Negative real rates are really not needed
- The US employment report confirmed a strong labor market. Warmer weather lowered average hourly earnings growth (low-paid workers work in weather sensitive sectors). With wage growth around 3%, strong employment and rising corporate pricing power, it is hard to justify negative real Fed funds rates.
- The Trump Twitter feed has been complaining about the EU's 3% average tariff tax on US imports. A tax on EU car sales in the US is threatened. So far the Trump trade taxes are largely invisible to US consumers: six cents tax for a 10-dollar six-pack of beer is not visible, unless explicitly identified. More taxes might make the taxes more visible.
- China brought itself into line with France, Germany and the UK by abolishing term limits for its head of government. This is no surprise. Near term this means stability, which markets may like. Longer term, this may make innovation more difficult. Innovation depends on challenging the existing way of doing things.
- Another report of average London property prices falling at the fastest rate in nine years. UBS has identified London property as being a bubble risk. However, many Londoners are unaffected, as much of the city still has rising property prices.