Good morning,
Trump U-turns on NAFTA pledge
As with the immigration bans, wall pledges and jailing of Hillary Clinton before it, Trump’s having to adjust his rhetoric and campaign promises once more by performing a volte-face on his views toward the North American Free Trade Agreement. While he still believes the deal is “very, very bad for our companies and for our workers” he is now not seeking to ditch the agreement, but to re-negotiate in order to redress the perceived imbalance away from American business.
The Mexican peso and Canadian dollar have rallied on the news, but the spectre of taking the ‘FT’ out of ‘NAFTA’ remains apparent and will keep these currencies from benefiting much further.
Near term focus in the US remains on Trump’s corporate tax plans, which will hurt some high-tax states such as California, New York and New Jersey pretty sharply – so expect a lot of resistance to the proposal before it even sees the light of day in its final form.
ECB could start to drip-feed the prospect of tightening today
At 12:45 BST today, the ECB are wholly expected to make no change to policy. But, ever so quietly, the Eurozone economy has been firmly outperforming both the UK and the US and confidence on the continent is beginning to turn north. While there are still political hurdles to leap (first and foremost May’s final round of French presidential voting), businesses are beginning to invest more, hire more and produce more. As a result, ECB President Mario Draghi and team are coming under pressure to raise rates, reverse policy and increase borrowing costs.
Nonetheless, the current board’s reputation for easy policy will likely see them hold off on any sharp adjustments in favour of gradual changes in language and tone well ahead of any subtle tweaks to policy. If we don’t see this process begin today, it’ll certainly begin over the next quarter or so, but at such a slow pace it’s highly possible the euro won’t even notice.
Brexit negotiations to go nowhere until there’s a new French president
Reports suggesting the Prime Minister has sidelined Boris Johnson ahead of the nitty-gritty of Brexit negotiations give the false impression that we’re getting close to kicking off the talks with Brussels, but this won’t be the case until the conclusion of the French Presidential Elections on 7th May. Polls continue to show Macron well in the lead, but these gains appear to be weakening ahead of the final ballot.
Elsewhere, UK data has been relatively quiet this week ahead of GDP figures tomorrow, where a poor quarter for tax receipts, retail sales as well as inflation will make it a tough task for the UK to keep up last year’s healthy rates of growth.