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The answer to "What's going to give the Fear Index a boost ?" was staring us in the face all along .... The threat of Thermonuclear War,...

August 11, 2017

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Just in case ALL the attention was switching to Jackson Hole .... a not-so-gentle reminder from the President. ref : General

August 24, 2017

 

 

 

As we are all aware by now, the Jackson Hole "symposium" for central bankers and associated acolytes begins today. Just time then for Donald Trump to grab the headlines once more in his inimitable fashion.

 

One might have assumed that some of Mr Trump's more controversial campaign promises, early attempts at policy even, had been shelved once the political and financial realities of his plans had become apparent. If not shelved, then at least put on the back-burner. How could we have been so naive ?

 

It's tempting to suggest that you can always rely on the Donald to let you down. We'll let someone else do that ...... it's a comment that reveals a lack of impartiality and professionalism with which we would not like to be associated (got it ?). From a market perspective, it's also inaccurate and fails to represent the relationship between Mr Trump and markets so far in his presidency. Prone though he is to lobbing the odd grenade into the path of the record-breaking upward momentum of stock markets in particular, these have in essence been political in nature  --  not market-specific.

 

Somehow, it's easy to forget that much of the stunning rally since November can be put down to Mr Trump's election in the first place ..... just as it's easy to forget that in amongst all the other madness, there are some policies that were generally well-received and distinctly market-friendly  --  think Tax and Infrastructure Spending. Thus the Trump factor can be both supportive and negative for markets, and occasionally is both at the same time.

 

Yesterday was a classic case in point, with the markets being pulled in both directions and the impetus for both being provided, either directly or indirectly, by matters presidential. John Hardy, head of FX at Saxo Bank and quoted in the FT's Global Overview this morning, called it  "an odd mix of hope and fear".

 

The "hope" was a reference to those tax plans we mentioned : just about everyone would agree that the ridiculously complicated US tax system needs reform, most would agree with lowering corporate taxes (much higher than in most developed nations) and presumably the same people would be equally happy with a tax holiday of some sort to allow the repatriation of monies held abroad. Support for lower taxes for top earners might not be exactly universal but whatever one's view, what's not in doubt is that all these measures would be market-friendly. What's more, despite all the botch-jobs so far (in particular, the abject failure to get healthcare legislation passed), there's a very good chance that the desired changes to the tax regime will get through Congress.

 

The "fear" was provided by President Trump in full Mexican-bashing, media-hating mode as he delivered a speech in Phoenix, Arizona . The proximity of Phoenix to the Mexican border is no coincidence of course, and the President volubly reasserted his determination to get that wall built along the US' southern border. The wall of course is one of those issues that has been on the back-burner for a while but Mr Trump has brought it back to centre stage once more. He backed it up by threatening to pull out of the North American Free Trade Agreement (NAFTA)  --  which might have come as something of a surprise to the team he sent to renegotiate NAFTA terms just a few days ago.

 

But even more worrying for markets was Mr Trump's declaration that the wall would be constructed "even if we have to close down our government". In other words, if Congress doesn't give me the money to build it (by raising the debt ceiling), then I'm prepared to embark on a course that may lead to a default on US debt and all it's disastrous consequences until they do.

 

That's about the most market-UNFRIENDLY statement that it's possible to imagine, and presumably the reason why it's influence was merely mildly negative on the day rather than anything more dramatic is that investors have learnt to take Mr Trump with a pinch of salt. Bluster has long been the President's stock-in-trade, and unaccountably he seems able to get away with it with impunity. The trouble is it's not always easy to distinguish between the bluster and the real ..... and on this occasion the stakes are very high indeed.

 

No sooner had we finished explaining that because the consequences would be so dire, there is little chance of a default ..... than up pops Mr Trump to say that he might actually bring it on himself ! Some people will say :"Aw .... that's just his way...." .

Well perhaps, but if it is, quite frankly and as Derek and Clive almost said : "Is this any way to run a ballroom ?", or something like that.

 

 

Oh yes, just very quickly ..... Jackson Hole. Head honchos Draghi of the ECB and Yellen of the Fed are due to speak tomorrow, and as we've said it's unlikely they'll say anything directly about their monetary policies. Especially so Mr Draghi .... still gun-shy after his speech in Sintra was misinterpreted by markets, he'll stick to the theme of the symposium " Fostering a Dynamic Global Economy". There is a slightly bigger chance of Ms Yellen saying something of interest when she talks on "Financial Stability" . The minutes of the last Fed meeting revealed some concern over sky-high asset values  --  something that has preceded major corrections in the past. Obviously, one of the ways to dampen over-ebullient markets is to tighten monetary policy (very carefully, of course). It's just possible the Fed Chair may drop a pointer in that context .....

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