This is What Traders Will Be Watching In 2019

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

And unfortunately, my colleague Tracy Alloway is still out, but you can think of this week as sort of a part two to last week's episode. So last week, we talked about the biggest stories for traders in markets in 2018

And this week, we start the new year looking ahead to try to figure out what the biggest stories in markets will be for 2019 And so we've brought back the same guests. This time, they're going to look ahead with me now in the studio. We have Bloomberg Cross Assets reporter, Luke Kawa, and Bloomberg's macro strategist, Cameron Crise. So Luke and Cameron, thank you very much for joining us. Looking forward to hearing your crystal balls for the year ahead. Cameron, I'll start with you. So going into the new year, what are like the big, I guess, events or things you'll be thinking about that you'll want to see develop?

Cameron Crise (1:16)

Well, it strikes me that there's a few important issues here. One is what happens with the Federal Reserve.

Right now, markets are pricing basically a 50-50 shot, whether they hike at all, in 2019

Joe Weisenthal (1:31)

And just to be clear for those listening at home, we are recording this December 18th, right before they spent decision. Come on, they're going to hike.

Cameron Crise (1:41)

Well, we know they're going to hike in December.

Joe Weisenthal (1:43)

It's just important for when people listen to this to realize when this was recorded.

Cameron Crise (1:48)

Well, we're truly looking ahead here, not with the benefit of perfect information. And the trade story is as much as we'd like to think it's going to just go away with the turn of the calendar, that's not realistic. We need to get some sort of resolution here.

And I think a third, at least domestic issue for the United States, which is a new entry, will be a more targeted attack on the president. And the sort of the tapestry that's formed the backdrop in terms of political intrigue will become part of the foreground rather than the background next year, I suspect.

Joe Weisenthal (2:23)

Yeah, I'm interested in this topic because for the first, like I would say year and a half of the Trump presidency, I recall one of the constant discussions being, there's so much chaos at the White House. Why does it not seem to matter for the markets?

And the responses typically like, well, things are going fine and earnings are going up and all that. So whatever, it just is background noise. Do you both get the impression that that's changing a little bit and that people really are for the first time kind of trading on political risk at the White House?

Luke Kawa (2:56)

Well, I think to a certain extent, we're using this to rationalize how we feel now. I think the market is in a much more vulnerable place. So the potential of adding another headwind from the White House does mean more than it did in the past. But I'll also remember back in August, August 2017, yeah, I guess it was when we were getting rumors that Gary Cohn was leaving the White House because of his, he was upset about the Charlottesville protests and the president's response.

That intraday move was one of the bigger retreats we saw in the S&P 500 That year, it's just the fact that it was a nothing burger and the market was able to wash that away so quickly. But right now, I think that it's just something that adds to market vulnerability, but I think it's a cause and a headache, but it's not ever a proximate cause of weakness for the markets.

Joe Weisenthal (3:45)

Cameron?

Cameron Crise (3:46)

Well, there's so much going on. It's hard to say that people are selling stocks because Nancy Pelosi is gonna be the speaker of the House. But I think moving forward, does it represent a reason to have a risk premium in the markets generally? Probably, probably that's the case, I would say.

Joe Weisenthal (4:04)

Is there an area of the market that you would look at to try to isolate political risk, like with trade or trade proxies, Fed, rate-sensitive ones? Could you even begin to try constructing some basket of politically sensitive assets?

Luke Kawa (4:18)

Multiples relative to other developed markets, change in multiples, because yeah, I wouldn't know how to do it on the non-index level because you'd think if it was something that was affecting US stocks in general, that it would have to not be a sector-specific thing and have to be an index-level thing, or that.