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Trump Tactics Test Rule of Law as Political Drama Haunts Investors

Trump Tactics Test Rule of Law as Political Drama Haunts Investors

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Tuesday, 31 January 2017 07:54 AM Current | Bio | Archive

President Donald Trump has fired the acting US attorney general Sally Yates, an Obama administration appointee, because Ms. Yates had “betrayed the Department of Justice” while she was blamed for being “weak on borders and very weak on illegal immigration”

This event does not have any direct economic implication. Overall, financial markets have also shown very little reaction.

Nevertheless, the dismissal of Ms. Yates emphasizes the controversy over the Trump travel ban and it raises questions about commitment to the rule of law given that the office of attorney general, even temporary attorney general, is supposed to act independently of the president.

For investors all this has its importance as these are not abstract concepts for, by example, companies and consequently for the economy as a reaction of several large businesses to the Trump travel ban have already made it clear.

Large companies seem to be positioning themselves as defenders of diversity. Things like a diverse work force is good for profit. Policies perceived as challenging tolerance and diversity must therefore be taken into account when considering long-term profitability.

Political drama is likely to occupy the markets for the time being as this concerns a structural shift changing long-term assumptions. In such an environment, cyclical data is going to be perhaps a little less relevant, which is of course important to investors.

However, the economic cycle continues.

The Bank of Japan (BOJ) met and in a for the institution typical fashion did nothing, which is not terribly surprising.

At the end of September of last year, the Bank of Japan (BOJ) introduced a new monetary policy initiative whereby it announced to target the 10-year bond yield at around 0.0 percent.

Now, the Bank of Japan’s new monetary policy initiatives typically last a few quarters before they are replaced by another new policy initiative, so, this one has a little while to run before its failure will be implicitly acknowledged.

The Bank of Japan left its inflation forecasts largely unchanged, but the risk is that the rise in oil prices will add to inflation perceptions from the Japanese consumer and that well then keep consumer spending weak as it did in December by falling 0.3 percent, albeit slightly better than the expected 0.6 percent decline.

From the Euro area, we got the consumer price inflation (CPI) numbers from France that advanced at 1.4 percent year-on-year (y/y) and that was substantially higher than the 0.6 percent we got in December and is at its highest level since late 2012 and from Spain where consumer prices rose also substantially to 3 percent and this for the first time since December 2012.

It’s clear that oil base effects are starting to come into the consumer price data and that will continue to impact inflation over the coming months.

It’s also interesting to see that the upward move of the French inflation numbers demonstrates that it is no more on a divergent path from that of Germany as it was in December.

The Euro area flash aggregate consumer price inflation (CPI) number was also up to 1.8 percent in January, which is substantially higher than the 1.1 percent where it was in December.

It is of course, the Euro area aggregate CPI that the ECB is supposed to track in its policy decision making and notwithstanding the ECB’s monetary policy for this year has in some way been preset by ECB President Draghi it now looks like inflation could become a big challenge for the European Central Bank’s (ECB) monetary policy.

We also got Euro area Flash GDP for the fourth quarter that grew by 0.6 percent, which represents an annual growth of 1.8 percent in 2016, but that remained below the 2 percent growth number we saw in 2015.

Nevertheless, this number is of little concern to investors.

In the United States, we’ll get another opinion poll on consumer confidence. Consumer confidence is subject to media influence and had a clear tendency to overreact. This month’s data is unlikely to be of much interest. Whether subsequent month’s data shows a reaction to the current political noise, is potentially more interesting.

Of course, the United States is a divided country and so the sense of optimism or pessimism may end up being highly regional and is perhaps more relevant for economists because confidence is politically influenced and because confidence tends to overreact, the economic signals from these opinion poll surveys are relatively weak.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

 

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For investors all this has its importance as these are not abstract concepts for, by example, companies and consequently for the economy as a reaction of several large businesses to the Trump travel ban have already made it clear
trump, law, political, markets
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2017-54-31
Tuesday, 31 January 2017 07:54 AM
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