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We Won't Start Seeing Full Trump Effect Until 2018

We Won't Start Seeing Full Trump Effect Until 2018

(Getty/Ty Wright)

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Tuesday, 03 January 2017 07:29 AM Current | Bio | Archive

The uncertainty about the future that surrounded the end of 2016 has not magically disappeared at the start of 2017.

Political uncertainty is likely to remain focused on the United States for this month as the new American administration prepares to take office and the process of confirmation hearings gets underway.

On Sunday evening, the Trump twitter feed was again critical of China stating: “China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won't help with North Korea. Nice!”

This is a somewhat unusual assessment of global trade patterns. The Chinese have acquired large amounts of U.S. Treasury’s and they have sold large amounts of products to the United States in exchange...

The economics of the tweet doesn’t matter perhaps so much as the ongoing tension that seems to exist between the incoming administration and their largest creditor.

In the Euro area we got the release of the provisional French CPI for December that came in at 0.6 percent year-on-year (y/y) against 0.5 percent the month before. The German inflation numbers will come in later this morning.

Economists seem to be less surprised by consumer price inflation than by other high frequency statistics, but there is always some risk, particularly as base effects drop out of any calculation, which is in fact what’s what is happening at the moment as the oil base effects fade away.

Nonetheless, the consensus for Germany is that there will be a very noticeable increase in the inflation rate for December that is expected to clear the 1 percent threshold and hover around to 1.5 percent y/y.

This is important to euro related investors. Now, what is happening at present is that the underlying inflation pressures that have been disguised by low oil prices are simply becoming more visible, especially in Germany, which should highlight a second issue that is that inflation is a local phenomenon.

Inflation is nearly always a local phenomenon of course, but that is especially the case in the absence of any commodity distortions. French inflation did not accelerate as expected and will be much as German inflation because local labor market conditions are different in these two economies.

This will be the same elsewhere.

For example, the U.S. inflation story in 2017 is a local labor story and one that is independent for the most part of any Trump policies.

Please keep in mind that Trump’s economic actions are a story for 2018 with the possible exception of trade protectionism, which may have more immediate consequences.

Besides that, today we have in the United States the release of the ISM manufacturing sentiment poll. Markets’ reverence with this number is out of all proportion to the information content, but the business media need something to talk about, so, no doubt the ISM data will get a reasonable amount of attention.

On any broad assessment of the state of the U.S. economy there is full employment, at least for skilled and semi-skilled labor; there is a healthy level of overall economic activity and the economy can be considered to be operating normally.

Minor shifts in opinion polls like the ISM (Institute for Supply Management) really are not going to change any of the U.S. fundamentals.

One warning though is that the export orders data may be somewhat weaker today. The export orders are supposed to be an export volume indicator, but they actually tend to correlate better with export value and the dollar’s strength in early December may therefore distort the U.S. export numbers lower. The modest weakness at the end of December of the dollar came too late to have any meaningful reversal of that impact.

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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Please keep in mind that Trump’s economic actions are a story for 2018 with the possible exception of trade protectionism, which may have more immediate consequences.
trump, president, economy, investors
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2017-29-03
Tuesday, 03 January 2017 07:29 AM
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