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Time ticks away on trade

| Posted by: Paul Donovan | Tags: Paul Donovan

  • As of 9 p.m. London time Monday evening, the US president has not reached a decision about whether to raise taxes further on US consumers of steel and aluminum. Europe is on holiday, so may not respond immediately if their products are penalized.
  • Last-minute decision-making might indicate that the US president expects significant changes in the coming hours (quotas have been mentioned). It might indicate muddled policymaking. Either way, the failure to follow established policy frameworks adds uncertainty. Investors tend not to like uncertainty.
  • The Fed is not too concerned about the threat of tax increases from an inflation perspective. Other factors are pushing US inflation higher, however, with the PCE deflator increasing modestly on Monday. We expect a quarter point a quarter rhythm of rate hikes, which will give 2.5% nominal fed funds and roughly 0% real fed funds by the end of the year.
  • The US ISM manufacturing sentiment survey is due. The correlation of the survey with reality is negative for output, employment and inventories. A rational person might question the data's usefulness. The UK is offering credit data. This is useful, in that it distracts from the indescribable tedium of the UK's EU divorce negotiations.