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Meaningful minutes

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The US Federal Reserve minutes showed Fed uncertainty about the new abnormal of US policy. The incoming administration is not following policy norms, and that uncertainty creates uncertainty about the Fed's reaction. A gradual approach still seems likely, as fiscal policy is really a 2018 story.
  • The Fed did acknowledge the tightness of the US labor market. We get the ADP payrolls data today, a big data prequel to Friday's employment report. Unfortunately, like most big data attempts at predicting macro figures, the data is not especially reliable.
  • The UK and the US offer service sector sentiment opinion polls (PMI and ISM). The UK service sector does seem to be somewhat overlooked in EU negotiations (politicians have a romanticized view of trade focused on tangible "things"). In the US, rising labor costs may have a bearing on service sector sentiment.
  • The euro has risen in the wake of the Fed minutes. This is consistent with capital flow issues. The US needs USD 2.7bn a day in capital inflows. If investors choose to "wait and see" what happens with policy, then the inflow is not forthcoming and the US dollar weakens as a result.