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China May Seek Financial Revenge Against Trump's Twitter Rants

China May Seek Financial Revenge Against Trump's Twitter Rants

(AP/Evan Vucci)

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Monday, 19 December 2016 07:21 AM Current | Bio | Archive

The Trump twitter feed has made it to the front pages of the Chinese newspapers, at least implicitly.

Weekend tweets about China have not been taken in a terribly good spirit in the People’s Republic of China and there has been muttering about retaliation in the Chinese media. 

Financial markets have seen the dollar start to soften a little bit on the news.

This is hardly surprising. Despite of official data showing that China is now the second largest holder of U.S. assets. That honor almost certainly does still belong to China.

The official data on official holdings is officially highly misleading.  

Nevertheless, we should better not forget that sovereign reserve managers are not like other investors. They are not holding assets because they think that the assets are attractively priced, nor because they are anticipating future income streams. Sovereign reserve managers hold assets as a policy tool. This means that any portfolio losses resulting from the pursuit of policy objectives will be seen as a price worth paying.

If China wishes to retaliate against Trump’s twitter feeds with a sale of U.S. assets and the U.S. dollar, the losses incurred on their reserves as a result of any ensuing dollar weakness would in all likelihood be seen as a price worth paying.

Anyway, as an investor this is a subject we will probably be obliged to keep an eye on for quite some time to come.

Over in Europe, the German Ifo institute just gave us its Ifo Business Climate Index, which is in fact an opinion poll, hereby stating that confidence in the German economy continues to be good. The index came in unchanged at 110.4 points (seasonal adjustment correction) in November.

Never forget that like all opinion polls on sentiment, it’s inclined to overreact to the underlying economic fundamentals. Nevertheless, the market holds the Ifo business climate index in high esteem. Too high esteem in all probability, but there is no point in standing in front of the madness of crowds. It is also worth remembering that the index result records reported sentiment and not economic reality. A rise in the index does not mean that economic activity is necessarily increasing in Germany.

In the UK, Prime Minister May will be telling Parliament what happened at the recent EU summit. This should be an interesting and probably short statement as nothing much will pretty much cover everything, except what the EU leaders ate for dinner.

The Scottish government will issue this week a report setting out their plans for Scotland’s relationship with the EU post the UK exit. This will be the first serious governmental proposal of its kind in the wake of June’s UK-wide vote to leave the EU.

Notwithstanding this is important it is not likely to have much impact outside of the confines of the Scottish Parliament building.

Fed Chair Yellen is scheduled to speak on the state of the job market today. It is not expected that there will be anything that constitutes new information when it comes to the monetary policy outlook.

There might possibly a defense of the independence of the central banks against political interference.

Ms. Yellen already stressed in November during a hearing before Congress, just a few days after Mr. Trump’s victory, it was “critically important” that central banks had the freedom to make judgments about how best to pursue their goals. On that same occasion the Fed Chair said: “Sometimes central banks need to do things that are not immediately popular for the health of the economy …  We’ve really seen terrible economic outcomes in countries where central banks have been subject to political pressure.”

In the meantime, we have also heard from several Fed speakers on this topic of late, as well we might, given the challenges that Congress is now posing.

We’ll see if we are lucky enough to learn at least something today.

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

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If China wishes to retaliate against Trump’s Twitter feeds with a sale of U.S. assets and the U.S. dollar, the losses incurred on their reserves as a result of any ensuing dollar weakness would in all likelihood be seen as a price worth paying.
fed, invest, economy, trump
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2016-21-19
Monday, 19 December 2016 07:21 AM
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