Tags: donald trump | markets | stocks | invest

Trump News Conference Might Sway Markets

Trump News Conference Might Sway Markets

(Dollar Photo Club)

Monday, 09 January 2017 07:51 AM Current | Bio | Archive

Financial markets have the prospect of a Trump press conference on Wednesday, which probably could serve like something of a focus.

The Trump twitter feed has been able to influence markets on several occasions in the past couple of months and if a 140 characters can influence the markets, imagine what a press conference could do in the new abnormal of the United States with any prospect of additional information on key policies.

Long-term investors should better not overlook that one of the biggest threats to the United States is that if international investors decide to wait and see on the impact of Trump’s policies. Keep in mind that the United States needs $2.7 billion a day from international capital flows. A wait and see attitude that stems that capital inflow would put the dollar under pressure.

One capital inflow that has supported the dollar, indeed which brought the dollar to its current level was the capital inflow from foreign central banks and sovereign wealth funds over the past decade. Something like $6 trillion was poured into the United States from these entities.

However, as Chinese data over the weekend has reminded us that this capital inflow has now ceased.

The United States cannot rely on the semi-captive investor base of foreign sovereign institutions, at least not in the way that it once did.

Care is needed in interpreting the changes in foreign exchange reserves because there are valuations shifts and reserves can be reallocated without any sales actually taking place.

But December did again see reduced reserves for China and that for the most part this does seem to have been genuine dollar sales.

The U.S. economy, away from the political uncertainty, continues to give every sign that it is powering ahead. The employment report of last Friday signaled an economy that is operating at full employment, in particular with the increases in wages that are now coming through.

Wages from the BLS employment report are not actually a great indicator of what really is happening with pay, but this story has been confirmed by better indicators like the Atlanta Fed’s wage tracker index that showed hourly wages have increased by 3.9 percent on average over the last 3 months.

The increase in wages supports consumer spending, but it does also raise inflation risks.

Inflation is driven primarily by labor costs and the tightness of the U.S. labor market means that inflation is likely to keep rising this year.

In the euro area the labor market position is more mixed and today’s data demonstrates that very clearly.

The German economy has tight labor conditions and that started to show up both in wages and in inflation surprises. The last inflation figures from Germany showed an unexpected leap to 1.7 percent on a yearly basis  in the headline inflation rate.

However, the tight labor market in Germany that stands at 4.1 percent, which remains at its lowest rate since February 1981, is at one end of a very broad euro-zone spectrum.

The just released Italian unemployment data shows an 11.7 percent rate on a yearly basis.

This is not by any stretch of the imagination a tight labor market.

Inflation issues in Italy remain very different from inflation issues in Germany as at remains at 0.5 percent on a yearly basis.

Also, the just released Euro area unemployment number come in unchanged at 9.8 percent on a monthly basis and down from 10.5 percent a year-ago. Certainly not a great number.

Finally, and again this is important, in the UK Prime Minister May has indicated that there will be a plan for leaving the European Union (EU) that will be presented within weeks

Prime Minister May stated: “We are leaving. We are coming out. We are not going to be a member of the EU any longer, so the question is what is the right relationship for the U.K. to have with the European Union when we are outside.” 

This raises other political risks around the Scottish independence for instance.

It is easy to dismiss this as being just political noise, but political noise is the new normal in the new abnormal of the modern world.

Please take care we are living in an extremely dangerous world for all long-term investors.

As the Eurasia group writes in its just released report on the Top Risks for 2017: “This year marks the most volatile political risk environment in the postwar period, at least as important to global markets as the economic recession of 2008…” 

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

© 2019 Newsmax Finance. All rights reserved.

1Like our page
Financial markets have the prospect of a Trump press conference on Wednesday, which probably could serve like something of a focus.
donald trump, markets, stocks, invest
Monday, 09 January 2017 07:51 AM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved