “Financial markets barely reacted when the two were trading bombastic barbs last year but investors still aren’t sure how to trade Trump’s new softer side or Kim’s readiness to trade his nuclear arsenal for recognition and aid.” Blank considers the Trump-Kim summit the top global geopolitical development of this entire week.
We will also get fresh reads on Consumer and Producer Price Indexes (CPI, PPI) in the next couple days, which will help inform the Federal Reserve as it raises interest rates another quarter point this week. According to Blank, this is already a done deal, and will take the bank-to-bank rate to a range of 1.75-2.00%, the highest we’ve seen since the Great Recession began. It will also mark the second rate hike in calendar 2018, with the possibility of two more hikes in the year — most likely September and possibly December.
Should no meaningful dust-ups result from either the one-on-one meeting between the U.S. president and one of its main recent historic adversaries, perhaps we’ll see markets continue their robust upswing on domestic strength. On the other hand, should negative headlines begin to creep into the geopolitical narrative, it’s anybody’s guess where market indexes will be headed. Ergo the near-zero balance early this morning.