Busy doing nothing

Posted by: Paul Donovan

06 Feb 2019
  • The US State of the Union address did not offer anything of real interest to financial markets. Markets are not really that concerned about whether US President Trump meets North Korean president Kim Jong-un or not. The language on immigration, trade, and drug pricing was all largely expected. There was no escalation of tensions – at least not meaningfully. There was no talk of using Commander in Chief military powers to build the wall, for instance. That might be considered a win for investors, who prefer it when things do not escalate.
  • The issue of trade comes into some focus with the release of US trade data for November today. This is somewhat dated, but it is unlikely to show any meaningful improvement in the US trade deficit. This is because companies have been relatively good at finding ways to evade the taxes – at a cost to the companies (arbitrary taxes tend to make companies less efficient, of course). The more taxes are applied the more disruptive they become – but the damage is still likely to be felt more among companies than at a macroeconomic level.
  • In Germany there is December factory orders data for release. This is of some interest as the German industrial complex was hurt by various one-off factors at the end of last year. The speed and scale of the turnaround is not without interest to economists, therefore. This may be an occasion when the month-on-month change is of more importance (as a momentum signal).
  • Asia has been subdued by the lunar new year holidays, which leaves things fairly quiet. There is an expectation that the US will announce a preferred candidate to lead the World Bank – which is of some interest as a signal for commitment (or lack of commitment) to the structures of the global economic order. Otherwise it is of limited immediate concern to markets. The interminable EU-UK divorce process has soared to new heights of tedium and is not worth looking at.

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