Optimism unbound

Posted by: Paul Donovan

05 Nov 2019
  • Equities are back to believing that all is for the best in this best of all possible worlds. There is optimism about a US-China trade deal. Global trade is mainly done by large (listed) companies. A tax on trade is a tax on equities. Removing trade tax risks will benefit listed companies relative to the wider economy.
  • US trade data is due today. The trend has been for a growing US trade deficit in the last couple of years. This means that Americans have a higher standard of living than their income permits – financed by the export of Treasury bonds (the most successful US export to date).
  • ECB President Lagarde, a lawyer not an economist, gave a speech. The tradition of looking to central bank leaders for guidance on central bank policy was established when economists ran central banks. Now that golden age has passed, investors may need to change where they look for guidance.
  • Euro area producer price inflation is due – it is unlikely to influence the ECB. Various sentiment opinion polls will attempt to grasp at the realities of the most important part of the most advanced economies. Generally speaking they will fail to get a firm grip.

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