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Trade talk is not cheap (for the US)

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The US raised consumer taxes again overnight. USD 34bn of goods partially made in China now face a 25% tariff. The consumer tax was designed to minimize the impact on the US consumer, which makes it something of an economic practical joke. This is not a trade war - it may redistribute patterns of trade.
  • US President Trump was sounding agitated, threatening to tax US consumers on up to USD 500bn of US sales (that would be a trade war). This creates uncertainty, which the Federal Reserve warns may damage investment in the US. Even if just "art of the deal" bluster, such talk has a cost that may not easily be reversed.
  • The Fed's minutes signalled a-quarter-point-a-quarter rate increases. The Fed was dismissive of the idea an inverted yield curve predicts recessions. Back in the 1970s when inflation was the biggest part of a bond yield and inflation was tied to the economic cycle, yield curve inversions (sort of) predicted recessions. Neither condition holds today.
  • The UK's interminably tedious attempt to escape the EU continues. The cabinet is locked away in a remote rural location and physically prevented from tweeting while they talk in a tedious and interminable fashion.