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Keep Eye on Trump's Twitter for Policy Reversals and Other Surprises

Keep Eye on Trump's Twitter for Policy Reversals and Other Surprises
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Monday, 14 May 2018 08:34 AM Current | Bio | Archive

The surprise we got over the weekend was that President Donald Trump has personally intervened to order that the U.S. Commerce Department to assist the China’s largest publicly traded telecommunications equipment manufacturer ZTE.

The president announced his surprising, for not saying totally unusual policy U-turn via his Twitter account @realDonaldTrump saying: “President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done!”

Clearly, U-turns on U.S. policy are not unusual nor are the president’s policy announcements via Twitter these days.

However, it’s difficult to overlook the fact that the sanctions against ZTE were legally inspired, not politically inspired and related to the fact that ZTE had violated U.S. sanctions by selling equipment made with American parts to Iran and North Korea, and, in March, the Department of Commerce prohibited large American companies like Qualcomm and Micron Technology from selling their chips and components to ZTE.

It might also be interesting to take note that the president tweeted 4 hours later: “China and the United States are working well together on trade, but past negotiations have been so one sided in favor of China, for so many years, that it is hard for them to make a deal that benefits both countries. But be cool, it will all work out!”

Now, how this will affect the U.S. sanctions against companies doing business with Iran is not clear, but perhaps it’s best not to look for consistency especially when one takes into account the announcement issued April 16 by Secretary of Commerce Wilbur Ross about the “Activation of the ZTE Denial Order in Response to Repeated False Statements to the U.S. Government.”

For investors, it will not be easy digest all this in relation to making future investment decisions.

The dollar remains relatively stable, oil prices like the WTI remains around the $70-$71 a barrel range as “trade tensions” don’t seem to be, at least not now, on the front-burner.

Of course, geopolitical political events continue, this week we’ll have among other things the Chinese Vice Premier Liu He who will come to Washington for more trade talks, we’ll have also today the opening of the U.S. embassy in Jerusalem as well European leaders from the U.K., France and Germany that are due to sit down tomorrow in Brussels with their Iranian counterpart, Javad Zarif, for talks on how the Iranian nucleal deal could be maintained.

Meanwhile, Cleveland Fed President Loretta Mester gave an interesting prepared speech in Paris. 

"The U.S. economy is performing very well, and I expect that to continue. Over this year and next, I expect above-trend output growth, continued strength in labor markets, and firming inflation," Mester said.

"I believe the U.S. economy is slightly beyond maximum employment, from the standpoint of the cyclical conditions monetary policy can address, and that inflation will reach our symmetric 2 percent goal on a sustainable basis over the next one to two years. This outlook is based on favorable underlying fundamentals, including accommodative monetary and fiscal policies, healthy household balance sheets, rising personal income, a global economy that is improving overall, and stable inflation expectations.”

Finally, in a just released report titled “the End of Easy,” Morgan Stanley strategists wrote in a midyear outlook that investors need to prepare further for downshifting in a year when picking winners is proving tricky. The multiple tailwinds of the last nine years are abating for markets, and policy tightening means the opposite now applies. Global equities now have limited 12-month upside so should be reduced to equal-weight (to 2 percent from 4 percent), while exposure should be raised to emerging-market hard currency debt and cash.

The report says: “Growth momentum, inflation, balance sheet size, earnings revisions, stock-bond correlations and U.S. policy rates are all transitioning. For markets, we think this means 2018 will see a series of rolling tops in credit (January), yields (summer) and equities (3Q).”

I think that investors could do well keeping Morgan Stanley’s opinion in mind, especially when they have, or have emerging-market investments in mind.

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

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Clearly, U-turns on U.S. policy are not unusual nor are the president’s policy announcements via Twitter these days.
trump, twitter, policy, reversals
Monday, 14 May 2018 08:34 AM
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