Tightening versus the Trump trade taxes
- The Federal Reserve's beige book of economic evidence signaled an economy that is powering ahead. Employment and inflation pressures were reported in unusually strong terms. The Fed would be loco to abandon the steady pace of tightening policy. This is no time for zero or negative real rates.
- Recent equity moves may reflect higher rates, but the underperformance of US companies with high China exposure suggests that the Trump trade taxes are being felt. Trade taxes hurt equities a lot more than they hurt the economy. Roughly half of Americans do not own equity. Economically, jobs are more important than equity wealth.
- The ECB is set to meet. Clearly there will be no change in quantitative policy plans. The credit channel is working well in Europe. Investors will hope that the press conference will separate the noise of the auto sector from the trends in the economy.
- The data calendar is not especially exciting. There is the German Ifo business sentiment survey, but opinion polls rarely offer much helpful insight. Durable goods orders are due from the US, which in theory hint at company investment spending. This message is distorted by the structural changes of the modern economy, however.