The Russian question, international investors, and the dollar
- The question of US President Trump's ties to Russia was sufficiently concerning as to move markets yesterday – US equities recovered losses, but the dollar has remained weaker. International investors are less likely to understand the nuances of US political risk, and more likely to overreact. International investors dictate the dollar's value.
- The issue for investors is how much time Washington gives to the Russian question. The US Senate will extend its session by three weeks to try to deal with Trumpcare, tax and nominations. If the president is distracted, nominations will not be made. Whether the president is seen as an electoral asset or liability may dictate legislative success.
- Fed Chair Yellen's testimony to Congress offers a welcome distraction from politics. The Fed's likely monetary and quantitative policy tightening in the second half of the year has been relatively well communicated. The Fed Chair needs to make clear that inflation is normal, policy is not; wages are normal, policy is not.
- UK labor market data is likely to have a political focus on wage growth given concerns about real incomes. Eurozone industrial production is likely to be overlooked. The US Beige Book of anecdotal economic evidence is due.