Tags: mattis | resignation | shutdown | threat | investor | uncertainties

Mattis Resignation, Shutdown Threat Heighten Investor Uncertainties

Mattis Resignation, Shutdown Threat Heighten Investor Uncertainties
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Friday, 21 December 2018 01:14 PM Current | Bio | Archive

U.S. Defense Secretary James Mattis presenting his resignation to President Donald Trump is normally not a matter that would concern investors. It is unlikely that this is going to change U.S. economic policy.

Anyway, what will have impact on investors much more is the fact that the U.S. faces double gridlock over the next 2 years. Democrats in Congress are likely to block legislative initiatives and Congressional investigations will likely occupy members of the executive branch.

However, there is some impact as part of a widening narrative.

Trump seems, so far at least, determined to shut down at least part of the U.S. government over spending, and changing senior personnel adds to the “uncertainty” of policy advice that the president is getting on this and other issues.

The shutdown now is economically not terribly important, but it signals the tensions that are likely to explode in September next year when more serious budget negotiations need to take place.

In other words, the resignation of the defense secretary is a signal that policy arguments about the minor shutdown may be affected, which in turn is a signal about how the threat of a September shutdown next year may be affected and there would be a September shutdown in the United States next year, that would matter to investors, no doubt about that.

Interestingly, after a year when Russian interest in other countries’ politics has been of “some” note, on the subject that Trump has decided to pull out of Syria, a fact that by the way was lauded by Russian President Vladimir Putin is worth for everybody taking note of in the context of geopolitics. One should not overlook the fact that Mattis viewed the withdrawal from Syria as abandoning Kurdish fighters and other American allies, and as ceding critical territory to Russia and Iran, The New York Times reported.

Another element of uncertainty has been added to the already uncertain overall situation and we all know that equity markets don’t like uncertainty.

Brexit Saga

It appears that the Russian president now also supports UK Prime Minister Theresa May’s intention the UK leaving the European Union (EU) offering his public support that the embattled British Prime Minister could probably do without, Putin said he understood May’s position in “fighting for this Brexit.”

“The referendum was held,” Putin said during his annual press conference. “What can she do? She has to fulfill the will of the people expressed in the referendum,” The Guardian reported.

By the way, Russia is seen as a possible “beneficiary” of the UK’s exit from the EU.

Besides that, and more relevant perhaps is the Irish Prime Minister who has suggested that the Republic of Ireland would try to maintain an “open” border with the United Kingdom (UK). Even in the event of a “hard” UK exit from the EU, a hard exit is of course the UK’s legal default position, IG.com reported.

Investors could do well taking note because this may possibly increase the risks of a hard exit as Euro skeptics might suggest that it makes the controversial “backstop” idea redundant. The backstop was of course designed to prevent a “hard” border.

Japan Inflation Down

Japan's consumer price inflation (CPI) eased to a 5-month low of 0.8 percent year-on-year in November from 1.4 percent in October and matching consensus. Food inflation hit its lowest in five months and cost of transport slowed while cost of housing continued to fall. On a monthly basis, consumer prices declined 0.2 percent in November, after a 0.2 percent rise in October and reaching the first monthly drop since April. Ex-food and energy inflation came in at 0.0 percent m/m in November, down from 0.1 percent in October and edged down to 0.3 percent y/y from 0.4 percent the month before.

For investors it could be helpful to keep in mind that Japan is at risk of lower inflation next year on “reduced” mobile phone costs. NTT Docomo Inc. said it plans to cut its mobile phone charges by 20 to 40 percent from the April-June quarter next year, The Japan Times reported. Please take note that this would be a “legislated” move, not a move driven by market forces as such.

Now, this sort of thing is a “reminder” for investors that inflation in many countries today has become detached from the economic cycle, at least in part. It’s reflecting instead the whims of politicians and the machination of statisticians as much as anything else.

In a lower inflation world, the importance of administered prices to headline inflation is likely to continue to increase, so the data numbers don’t tell the whole story.            

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

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What will have impact on investors much more is the fact that the U.S. faces double gridlock over the next 2 years. Democrats in Congress are likely to block legislative initiatives and Congressional investigations will likely occupy members of the executive branch.
mattis, resignation, shutdown, threat, investor, uncertainties
Friday, 21 December 2018 01:14 PM
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