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Financial Markets Just Don't Care About Trump Impeachment Saga

Financial Markets Just Don't Care About Trump Impeachment Saga
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Tuesday, 21 January 2020 02:53 PM Current | Bio | Archive

The impeachment trial of President Donald Trump has finally started.

Interestingly, financial markets do not really care much about it. In part this is because the result is relatively certain, while also in part, this is because the alternative to Trump would be Vice President Mike Pence and investors assume that the policies of a President Pence would be very similar, though perhaps with less tweeting.

The main way in which the impeachment trial may impact financial markets is that the outcome is seen as influencing the November presidential election in one way or another. Now, without knowing who the Democratic candidate is however, that’s an issue for the future rather than for the present.

Meanwhile, a presidential twitter feed has been very active on trade. This time it was French President Macron who tweeted that after discussions Trump, they would work together to avoid an escalation of trade tariffs/taxes.

Macron tweeted: “Great discussion with @realDonaldTrump on digital tax. We will work together on a good agreement to avoid tariff escalation.”

Trump responded on Twitter with one single word: “Excellent!”

France 24, which is a French state-owned international news television network based in Paris, reported that the French and US leaders, who spoke on Sunday, had agreed to give negotiations a chance to “find a solution in an international framework” and avoid “a trade war that will benefit no one,” which is of course a positive development.

Different parts of the French economy must be breathing a sigh of relief at having apparently avoided an aggressive U.S. trade tariffs on a series of products.

Besides that, it may also offer some temporary relief to global technology companies.

However, investors could do well keeping in mind that the idea of a digital tax is in Europe very much alive as, for example, the UK and Italy are also contemplating similar taxes to those of France.

The official U.S. response, of which the Trump Twitter feed isn’t part of, has been a little bit more muted.

Nevertheless, Treasury Secretary Steven Mnuchin said, when speaking on the sidelines of the World Economic Forum in Davos that the UK and Italy will face U.S. tariffs if they proceed with a tax on digital companies such as Alphabet Inc.’s Google and Facebook Inc. the Wall Street Journal reported.

Investors should better keep in mind keep in mind that the “truce” between the U.S. and France doesn’t make the path to an international agreement on how to tax digital companies much easier, and the threat of trade dispute linked to tax remains and therefore there is still the potential for uncertainty.

The lessons that the U.S.-China negotiations have also learned us is that these things go back and forth over time.

Besides all that, today we got positive news out of Germany thanks to the just released ZEW economic sentiment survey, which is a survey of economists and financial markets professionals and therefore is considered as being of better quality than other surveys.

The ZEW economic research institute informed today that for Germany the economic expectations improved strongly in January and reached their highest level since 2015. Economic expectations rose in January to 26.7 points, which is its highest value since July 2015, from 10.7 points in December.

The assessment of the economic situation in Germany has also improved considerably with the corresponding indicator climbing to a level of minus 9.5 points, which is still in negative territory but nevertheless 10.4 points higher than in December.

ZEW President Professor Achim Wambach commented: “The continued strong increase of the ZEW Indicator of Economic Sentiment is mainly due to the recent settlement of the trade dispute between the U.S. and China. This gives rise to the hope that the trade dispute’s negative effects on the German economy will be less pronounced than previously thought.”

Let’s hope Wambach is right as Germany’s economy is worldwide considered as a very good indicator on where the World Economy could be headed for.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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The main way in which the impeachment trial may impact financial markets is that the outcome is seen as influencing the November presidential election in one way or another. Now, without knowing who the Democratic candidate is however, that’s an issue for the future rather than for the present.
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Tuesday, 21 January 2020 02:53 PM
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