Good morning,
Another investigation to begin
The appointment of an ex-FBI Chief as a Special Counsel to look further into the axis of Russia/Trump/Comey allegations has allowed some of the USD bleeding to stop overnight but the question that nobody knows how to answer is how long will this keep markets sated? Global shares dipped yesterday, bonds ran higher and the USD fell as investors capitalised on political risk crossing the Atlantic and depositing itself on the White House lawn.
The current issues seem to be damaging the US brand and Trump brand but there seems to be little damage being done to the overall Republican brand and until that happens an impeachment is off the cards. We have little idea over whether any investigation by this Special Counsel will run simultaneously as ones in Congress nor over how long this investigation may take.
Market and political shoes still to drop
As we said yesterday, and as much as the Republican leadership wants to be able to say that ‘Congress can walk and chew gum at the same time’, there is the real fear that investment friendly policies will have to be shelved as long as these sort of allegations are ringing in the ears of lawmakers and the voters.
There is a wider lesson to be learnt from this however which is that the political picture is no longer about populism. The next shoe to drop, and something that we are already seeing in the US and the UK is what changes the centre ground must make to appeal to the issues that people now feel comfortable to express publically and vote on. The next Republican nominee will sound a lot like Trump but be more professional with it as will the next Democrat sound like Sanders but be able to pull in the voters and the donations.
GBP strength more on weakness of others
GBP tried to make a run at 1.30 yesterday and a break could easily happen should today’s retail sales numbers match our expectations. Previous numbers have been weak and while we used to think that when the going got tough, the Brits went shopping it seems that this retail environment is too much for the hardy British consumer.
The weakness in the pound will have afforded some cushioning effects for higher-end retailers who will benefit from tourists hell bent on a deal. For everyone else however the picture is one of weakness. Future surveys will show whether any political fears are hurting consumer sentiment but for now, this is a function of Brexit price rises from the weakness of the pound.
We anticipate that Easter may have had a positive effect on the sector but it will do little to reverse the recent trend of negativity.
Japanese GDP runs higher but unlikely to change BOJ
Elsewhere Japanese GDP has hammered higher, crowning the best period of growth since 2006. Movements in prices and the level of consumption spending will do little to shift expectations of the Bank of Japan standing pat on rates. The weaker yen has helped exports but recent moves in JPY are all about the risks seen elsewhere.
Apart from retail sales in the UK and the Conservative party manifesto launch the eyes of the markets will be focused on the Trump twitter account and what Washington can do in the meantime.
Have a great day.