Donald Trump in Downton Abbey
- US President-elect Trump's chosen trade representative expressed himself bluntly on China. Bluntness may be a refreshing feature of an administration with little government experience. However, diplomatic conventions exist for a reason. Bluntness in diplomacy is like swearing during afternoon tea at Downton Abbey – its abnormality could provoke a reaction that unnecessarily increases the cost.
- China does have the ability to retaliate. The US dollar and the Treasury market are where they are today because of China's support. It might be time to question what would happen if that support is either absent or (worse) reversed. US data (albeit of poor quality) indicated a further drop in China's official holdings of US Treasuries.
- US Fed Chair Yellen sounded uncharacteristically hawkish yesterday, warning of the dangers in delaying rate hikes for too long. US consumer price inflation carried on moving onwards and upwards, breaching 2% y/y. The Fed's anecdotal Beige Book duly provided anecdotes of tighter labor markets and rising prices.
- The ECB meets, but in contrast to the rather daring commentary from the Fed, the event is likely to be rather dull. The ECB has already told anyone willing to listen what it intends to do this year. A question about Trump's views on European disintegration might enliven the press conference.