Bonfires of Calamities!
Well that is just what many could be thinking at present. Once again Trump has thrown the cat amongst the pigeons and this time has raised the conspiracy that Obama had bugged Trump Tower and the Trump campaign. No doubt this is the old two card trick where Trump attempts to deflect from the Russian problem and raise a non-existent conspiracy. These actions cause immense problems for markets as rather than looking to govern, it appears as though Trump is more focused on avoiding problems of his own making. To date the Trump Presidency looks to be in a little bit of turmoil, first Flynn, then Sessions and now Pence. Unfortunately, problems that are becoming all too familiar and consistent appear to be dogging the first couple of months. Trump quoted Breitbart an alt right paper to source a conspiracy that Trump had been bugged. This is the same news source that quoted the boys from Macedonia who alleged that Hillary was running a pedophile ring out of a New Jersey Pizza Shop. Something Trump embraced until someone showed up in a state of distress looking to shoot everyone in the Pizza Shop. And if it was true that Trump had been bugged then he should look to the Department of Justice as they were provided such powers by the Republicans some years ago. No doubt we will hear more about these allegations but one thing that is happening is that the Conservative elements are starting to stir in a less friendly manner.
So markets had a quiet Friday despite Yellen saying that a rate hike is almost inevitable on March 15 if the labour numbers released on March 10 are supportive of a growing economy. Equity staged a subdued rally and bonds weakened a little, whilst the dollar weakened after five days of gains. The dollar was 0.5% stronger over the weak. The probability of a rate hike on March 15 is now running about 80%. The ten year U.S. treasury is running about 2.48%, the two year is 1.31% and the 2/30 year spread is 176 bp. All eyes will be trained towards the labour number, however, given Trump’s conspiracy rant markets may become concerned that the Trump Administration is under pressure and is trying to deflect.
Cracks are already emerging. It appears as though several superpac’s are coming down hard on Ryan’s Medicaid Bill and this does not auger well for Trump as he tries to push any initiatives through. With no policies or details on policy Trump has been big on rhetoric but with no strategy or policy the conservative elements are starting to push their own agenda’s and these appear to be at odds with Trump. Some elements are to bring down the deficit not raise the deficit. Also there will be more questioning of Trump’s numbers. Given China is an economy growing at 6.5% and with a lot of State assistance it’s hard to see how Trump can get to a number of 10% growth which he has used in his forecasts. This number is hard to believe and Trump surely cannot believe that such a number even makes sense. Markets will start to judge Trump soon if he fails to state policies.
In making the U.S. great again perhaps Trump should look to Germany. Germany’s trade surplus is now about $297 bio and that’s slightly more than China’s $245 bio surplus. Germany’s savings ratio is about 10% to GDP (and wealth is spread more widely than the U.S.) whilst the U.S. Savings ratio is 3%. What is more appealing though is Germany continues to compete against the likes of the U.S. companies because it has continued to innovate and increase productivity. In many cases instead of paying out dividends and doing share buybacks, German companies have innovated. At peril is the mining of data for manufacturers. Siemens, is vying with GE to create a digital platform that will assist technology that will assist manufacturers predict demand for parts etc. This allows more automation and mining of data to improve productivity. To make the U.S. great again companies will need to invest in capex and take a much longer view on their investment horizons.
Aussie Market Today.
Equity markets were marginally stronger and this should meant that the Aussie equities could drift and in a drifting market prices are usually weaker. Bonds will track weaker on the day and the currency should remain range bound. Credit was marginally weaker overnight.