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Investors Await Clear Signals on US Trade Policy

Investors Await Clear Signals on US Trade Policy
(Nuthawut Somsuk/Dreamstime)

Wednesday, 18 July 2018 08:22 AM Current | Bio | Archive

Trump Seeks to Calm Political Storm Over Putin Summit

President Donald Trump has become a bit muddled again it would seem. The president has now accepted the word of the U.S. intelligence community to the effect that the Russians interfered with the 2016 election while also suggesting that a lot of other people could have interfered in the 2016 election.

The president’s clarification follows media reports that Russian officials were concerned that reactions to the initial muddled statement might do further damage to Russia’s relations with the United States.

So, do markets care?

They might on this occasion.

Senate Finance Committee Chairman Orrin Hatch, a Utah Republican, has said he will begin what could be a monthslong process to examine whether Congress should take back some of the power to impose tariffs it has delegated to the executive branch.

That might be not that easy to do as Trump's tariffs increases have been based on multiple pieces of legislation and generally rest on the president’s constitutional power as Commander in Chief.

However, in the uncertainty about what new tariffs the U.S. consumer is to be burdened with, there are now additional levels of uncertainty.

The more muddled the president appears, the greater the uncertainty over policy pronouncements about trade, the more tense relations between the White House and Congress, the greater the uncertainty over who runs trade policy.

Fed Chair Powell Comments on Trade

Trade issues were a consideration when Fed Chair Powell spoke yesterday to the Senate Banking Committee at a hearing about the Fed's monetary policy and the economy. He said: “A trade war with China, the European Union and other trading partners is casting some doubts about the U.S. economic future, and the longer it goes, the more potential harm it could cause ... it is difficult to predict the ultimate outcome of current discussions over trade policy. If it results in broader, higher tariffs across a broad range of traded goods or services that remain that way for a longer period of time, that will be bad for our economy and for other economies too.”

The Fed Chair’s remarks do not perhaps carry quite the same weight as some other Fed Chairs’ remarks. Powell is not an economist, but concern about the damage of rising trade tensions has been voiced by others on the Federal Reserve, including NY Fed President Williams.

Overall, the Fed Chair was positive on the US economy and signaled a steady pace of interest rate tightening.

The whole testimony is repeated today, but with central bank transparency being significantly increased, it’s unlikely that these remarks will generate anything other than noise in the financial markets.

The Fed’s Beige Book, a gossip magazine for economists, that is due today, is of more interest to investors. Anecdotal evidence of companies reacting to the uncertainty over trade has been growing and there may be more evidence in that area.

UK Inflation

UK inflation failed to accelerate as expected in June. An unchanged level of prices on the month left the annual rate steady at May's 2.4 percent, its third consecutive outturn at this mark, comfortably short of the market consensus and equaling its lowest reading since May 2017.

This number does not relieve the uncertainty about when the Bank of England will raise rates. However, that uncertainty also owes much to the political climate and the interminable tedious process of the UK exiting the European Union (EU).

Yesterday, the British pound was reacting (slightly negative) to Parliamentary votes as international investors struggle to get to grips with the complexities of UK parliamentary procedure. Prime Minister May’s government won a key vote with the backing of some members of the opposition. The opposition is divided over getting out of the European Union in much the same way as the government is.   

Emerging Markets: Argentina

Prices rose 3.7 percent in June, surpassing economists’ expectations and which is the most in 2 years. Core inflation rose 4.1 percent, up from 2.7 percent in May. Year-over-year, prices increased 29.5 percent, which is in line with economists’ expectation of 30.0 percent for the end of 2018. Nevertheless, at beginning of the year, analysts surveyed by the central bank expected inflation of 19.4 percent this year.

The worsening inflation figures, in addition to faltering economic activity, suggest that Argentina may fall into a recession this year. Economists now forecast two quarters of contraction followed by a rebound in the fourth quarter.

Yesterday, the Argentine peso lost 1 percent to 27.52 pesos per dollar. At the start of the year the peso was at 18.60 pesos per dollar.

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

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The more muddled the president appears, the greater the uncertainty over policy pronouncements about trade, the more tense relations between the White House and Congress, the greater the uncertainty over who runs trade policy.
trump, political, storm, putin, summit
Wednesday, 18 July 2018 08:22 AM
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