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Threaten, tweet, retreat

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The central bank of Turkey raised a key interest rate to defend the Turkish lira. The lira rallied back to levels not seen since Tuesday lunchtime. A rate rise to slow domestic credit growth and correct the current account may help the lira. A rate rise to try to attract capital inflows is less likely to succeed.
  • The Italian president has asked the lawyer Conte to form a government, based on a coalition of the two "anti-parties" of Italy. Conte made reference to Italy's role in Europe early on, in an attempt to appease market concerns. Names of ministers and policy priorities may still cause asset price moves.
  • US President Trump has ordered an investigation into auto imports into the US, with a view to taxing any American audacious enough to want to buy a foreign car. The pattern of US policy seems to be threaten, tweet, retreat. A trade war (policies causing export volumes to grow more slowly than real GDP) seems unlikely.
  • The US Federal Reserve meeting minutes suggest that US rates will rise soon, and rise steadily thereafter. Tolerance of inflation a little above 2% was hinted at. That does not imply tolerance of inflation much above 2%.