The Queen Who Never Was : House Of Dragon

                  Investors Should Ignore Trump's Verdict and Turn Their Focus Away

If you live in America and, like me, watch financial television news first thing in the morning, you may believe that there is only one important thing going on right now. The conviction of a former president on 34 felony counts in a Manhattan court is undoubtedly significant, but it is unlikely to have an impact on markets, or perhaps even politics.

 
If nothing else, the trial demonstrated that Donald Trump engaged in some questionable business practices. If this is news to you, you have clearly not been paying attention, and you have surely never been involved in New York's real estate development industry.

However, these are rather small infractions, with a total cost of roughly $130,000, and politically, the conviction will only help to harden the sentiments of those who have already committed. It is historical news, but it will not, or should not, affect stocks or any other market. Through a market lens, this is a distraction, and investors should focus on far more significant issues.

For example, this weekend, OPEC+ will convene. Market watchers, traders, and investors are far less concerned with the oil cartel's manipulations than they once were, but this is a mistake. The inflation that plagued this country, and many others, was not solely due to an increase in oil prices However, rising commodity costs caused by post-pandemic supply chain concerns contributed significantly to the problem.

If OPEC+ decides to reduce supplies considerably further this weekend, prices will rise, increasing inflationary pressure and making it more difficult for the Fed to cut rates anytime soon. Fortunately, if you believe the market, it does not appear plausible.
The front-end futures contract for WTI, the primary benchmark for US crude oil, has fallen sharply in the last two days. There appears to be some profit taking on short positions this morning in a "sell the rumor, buy the fact" manner, but that doesn't change the fact that oil traders, who have previously proven to be quite adept at this type of thing, do not believe that OPEC+ will tighten.

The drop may even be interpreted as an indication that they predict the opposite, which is a plausible possibility. Russia, which is currently embroiled in a massive conflict of its own making, is likely to be the driving force behind increased rather than decreased oil production.

Whether there is a true rise or not, and regardless of the meeting's short-term impact on crude, if the cartel does not lower output this weekend, it will remove one more potential hurdle to a Fed rate cut occurring sooner rather than later.
The same might be said for another event that investors should be paying attention to right now: the ECB's monetary policy setting body's meeting next week. It is widely expected that they will drop interest rates by 25 basis points, or 0.25%, at that meeting, encouraging comparable reduction in other non-EU countries in the region.

The Fed is frequently the worldwide leader that others follow when it comes to monetary policy, but in this case, when the FOMC appears to be seeking for a reason to lower rates, I'm sure they'll be pleased to use the ECB's cut as justification.
If the Fed is seeking for a justification to reduce, they will look elsewhere because recent domestic inflation data has been ambiguous. That trend continued this morning, as the Fed's preferred inflation indicator, core PCE, was seen to rise by a "as expected" 0.2% last month. That was encouraging, but on an annual basis, the index grew by 2.8%, which was higher than predicted and much over the central bank's 2% target.
Most objective observers would see the statistics as a cause to keep interest rates as they are, but Jay Powell appears to be more concerned about causing a recession than with inflation lingering above 2%.
I am not arguing it is wrong; rather, it may cause him to hunt for events and data to justify a rate cut rather than react to domestic evidence that suggests otherwise.

If OPEC+ does not reduce output and the ECB lowers its benchmark rate next week, he will have the cover he needs to push the Fed toward a rate cut. So, while Donald Trump's conviction is currently dominating the news, traders and investors should look beyond a Manhattan courtroom for signals as to how markets will perform this summer.