Tags: trump | tweets | politics | investors

Fact, Not Fake News: Trump Tweets, Politics Continue to Haunt Investors

Fact, Not Fake News: Trump Tweets, Politics Continue to Haunt Investors

By    |   Monday, 09 October 2017 07:15 AM

Another week, and regrettably another week where politics will likely to dominate the headlines.

The purity of economics will have to take a backseat.

We have 4 U.S.-lead political issues that are worthy of attention this week.

First, President Trump tweeted out a rather cryptic message on North Korea suggesting “only one thing will work” and then refused to clarify what was meant by that.

@realDonaldTrump Oct 7

hasn't worked, agreements violated before the ink was dry, makings fools of U.S. negotiators. Sorry, but only one thing will work!

This however, is likely to have a very limited impact on investors, as investors will not readily price in disaster scenarios.

Second, the U.S. and Turkey have suspended visas for one another

This has had an economic impact with the Turkish lira (TRY) hitting an all-time low during Asian trading.

The weakening of the Turkish lira represents the dependence of Turkey on international capital inflows. Confidence of international investors may be called into question as a result of the U.S. action, and so the move in the Turkish lira is not necessarily a surprise. There may be expectations that Turkey’s strategic importance will lead to an early resolution of the situation.

Third, Trump has to decide whether Iran has complied with the terms of the nuclear deal by the end of this week. We have had several tweets in the past, suggesting that Trump is not inclined to agree.

That would put the U.S. President in opposition to the Secretaries of Defense, James Mattis, and State, Rex Tillerson, and with European nations.

As with the Korean situation, financial markets are not likely to price in a disaster scenario around Iran, for example Iran pursuing nuclear weapons.

Fourth, President Trump has suggested that Congress will have to include funding for the wall along the Mexican border as part of any renewal of the DACA that stands for the Deferred Action for Childhood Arrivals program or the Dreamers Act.

The apparent deal with Democrats in Congress is therefore at risk.

This does have some economic implications as there is evidence that the Hispanic community in the United States, keeping in mind that nearly 90 percent of DACA beneficiaries are Latino, has been increasing their precautionary savings in the face of policies specifically targeting them. This is unlikely to have a dramatic impact on headline economic data, but it may also have a regional and companies’ specific consequence on the margin.

From the European Union (EU) and more specifically from Spain, we can expect tensions with Catalonia to continue and this week is likely to see some clarification on the starts of the regional Catalonian government and the reaction of the government in Madrid.

Were Catalonia to achieve an independence that was recognized, there would be a significant risk that it would have to leave the European Union (EU) and the euro, at least temporarily.

Investors could keep in mind that the Catalonian economy could “euroize,” which is the process whereby Catalonia adopts the euro as its primary currency or whereby it links its currency to the euro. There is no doubt that Catalonia would choose one of those options, but at the same time, one should also not overlook the fact that the European Central Bank (ECB) would no longer be obliged to take note of the Catalonian economy and Catalonian banks would not have the protection of a central bank with money-printing powers.

There are parallels to Scotland here, where anecdotal evidence suggests that bank deposits were transferred from Scottish banks to English banks in advance of the independence referendum there. Relocating bank headquarters is therefore an understandable reaction.

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

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Another week, and regrettably another week where politics will likely to dominate the headlines.
trump, tweets, politics, investors
Monday, 09 October 2017 07:15 AM
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