The risk of crying "wolf"

Posted by: Paul Donovan

04 Mar 2019
  • The risk with repeatedly warning about a danger that is not really there is that in the end, you are ignored. On a different subject, US President Trump again complained of dollar strength over the weekend. The dollar has subsequently strengthened in Asian trading.
  • While the dollar is overvalued against "fair" value, it is not significantly overvalued. US competitiveness should not be too damaged. Academic research suggests that damage is being done to US competitiveness by trade taxes, which may be a more urgent problem. Media reports suggest that most of the US taxes on goods partially made in China could be lifted.
  • The Euro area gives us producer prices, as a decent indication of pricing power in the economy. This does matter as with Euro wages rising at the fastest rate for several years, it is important to see whether the labor costs are passed on to customers (inflation) or squeeze profit margins.
  • The UK-EU divorce drags on, because of course it does. The UK government is planning fiscal spending to help the process through. The interesting thing about this is that UK tax revenues keep coming in better than expected, suggesting the economy may be doing better than reported.

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