Good morning,
Politics is currency and currency is politics
If it’s Monday morning then it is a market that is sifting through the political back and forth of the weekend’s news flow and Sunday morning reportage. The main political event however took place on Friday afternoon as the inauguration of Donald Trump began.
The speech was not a classic and leaned on the protectionist arguments of the Trump candidacy more than the fiscal stimulus side and once again the dollar did not enjoy the words from the Commander in Chief.
Communication is key
And so starts his first 100 days. How long the confusion over policies on trade, stimulus, taxes and the US dollar will last we do not know but we expect the next week to show a White House starting to talk about policy and not crowd sizes and ‘alternative facts’. If the confusion continues and coherence is not found soon then Trump will get his wish for a weaker dollar in the short term although we expect plans on tax, stimulus, repatriation of USD profits and the general strength of the US economy and subsequent interest rate expectations to support the greenback.
Sterling up on trade and Supreme Court expectations
The emphasis on ‘America First’ was particularly striking given the assertion that the UK was at the front of the queue for a trade deal with a Trump-led America. According to the new President America is at the front of the queue and despite the expectation that a trade deal can be done quickly, do we want to be the first country on which Trump’s negotiating tactics are used. Quick trade deals normally turn out to be bad trade deals for the weaker partner.
Indeed, such is the scale and size of the task that needs to be undertaken for a trade deal between the UK and US you would have to quadruple the amount of trade the UK does with the US to get close to the trade it currently holds with Germany, Netherlands, France, Belgium, Ireland, Spain, Italy, Sweden, Poland and the Czech Republic let alone the other members of the EU-27.
The highlight for sterling will be tomorrow’s Supreme Court decision and ruling at 09.30am. Friends and contacts within the legal profession expect that the Court will find in favour of the applicants once again and insist that the government is unable to use the Royal Prerogative to trigger Article 50. A non-negligible risk within the judgement will be whether the devolved governments of Scotland, Wales and Northern Ireland also need to vote as the House of Commons is going to do. We expect a slight pop higher for GBP on the basis of a judgement in favour of the applicants with a further rise should approval from regional governments need to be sought.
According to media reports, Theresa May is set to unveil a new ‘industrial strategy’ today to boost transport and infrastructure investment.
No room for the centre in France
Finally on politics the Socialist Party’s first primary to pick a candidate for the French Presidential election was won by Benoit Hamon; a far-left leaning member of the party who wants to introduce a universal basic income, legalise cannabis and tax robots. The Socialist Party are currently in 4/5th position depending on the opinion poll you read and we do not expect their candidate (Mr Hamon or the current PM Manuel Valls) to make the 2nd ballot in the nationwide election in May.
Have a great day.