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To redo, or not redo?

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The EU Commission told Italy to redo its budget. Italy is saying it will not redo its budget, and the EU Commission needs to be more creative. Media stories now project that French public debt will exceed that of Italy (in euro terms) by the end of the year. Italian bonds have been volatile, but there is almost no prospect of default in the near term.
  • US President Trump has suggested the Fed is the greatest threat to the US economy. An economist would suggest recessions arise from overheating (caused by deficit financed tax cuts, perhaps), or policy error (disrupting supply chains on which an economy depends, perhaps). Zero real rates with full employment are probably not a (restrictive) policy error.
  • The US president expressed displeasure with Saudi Arabia, signaling that the US Congress will take a lead on any sanctions. Congress has, perhaps, been more inclined to sanction Saudi Arabia. Markets have been reassured by statements that Saudi Arabia would not politicize oil.
  • The interminably tedious EU-UK divorce lurches on, with the UK prime minister meeting members of the governing Conservative Party. We are still not near the last minute, so we are not near a last minute deal being done.