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'Political Noise' Irrelevant to Financial Markets

'Political Noise' Irrelevant to Financial Markets

By    |   Thursday, 06 September 2018 08:15 AM

An unsigned opinion article in the New York Times alleges top people in the administration are working to thwart President Donald Trump.

The president reacted by tweeting: “Does the so-called “Senior Administration Official” really exist, or is it just the Failing New York Times with another phony source? If the GUTLESS anonymous person does indeed exist, the Times must, for National Security purposes, turn him/her over to government at once! 6:40 PM - 5 Sep 2018”

Events like this give plenty of opportunity to the media to get very excited.

Investors are less likely to care. At least they are less likely to care as investors. Politicians matter far less than they think they do. This sort of political noise is largely irrelevant to the things that actually matter to financial markets.

If the New York Times story hinders Trump's ability to get laws passed by Congress, then the story might matter.

It is unlikely that this story will make a difference to Trump’s political capital.

Such stories would only be markedly relevant under a couple of circumstances:

  • First, if they are seen as increasing the chances of Trump being removed from office, and in that case, markets would need to adjust to the likely policies of a President Michael Pence.
  • Second, and perhaps the more relevant issue, if the president is distracted by this sort of stories and the finite resource of presidential time is diverted away from questions like trade protectionism and towards issues like this, financial markets would then care.

Second Estimate of US Productivity and Unit Labor Cost for Q2

The Bureau for Labor Statistics will release the revised U.S. productivity and unit labor cost data for the second quarter.

A sharp rise in the growth of output together with slowing growth in the number of hours worked made for a sizable 2.9 percent rise in the first estimate of second-quarter productivity and, along with slowing growth in compensation, pulled down labor costs which fell 0.9 percent.

Expectations for the second estimate of nonfarm productivity are 3.0 percent and minus 1.0 percent for unit labor costs.

The productivity data is the residual of GDP. The labor costs have however been mentioned in things like the Fed’s “Beige book” as a concern for companies.

NY Fed President Williams to Speak 

Of more note, we have New York Fed President Williams who is scheduled to speak this morning in Buffalo, New York about the regional and national economy.

This is probably quite important. Williams is one of the very few economists with a vote on the FOMC. Remember, Fed Chair Powell is not an economist but a lawyer.

It is possible to cast Williams as the leading intellectual voice on economic matters at the moment, so his remarks will probably be worth listening to.


Finally, the interminably tedious process of cutting the European Union (EU) off from the United Kingdom (UK) single market has reached the stage where traders start exaggerating the slightest hint of a suspicion of a news story in a desperate attempt to inject some interest into proceedings.

Yesterday, the British pound gyrated around on the stories suggesting that a deal was more likely.

Anyway, investors should take care that there is still another 3 months of this at least.

That said, it’s for sure an undeniable fact that any deal that avoids the worst-case scenario of a no-deal exit is likely to cause significant sterling strength, even if it is no more than a can-kicking exercise in the classic Brussel style.

Argentina’s Central Bank Expects GDP to Grow Again in 2020

Argentina’s Central Bank’s monthly survey “Survey of Market Expectations (REM) in Spanish” informs the central bank expects GDP to contract 1.9 percent in 2018, down from the previous forecast in July of a 0.3 percent contraction. GDP for 2019 was reduced to 0.5 percent, which is 1 percent down from their latest estimate while the expectation for 2020 remained at 2.5 percent.

Inflation is expected to end the year at 40.3 percent, up from the 31.8 percent prediction in July.

The Argentine peso is forecast to finish the year at 41.90 per dollar, markedly weaker than the 30.50 seen in the July survey.

For investors looking to step back in when they think there is a bottom, I would prefer to wait until the GDP gives signs of becoming positive again around 2020, if the central bank’s survey is right of course.

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

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Investors are less likely to care. At least they are less likely to care as investors. Politicians matter far less than they think they do. This sort of political noise is largely irrelevant to the things that actually matter to financial markets.
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Thursday, 06 September 2018 08:15 AM
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