Tags: investors | presidential | tweet | storm

Investors Should Keep Sharp Eye on Presidential Tweet Storms

Investors Should Keep Sharp Eye on Presidential Tweet Storms
(Kaspars Grinvalds/Dreamstime)

By    |   Monday, 19 February 2018 11:59 AM

This week, which will be shortened by today’s Presidents' Day holiday, will turn around what we will learn (hopefully) from the Federal Reserve.

We will have:

  • The release of the January FOMC minutes,
  • A host of Fed speakers, and then of course,
  • The always important “Monetary Policy Report” that is submitted semiannually to the Senate Committee on Banking, Housing, and Urban Affairs and to the House Committee on Financial Services, and that will be presented by the new Fed Chair Jerome Powell before the House of Representatives’ Financial Services Committee on February 28.

New Fed Chair Jerome Powell has made it clear within the Fed he wants more direct interaction with the Fed’s army of Ph.D. economists, and on a faster and more informal basis than sought by his predecessors.

In this context it’s worth taking note that Mr. Powell just tapped two monetary policy specialists to serve as senior advisers, namely:

  • Jon Faust, a professor of economics at Johns Hopkins University, and who served as a senior adviser to Ben Bernanke and Janet Yellen, from 2012 to 2014.
  • Antulio Bomfim, an economist in the Fed’s monetary affairs division.

For investors checking the differences, albeit small ones, between the new “Monetary Policy Report” that will presented by Fed Chair Powell and the last “Monetary Policy Report” that was presented by Fed Yellen in July last year could be enlightening.

Mr. Faust recently said one challenge facing the Fed and Mr. Powell would be to develop tools to reduce the prospect of resorting to unconventional stimulus measures, such as bond buying, when interest rates are pinned near zero, during future downturns.

It will be interesting to see if all that will have any impact on the ongoing dollar weakness.

Over the weekend we have seen the Trump Twitter rather active.

Normally, financial markets do not pay attention too much attention to the tweets of President Trump as the Twitter world is of course not the same as the real world.

However, when there is a storm of presidential feeds like this, it is worth considering whether there is an indirect impact of relevance to markets.

There has been renewed criticism of the president’s stance over the “Russian affair” from Republicans as well as from Democrats.

Given the rather small majority that the Republicans have in the Senate, opposition from Republican Senators on any issue may impact the financial markets’ perception of the future legislative agenda, in particular around fiscal policy.

Meanwhile, a different sort of politics is emerging in the Euro area where a member of the European Central Bank (ECB) Governing Council Mr. Ilmars Rimsevics and Governor of Latvijas Banka, which is the central bank of Latvia, has been detained by the Latvian anti-graft bureau in a flurry of actions by Latvian authorities that took place today Monday with the financial regulator imposing payment restrictions on third-biggest lender ABLV Bank AS.

By the way, just last week, the U.S. Treasury Department proposed banning ABLV Bank AS from the U.S. financial system, saying it helped entities allegedly linked to North Korea’s missile program process transactions.

The Latvian Finance Minister has called on the central bank Governor to resign.

Meanwhile, the Eurogroup of finance ministers is getting together in Brussels today where they are expected to vote for Luis de Guindos who is the Minister of Economy and Competitiveness of Spain as the new ECB Vice-President, replacing Vítor Constâncio who will step down on May 1.

This means it is almost impossible for Draghi’s replacement as President to be Spanish. Draghi will step down as ECB President in October 2019.

The pool of candidate nations to supply the next President of the ECB is therefore dwindling. The ECB Presidency is decided by national politics rather than merit of course.

By the way and as a side-note, investors appear to have all but ruled out the chance that any rate hike will come before Mr. Draghi leaves the ECB, which would make him one of only a handful of major central bank chiefs not to lift rates in the modern era. Even Ben Bernanke who unleashed three QE programs worth over $2 trillion in response to the 2008 crisis, raised rates. Not just once, but three times.

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

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Normally, financial markets do not pay attention too much attention to the tweets of President Trump as the Twitter world is of course not the same as the real world.
investors, presidential, tweet, storm
Monday, 19 February 2018 11:59 AM
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