The damage of delaying deals

Posted by: Paul Donovan

05 Apr 2019
  • US President Trump has promised that a trade deal with China will be "epic". China has said there is "a consensus". But there is not, in fact, a deal. A deal is not likely before May. While financial markets may anticipate a deal, companies are likely to delay investing with this much uncertainty. That has economic costs.
  • The interminably tedious UK-EU divorce may also be delayed (to the surprise of absolutely no one). This is also delaying investment, with economic consequences. This matters beyond the UK's borders. Almost half of German exports to the UK are investment focused, and over a third of all German exports end up in investment.
  • The US employment report should show strength. Companies that do not invest in capital may use labor as a flexible alternative. The challenge is whether there are enough workers to fill the vacancies. Wage growth is supported by this (note, there is no wage data in today's report. Only average hourly earnings).
  • German industrial production is due, after weak manufacturing orders (because of exports of investment goods). Look for revisions. Past manufacturing orders data was revised higher. The last industrial production data had "epic" revisions higher. German data is nearly always revised higher.