Good morning,
Trump needed to provide details; he didn’t
There were very few noteworthy moves in currency markets yesterday ahead of President Trump’s statement to Congress. For a new President, this speech is the equivalent of the State of the Union, and Trump’s appearance answered some questions – but raised more. The new president retained his bullish ‘America First’ theme that ran throughout the Presidential campaign and his inaugural address, but his speech will have disappointed those who were looking for specifics, details or new information. The President outlined his intention to request approval for a $1 trillion investment package (funded by both public and private money), alongside his repetitive statements that he intends to repeal and replace Obamacare, enforce immigration laws, increase military spending and cut the tax burden on the middle classes.
Arguably, what was more interesting were the omissions from Trump’s speech: he neglected to mention, either directly or in passing, any of his plans on border taxes or bank regulation. Considering the President has been happy to talk through these topics in some detail in interviews in the past, it perhaps appears odd that he wouldn’t take this opportunity to wax lyrical on combatting foreign trade with hefty import duties. But, Trump’s got form on changing his mind: he’s yet to live up to his campaign promise of dubbing China a ‘currency manipulator’ on day one of his presidency, so perhaps the intricacies and interdependencies of international trade are beginning to dawn on him.
USD stronger as Fed speakers talk up March
The dollar’s on the front foot this morning, making gains against the pound, the euro and the yen. With Trump’s speech out of the way, it appears markets are now digesting the surprisingly hawkish comments from Fed members Dudley and Williams late yesterday evening. The key takeaway message from their interview was that the case for tightening policy (lifting interest rates) “has become a lot more compelling in recent months”. With the economy close to full employment and negative real wage growth, it’s hard to disagree. Yesterday’s US data releases should also support the dollar today; consumer confidence numbers and Chicago PMI both beat expectations.
BoE’s Hogg grilled on bank operations
Charlotte Hogg, the nominee to replace Minouche Shafik on the Bank of England’s Monetary Policy Committee, was grilled in front of the Treasury Select Committee yesterday. While she was careful not to reveal her preference for interest rates, she did repeat the Bank’s view that consumption growth will slow in the coming years and the savings rate will decline further. Will this mean an increase in reliance on consumer credit? Persistently low rates from the Bank of England could extend that dependency despite Hogg warning that she’d be concerned if the impact of a weak pound on inflation didn’t diminish over the next few years – a sign she’d be happy to vote for rate rises should conditions warrant it.
Busy data day in Europe and the UK
Manufacturing PMIs from across the Eurozone but, most notably, Germany and France cross the wires before 09:00, which should show continued economic improvement even in the beleaguered southern economies. For the UK, consumer credit and net lending figures should prove interesting at 09:30 given the fall in borrowing in recent months. Should this pattern persist, consumer spending could be in for a tough time later this year.
Have a great day.