Who pays? (We know who pays)

Posted by: Paul Donovan

16 Jan 2020
  • The excitement of a US-China trade deal was over before it began. Today markets get some data to assess the damage of trade taxes. US import price data is before the trade taxes are applied. If Chinese companies cut their prices, they absorb the tax. If they keep their prices constant, Americans pay the tax. So far, Americans have paid the tax. This is not likely to change.
  • American companies pay the tax via profits, rather than pushing it on to consumers via higher prices. The December retail sales data should be unaffected, therefore. The US consumer remains strong. However, structural changes towards online buying may not be caught in this data.
  • The ECB minutes from President Lagarde's first meeting are due. Policy is still laboring under former ECB President Draghi's direction. It seems unlikely that Lagarde has the authority to change that yet. However, Eurozone data has consistently been revised higher. Negative interest rates are being challenged as an idea. Longer-term policy may have to shift.
  • Markets are uninterested in US President Trump's impeachment trial, so they ignored the formal process yesterday. Markets are unsurprised by French strike action, so they ignored threats of more mass protests yesterday.

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