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Crazy for you

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US equities seem to be (finally) reflecting the cost of US President Trump's trade taxes. Around 80% of global trade involves multinational (generally listed) companies. A bit less than half of S&P earnings come from outside the US. However, listed companies are only 25% of the US economy. Equities are at greater risk than the economy if trade is taxed aggressively.
  • US President Trump suggested the Fed is tightening policy too much, and is crazy. That is one interpretation. Another interpretation is that running real interest rates that are barely positive, at a time of full employment and with a deficit financed tax cut is not necessarily an excessively tight policy.
  • Higher political/trade risk suggests markets are likely to stay volatile. Economists are likely to stay calm. The Fed should not be panicked (a large number of Americans do not own equities, and those who do tend not to own that much).
  • The EU-UK divorce remains interminably tedious, but is now interminably tedious with an optimistic soundtrack. The prospects of a deal being done, and passing the UK parliament, are being talked up. UK credit conditions are due, and Spain and France will give final September CPI data.