Impact of the Trump Twitter Feed on Markets

The Trump Twitter feed was active over the weekend but not in a way that markets are likely to pay attention to.

The Mueller investigation, which seems to be a particular source of concern for President Trump, is only of market interest to the extent that it reduces the president’s political capital in Washington or if it is seen as having a bearing on the mid-term elections results in November. The former is probably not an issue. The president’s political capital is seen as more limited these days.

The midterm elections are too far off at this stage to get markets focused.

There is a possibility that the trade protection rhetoric from President Trump increases as more details emerge from the Mueller investigation, but that’s not a certainty.

The data calendar is pretty quiet today.

Fed and ECB Speakers

There are a couple of central bank speakers to keep an eye on.

The President of the Federal Reserve of Atlanta, Raphael Bostic who is a voting member of the Federal Open Market Committee (FOMC) and is also known as a prolific speaker, is scheduled to speak.

In context of what Fed Chairman Jerome Powell could say at the Federal Reserve’s annual policy symposium in Jackson Hole, Wyoming in his Friday morning speech on the Fed’s likely path of interest rates and balance sheet policy and what’s his take on the emerging-market turmoil, could be interesting paying attention to.

It might be helpful keeping Mr. Bostic’s remarks in mind what he said in June in a prepared speech: “I began the year with a decided upside tilt to my risk profile for growth, reflecting business optimism following the passage of tax reform. However, that optimism has almost completely faded among my contacts, replaced by concerns about trade policy and tariffs. Perceived uncertainty has risen markedly. Projects already under way are continuing, but I get the sense that the bar for new investment is currently quite high.”

In Europe, Jens Weidmann, President of the German Bundesbank, Chairman of the Board of the Bank for International Settlements and member of the European Central Bank (ECB) Governing Council is also making remarks today that could be of interest.

The ECB’s monetary policy path has been set out for the next year but that does not mean there will not be bias and nuance around that policy path.

The German economy is facing ‘above’ average inflation at the moment and of course the headline inflation rate is above the ECB’s target.

On that topic, German producer price inflation (PPI) came in at 3 percent year-on-year in July, the same as in June and matching market expectations, remaining herewith at the highest rate since last September.

It will be interesting to see if this continuous high German PPI number will have any impact on the comments that will come out of the next ECB Governing Council monetary policy meeting on September 13.

Producer price inflation (PPI) represents the pricing power of companies, far better than does consumer price inflation, and to that extent it’s valuable to assessing equity markets. It’s also helpful in assessing how companies may be reacting to the trade tariffs that are being imposed around the world.

Will companies absorb tariff increases on their exports, which would lower a specific producer price inflation rate, or will they attempt to pass them on to their customers? That would imply an unchanged producer price inflation rate.

Of course, German producer price inflation is in ‘euro terms,’ so the currency effects are also to be considered in this assessment.

For comparison, in July in the U.S., the Producer Price Index for final demand was unchanged, on a seasonable adjusted basis and on an unadjusted basis, the final demand index increased 3.3 percent year-on-year.

https://www.bls.gov/news.release/pdf/ppi.pdf

U.S.-Sino Trade Talks

Trade talks between the U.S. and China are scheduled to begin this week.

China’s Vice Commerce Minister Wang Shouwen will lead a delegation of Chinese officials to Washington, where he will meet U.S. officials on August 22-23 led by Undersecretary for International Affairs David Malpass of the Treasury Department.

Although the resumption of U.S.-China trade talks is positive news, the process of finding a trade deal is likely to be protracted. Meanwhile, the trade war is likely to escalate further as additional tariff measures kick in.

Preparations for the Trump-Xi meetings in November are also on the agenda.

China has ordered an easing of domestic credit conditions for its exporters.

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