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Markets Won't Care About Trump State of Union

Markets Won't Care About Trump State of Union

Tuesday, 05 February 2019 09:09 AM Current | Bio | Archive

State of Union Address by the President

President Donald Trump will give us, because of the longest government partial shutdown in U.S. history, his delayed State of the Union address.

The White House previewed that the president will promise: “We can bridge old divisions, heal old wounds, build new coalitions, forge new solutions.”

Along with Vice President Mike Pence, the Democratic speaker, Nancy Pelosi will sit just over his shoulder on the dais.

The president will tout the current U.S. economic strength and of course the subject of "border security."

About a week ago, Benjamin Wittes, a senior fellow at the Brookings Institution in Washington, said during a panel discussion: “The State of the Union involves ritualized shows of chumminess from the time the President walks in and everybody gives a sort of demonstrative standing ovation, despite what they may be muttering under their breath … She’s (Pelosi) won and he has to walk in there and he has to hug her, give a warm handshake at a minimum … everybody will be noticing when she (Pelosi) does clap and when she doesn’t clap.”

After last week, the Senate rebuked Trump over troop withdrawals from Syria and Afghanistan, there is no doubt that there will be some tension in the air…

There is very little chance that markets will care too much about what the president will say at his State of the Union address and how it will be received by the audience.

Fact is, some real new positive information about the U.S.-Sino trade talks could make financial markets happy once again.

President Trump Invites Fed Chair Powell for Dinner

Yesterday evening, at the president's invitation, Fed Chair Powell who was joined by Vice Chair Clarida had an informal dinner at the White House, to discuss recent economic developments and the outlook for growth, employment and inflation. The president was joined by Treasury Secretary Mnuchin.

Fed Chair Powell's comments were consistent with his remarks he gave last week at his press conference.

The Fed Chair did not share his expectations for monetary policy, except stressing that the path of the Fed’s policy will depend entirely on the data that come in and what that means for the outlook.

Finally, Chair Powell said that he and his colleagues on the FOMC will set monetary policy in order to support maximum employment and stable prices and will make those decisions based solely on careful, objective and non-political analysis.

One Trump administration official described the dinner to The Wall Street Journal as “cordial and collegial and more informal than if they had met in the Oval Office. There was an exchange of a lot of different views. Each side had a chance to explain their position in a low-key way.”

Also speaking yesterday, Minneapolis Fed President Loretta Mester said in a prepared speech: “This environment gives us the opportunity to continue to gather information on the economy and assess our forecast and the risks, before making any further adjustments in the policy rate. If the economy performs along the lines that I’ve outlined as most likely, the fed funds rate may need to move a bit higher than current levels. But if some of the downside risks to the forecast manifest themselves, and the economy turns out to be weaker than expected and jeopardizes our dual mandate goals, I will need to adjust my outlook and policy views.”

In fact, Mester was more specific than was the Fed Chair at the dinner at the White House which is normal view the circumstances.

For investors I think it could be good not to count too much on a significantly weakening dollar in the near future because of the prospect, as explained by Mester, that we could see a couple of rate increases by the Fed later this year.

Rate divergences between the major central banks and the Federal Reserve plays a role in the value of their respective currencies.

The dollar index has strengthened somewhat over the last couple of days

Now, if Mester is right, than I wouldn’t consider this as good news for the emerging markets’ currencies.

For emerging markets, the value of the dollar is ‘key’ and as long the dollar keeps its strength, I wouldn’t expect sustainable strength for emerging markets.

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

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Fact is, some real new positive information about the U.S.-Sino trade talks could make financial markets happy once again.
trump, state, union, economy, investors
Tuesday, 05 February 2019 09:09 AM
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