The Apple of the Fed's eye
- US President Trump has delayed the proposed tax increase on US consumers of European steel and aluminum until 1 June. Given the differences between the US president and the EU on trade matters, a resolution within a month may be difficult. Markets are learning to live with trade uncertainty.
- Apple's announcement of a share buyback and a dividend increase is economically relevant. Apple is spending its cash stockpile and purchasing risk assets. This reduction in demand for cash is the mirror of the US Federal Reserve's reduction in the supply of cash (shrinking its balance sheet). It explains why the Fed is not draining cash from markets. Fed policy is simply matching reduced cash demand.
- The Fed meeting today is expected to keep on course for a steady pace of rate increases, and of course to maintain the reduction in the supply of cash. Ignoring the noise and looking at the trends, the US economy does not justify rates this low.
- Yesterday, the US ISM manufacturing survey weakened. This has a small negative correlation with economic reality, so presumably signals modest manufacturing acceleration. The Eurozone PMI for manufacturing activity is due today, along with the Eurozone GDP.