Business Roundtable CEO Economic Outlook Index

The third-quarter Business Roundtable CEO survey confirmed the economic outlook remained strong but declining slightly. 

Roundtable CEOs were asked a special question regarding the effect of U.S. trade policy on capital investment. Nearly two-thirds of responding CEOs said that recently enacted tariffs – along with other changes to trade policy and uncertainty about future trade actions – will have a moderate or significant negative effect on their companies’ capital investment decisions over the next six months.

Iinvestors should note that this kind of surveys always need to be treated with considerable caution.

Like all sentiment surveys, it is a fact that the people who fill in this kind of surveys know that these surveys have a political effect and they may therefore provide answers that go in a certain direction and are likely to influence policy rather than giving answers that necessarily reflect their personal circumstances.

US-China Trade Tariff Drama

U.S. Trade Representative Robert Lighthizer, the European Commissioner for Trade Cecilia Malmström and the Japanese Minister for Economy, Trade and Industry Toshimitsu Motegi will meet in New York to discuss ways to dismantle some of the Chinese practices at the heart of the U.S.-Sino trade conflict.

Following the meeting, which will focus on how to reform the World Trade Organization (WTO) can better ensure a level playing field, the trade triumvirate is expected to release a joint statement that outlines the mutual goal of countering “non-market-oriented policies and practices.”

That said, and although the focus on trade taxes has been about China, lately there have also been mutterings on the Trump Twitter feed about other countries.

Mid-August, President Trump tweeted: “Our Country was built on Tariffs, and Tariffs are now leading us to great new Trade Deals - as opposed to the horrible and unfair Trade Deals that I inherited as your President. Other Countries should not be allowed to come in and steal the wealth of our great U.S.A. No longer! 10:04 AM - 15 Aug 2018”

All this makes me think there is a risk that once everything the Chinese export to the United States has been subject to tariffs, President Trump has nothing left to tweet about, in which case Mr. Trump may start casting around someone else to campaign against.

When one looks at today’s meeting in this context, this should make the event and the statement that should be released after the meeting of some importance to investors.

ECB’s Inflation Rate it Will Use

ECB President Mario Draghi made interesting comments before the Committee on Economic and Monetary Affairs of the European Parliament saying:

- Average annual growth is foreseen to be 2.0 percent in 2018, 1.8 percent in 2019 and 1.7 percent in 2020, with a slight downward revision for 2018 and 2019, mainly reflecting weaker global trade. Risks surrounding the euro area outlook can still be viewed as broadly balanced, although the threat of protectionism, vulnerabilities in emerging markets and financial market volatility have become more prominent recently.

- Annual rates of HICP inflation (headline inflation) are likely to hover around current levels in the coming months and are projected to reach 1.7 percent in each year between now and 2020. This stable profile conceals a slowing contribution from the non-core components of the general index, and a relatively vigorous pick-up in underlying inflation. Reflecting these dynamics, the ECB projections foresee inflation excluding food and energy (core) reaching 1.8 percent in 2020.

Now it would seem whatever inflation rate is lower will become the more important inflation rate for the ECB.

Even the blind can now see that the ECB is desperate to join the Federal Reserve and start boosting policy rates up from the zero bound while pulling back on bond purchases and is looking for any excuse to do so.

It’s also easy to see why European bonds fell out of bed yesterday, with yields on 10-year German bunds rising the most since July 11, or almost 5 basis points to 0.51 percent. The weakness even spilled over into the U.S. bond market, with demand at the Treasury Department’s auction of $37 billion in two-year notes matching the lowest since 2008.

The euro strengthened somewhat against the dollar on Draghi’s comments.

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