Policy moves still in future
It has become a feature of the day of ECB meetings that commentators express the view that a change in monetary policy is imminent but “not just yet”.
Mario Draghi, the ECB President, is faced with the most difficult job in the G20. Trying to juggle the hopes and expectations of nineteen diverse economies is not a job for the faint hearted. Every ECB meeting must be greeted with trepidation in Athens, expectation in Frankfurt, and indifference in Paris (the French have enough to worry about).
There is a divergence between growth and inflation that will be the subject of economic thesis for generations to come. Actual growth is starting to pick up. Sentiment indicators are on the rise but inflation and employment remain stubbornly unmoved Eurozone-wide. Germany clearly exerts major influence across the whole bloc but is only one of nineteen in the ECB’ eyes. It is like Janet Yellen having to be forever considering California at FOMC meetings.
At his press conference today, Mario Draghi will tell us pretty much what we already know. It is really grasping at straws to suggest that the relief rally engendered by the French election will have any bearing whatsoever on his thoughts.
It is an interesting comparison to look at the members of the FOMC and their ECB counterparts. Despite the FOMC speaking with one voice, individual members, who are also representatives of State Federal Reserves speak regularly and support the FOMC Chair. The ECB council members are rarely quoted and everything is channelled through the president. A cynic would say that the ECB Council Members cannot be trusted not to promote their own national agendas.
The president re-awakens
The presidency of Donald Trump, despite being barely one hundred days old, has been characterized by bursts of activity followed by total disappearance from the public eye.
Yesterday was an “activity day”.
First, the tax plan that had been anticipated all week gave no new initiatives. The ideas are sound but their basis may be flawed which could lead to the benefits being far less than expected.
Trump's plan would cut the income tax rate paid by public corporations to 15 percent from 35 percent and reduce the top tax rate assessed on pass-through businesses, including small partnerships and sole proprietorships, to 15 percent from 39.6 percent.
He then moved on to trade. He announced that NAFTA (North American Free Trade Agreement) wouldn’t be scrapped as had been feared, but renegotiated. That is Trump-speak for 'agree with what I want to change or re-negotiation will mean scrapping'. Nevertheless, the Mexican Peso and Canadian Dollar gained some strength from the announcement.
Finally, he presided over the start of massive military exercises with South Korea clearly designed as a warning to the North. Kim Jung Un, suitably unmoved, continued to watch re-runs of Loony Tunes...
The dollar remains supported but also reactive. Risk appetite is growing but any escalation on the Korean Peninsula could change that very rapidly. The dollar index is struggling to regain the 100 level with positive influences driving the pound and euro and Trump’s own hand giving a push to the peso and Loonie.
UK election becoming a one-horse race
The latest opinion polls in Britain put the ruling Conservative Party so far ahead that the majority gained by Margaret Thatcher in 1983 is seriously threatened! Her majority was 144 but the main target must be Tony Blair’s 179 in 1997.
This election pits the disliked against the unelectable. It is hard to consider a government with a majority almost certain to be over 100 being unpopular but division remains over several major policies. Clearly Brexit was a divisive issue but cuts to public services, in particular health and education, are emotive and the only basis on which the socialist opposition can form a cohesive campaign. Unfortunately, the electorate are almost hardened to that fact that their opposition is merely a plaintive voice as the express train approaches!