There are very high expectations the U.S. will reach a deal with Mexico on tariffs and immigration very quickly, and that is keeping a bid under the market. No one wants to be fighting the market when that headline appears.
Senator Grassley, Chairman of the Finance Committee, stated that Mexico is going into talks with a long list of things that it is willing to offer to avert tariffs. He thinks an announcement of tariff deal could be made on Thursday night.
The market seems to be in agreement and that is holding things up despite the extremely disappointing ADP jobs numbers. There is also severe pressure on oil, which has been down as much as 5%. Many market players view this as a leading indicator of economic weakness.
Once we are passed the Mexico tariff issue the main focus of discussion is going to be whether economic weakness is a positive because it will lead to rate cuts or is it bad because the Fed is ineffective in ending it?
The bear argument is that the Fed doesn't have much ammunition left and if lower rates can't fix things there is little else that the Fed can do.
At the moment we are waiting on Mexico news and expectations are high that a resolution will be reached. If that is not the case conditions are likely to deteriorate very quickly.
