Policy confusion

Posted by: Paul Donovan

07 Jan 2020
  • There has been uncertainty about US troops in Iraq. A letter suggesting a withdrawal has been described as a "draft." Investors do not directly care where US troops are stationed. The incident may suggest general confusion in US policy-making. It is possible that markets have priced in general confusion in US policy-making for some time.
  • The US trade balance is due (it will be a deficit). Trade was distorted by pre-ordering ahead of the threatened December taxes on US consumers of Chinese products. It would be unwise to use this data as a signal of longer-term trends, therefore.
  • The NBER think tank has published research confirming that, with few exceptions, it is US consumers that pay US trade taxes. We do know that China has lost market share in some products (Mexico, Vietnam, Korea and Taiwan are gaining market share). US consumers of champagne and French porcelain napkin rings may wish to consider where future tax burdens may fall.
  • Eurozone December consumer price inflation is unlikely to excite too much interest, as the ECB's policy path is seen as fairly set. Retail sales should confirm the consumer remains a solid foundation for economic activity.

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