Tags: infrastructure | spending | bipartisan | achievement

Infrastructure Spending May Be Only Bipartisan Deal

shovel filling in road pothole

By Wednesday, 06 February 2019 10:29 AM Current | Bio | Archive

President Donald Trump delivered his second State of the Union speech which was a fairly conventional address that had the usual calls for unity and bipartisanship but that didn’t contain anything that could be of interest to financial markets while there was also not a meaningful escalation of tensions.

The president talked about achieving great things together with the Democrats saying that a victory for America is more important than a victory for either party. He tried to change the tone, at least in Washington. Of course, we’ll have to wait and see how successful that is.

That said, it nevertheless remains a fact that immigration remains the great subject of divide. The president used about 15 minutes of his speech talking about the evils of illegal immigration and the need of a border wall that he wants and that Democrats consider unnecessary and a waste of money. On these subjects, the two parties still remain deeply divided and that could still shut down, at least in part, the government in 9 more days.

The one item that seems to have the best prospect where a bipartisan achievement seems to be possible this year is ‘infrastructure’ spending. President Trump wants infrastructure spending, Democrats like infrastructure spending, Unions want it, and big cities’ mayors want it. The president talked about it and the Democrats applauded it.

It could be interesting to take note that infrastructure spending is possible because the president didn’t mention the Federal budget deficit that’s going to reach nearly a trillion dollars this year and that’s going to over a trillion dollars in subsequent years. In theory that might stop Congress and the Congress for finding money to spend on infrastructure, but nobody seems to care about borrowing money and driving up the deficit, and for now at least, markets don’t seem to care either…

U.S.-Sino Trade Talks Go On

Finally, in his speech, President Trump reiterated what he has said so many times before stating: “We are now making it clear to China that after years of targeting our industries and stealing our intellectual property, the theft of American jobs and wealth has come to an end.”

This is interesting because only a couple of hours before the President gave his State of the Union speech, the Wall Street Journal reported that a senior Trump administration official said on Monday that the U.S. is dispatching U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to Beijing early next week to continue trade talks as the March 1 deadline to reach an accord is closing in.

He also said President Trump hasn’t yet committed to meeting Xi Jinpin, which is a shift from Mr. Trump’s comments he gave last week. A meeting between the two presidents would signal that the talks were nearly finished, with the two presidents ready to make the final compromises ready for a deal. The U.S. official emphasized that the lack of commitment to a Trump-Xi meeting wasn’t a sign negotiations had stalled, but simply reflected how much still was needed to be accomplished before the two sides could make a deal.

The most difficult issue to resolve remains ‘how to enforce’ any agreement. U.S. and Chinese officials have said that Beijing has agreed to discuss the issue, but they aren’t close to an agreement.

The U.S. hasn’t yet presented a proposal that would remove tariffs if Beijing hits specific targets.

Of course, the U.S. – Sino trade talks is a subject that financial markets pay attention to.

In the meantime, the U.S. dollar index DXY remains little changed and around the 96 level

IHS Markit January U.S. Services PMI that includes the U.S. Composite PMI

Yesterday, we got the release of the January IHS Markit U.S. Services PMI that includes the U.S. Composite PMI data that came in at 54.2 in January, down from 54.4 in December.

Chris Williamson, Chief Business Economist at IHS Markit commented: “The robust economic growth signaled by the U.S. PMI surveys at the start of the year sits in stark contrast to the near-stalling of growth seen in Europe, China and Japan.

Current levels are consistent with annualized U.S. GDP growth of around 2.5 percent at the start of 2019. Jobs growth remained buoyant as business optimism perked up to its highest since October. Backlogs of work are meanwhile building up, in part because firms struggled to meet demand, which has in turn allowed sellers to continue to push prices higher.

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

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The one item that seems to have the best prospect where a bipartisan achievement seems to be possible this year is ‘infrastructure’ spending.
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Wednesday, 06 February 2019 10:29 AM
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