Perception of politics

Daily update

Media coverage of events in Los Angeles has been intense. There are economic and financial market consequences, but domestic and international investors may react differently. Domestic investors’ views will be shaped by their chosen cable news channel, and potentially by fake news on social media. International investors’ perceptions of risk will be affected by their own experiences of protest, civil unrest, militarization, and secession.
Tensions in the federal government system might lead international investors to seek a risk premium for US assets. For instance, international investors’ concerns created risks for UK assets during the Scottish independence referendum. As a reserve currency, rule of law is important to international holders of US assets; rule of law is a general, not a specific, concept. Tourism and (to a lesser extent) direct investment may be affected by the protests and the response.
China’s May data showed a sharp drop in exports to the US. This will reflect the direct impact of trade taxes, and a reaction after US firms stockpiled goods in advance of being taxed. Trade talks between China and the US continue today. China’s inflation data was somewhat softer than expected.
The NY Fed US inflation expectations survey is due, but politically polarized consumers’ expectations rarely reflect likely outcomes.