Follow Paul Donovan

Market consequences of US isolationism

| Posted by: Paul Donovan | Tags: Paul Donovan

  • France, Germany and the UK have reaffirmed the Iranian nuclear deal, and the EU has confirmed collective support. The US has withdrawn from the deal. As the Trans Pacific Partnership demonstrated, a unilateral withdrawal from a multilateral deal does not necessarily mean the deal is over.
  • The reaction of the oil price has been limited, but oil prices remain high. Consumer inflation expectations are likely to rise in synch with the oil price. Central banks are only likely to react if oil prices feed through into wages. Investors may question the dependability of the US in other international agreements (relevant for trade).
  • US PPI numbers are due. This is a signal of pricing power from US companies – companies don't sell to consumers, companies sell to other companies, for the most part. With labor cost pressures rising, the level of PPI is relevant to the pace of US interest rate tightening.
  • UK April BRC retail sales were the weakest in the survey's history. The timing of Easter is relevant. The move may also signal a switch to online sales – the UK consumer spends proportionately more online than any other major economy. Other measures of consumer health do not show the same weakness.