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A Green Light for the Euro, A Ray of Hope for Greece, and A Budget for the US ..... all the way from Never-Never Land.

May 24, 2017

Wednesday 24th May 2017

 

 

 

A Green Light for the Euro, A Ray of Hope for Greece, and A Budget for the US ..... all the way from Never-Never Land.

 

Just time today to point you in the direction of three topics worthy of attention. All the major financial news outlets will have these covered, but we'll refer to the Financial Times for all three  --  because it offers fine and insightful pieces in each case, obviously .... but also because we're pressed for time and it's easier that way.

 

So.....

 

Katie Martin in Short View (Companies and Markets) and Currencies Analysis (Markets & Investing) both take a look at the recent strength of the Euro, and  wonder whether this stark reversal in prevailing sentiment will be the new market wisdom.

Remember how just the other day it seemed that every man and his dog were talking up the Dollar on the back of at least two rather large assumptions : 1. Trumpflation will rule, or rather the administration's economic plans for tax-cutting and infrastructure spending would boost growth , inflation, interest rates and therefore the US currency, and 2. Notwithstanding the surprise result, US has had it's election and it's now history, whereas Europe faces a period of crucial elections that have the potential to severely damage both the Euro and the EU itself.

 

Guess what ? Disappointing US data contrasts vividly with the upturn in growth projections and confidence in Europe, and even if you are a supporter of President Trump's economic agenda, for a variety of well-publicized reasons he and his team show little ability to get things done. And whilst we talking things political, Europe has comfortably seen off the Euro-detractors in a series of election victories for the mainstream, while the White House lurches from one crisis to the next, and all of them of their own making.

 

If the question has changed from :"Will this somewhat unconventional President be able to get his measures through ?" , to "Will they impeach the President ?" ,  well ..... people might feel entitled to change their trading strategy.

 

 

Ah, we've certainly been here before ...... Greece's creditors unable to agree a deal amongst themselves, never mind okaying a much-needed release of funds before Greece's next major repayment is due in July (€7bn). What's more, Greece has officially just slipped back into recession (generally taken to be signalled by two consecutive quarters of economic contraction). But is that light at the end of the tunnel ? "Greek bailout deal moves a step closer) , International reveals that progress may be nearer than we thought.

 

You might remember that the European Union and the European Central Bank have been at loggerheads with the other member of the lending "Troika" , the International Monetary Fund. The IMF is insistent that the demands being made on Greece are unrealistic, and that the Fund's participation in further bailouts is conditional on some measure of debt relief for Greece. This is not a view that has found much support amongst the more fiscally prudent EU members, particularly Germany. Now the proposal has been suggested by the IMF that it would agree to join the bailout in principle  --  a prerequisite for Germany and others releasing the next tranche of the €86bn package  --  but will not provide any money until the eurozone gives details of how it is going to ease Greece's debt burden.

 

It would be easy to be cynical about this but the response has been generally supportive, even from Germany. The lenders meet again on June 15th, and the stakes are higher than ever. The ECB has stipulated that it needs the IMF to be involved before it starts buying Greek bonds again as part of its Quantitative Easing programme, and any development that brings that closer would be a vital step forward for the beleaguered nation.

 

 

And back to Trump .... or more specifically, his budget plans released yesterday  --  see "US budget comes under attack for questionable growth assumptions" , International .  The blueprint, believe it or not, is entitled "A New Foundation for American Greatness". Now there's a title to set your eyeballs rolling even if the content made sense  --  which it doesn't , according to many on both sides of the House. Among the problems that leap out from the proposals are :

 

A promise to make swingeing cuts worth $3.6 trillion, but boost defence spending and leave social security and Medicare budgets unchanged. That would imply a level of cuts in other areas that this politically naive administration could never implement.

 

An assumption that GNP growth would reach 3.0% by 2021, and stay at or above that level. This is not a view shared by most forecasters, to say the least, and that's a big problem if you're planning the revenue from robust growth to pay for your tax cuts.

 

Oh, and hang on a second, didn't the White House also say that they planned to use the revenue generated from stronger growth to REDUCE the deficit rather balance the tax cuts ? As the Committee for a Responsible Budget points out "the same money cannot be used twice".

 

Now we're not accountants, not by a long chalk, but we'd have to concur.

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