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Thursday is tax hike day

| Posted by: Paul Donovan | Tags: Paul Donovan

  • US President Trump is expected to announce a tax increase for US consumers who have dared to purchase goods that have been partially made in China. There is likely to be a large US flag, suitably photogenic and smiling American workers and a dramatic signature. And selective tariffs, investment restrictions and visa limits.
  • US Trade Representative Lighthizer said that an "algorithm" was used to maximize the pain to China and minimize the pain to US consumers (this acknowledges that there is pain for US consumers). Trade data (presumably the algorithm input) is complex and often out of date. Saying the word "algorithm" in an authoritative voice does not magically reduce the risks.
  • The US Federal Reserve did what was expected with a rate rise. The process was consistent with our view of three further rate increases for this year. Fed Chair Powell suggested that future decisions would be data dependent. This would be a little more reassuring if economists had any faith that real time data was dependable. It is not.
  • The Bank of England is not likely to change anything today – though we think rate hikes are coming. UK retail sales and a German business confidence opinion poll are both due.