Trump Catches a Cold

Healthcare Bill pulled before vote.

It happened late, too late for the market to react, but Donald Trump suffered the first major setback of his Presidency late on Friday evening.

The roll-back of Obamacare, the healthcare initiative voted into law by President Obama and his merry bunch of Democrats had been the number one priority of the Republican Senate.

So for House Speaker Paul Ryan to have to announce that the Bill was being pulled was a huge slap in the face for Trump.

This is the reality of Government for Mr Trump. He is used to saying jump and his acolytes asking “How high?”. Now when he says jump Congress and the Senate ask, as one,  “What’s in it for us?”

The dollar had been suffering all week, falling by almost 2.25% against the index of its major trading partners. News that the bill had been postponed on Thursday led to rumours that the unthinkable was going to happen and Trump wasn’t going to get his own way.

It was a particularly poignant week for the U.K.

A terrorist attack outside the a packed Houses of Parliament which had just finished Prime Minister’s Questions took the lives of five people including the perpetrator.

Khalid Masood managed to drive a rental car onto the pavement of a crowded Westminster Bridge, killing and maiming a number of pedestrians and stabbing a police officer to death before being shot dead himself.

Wednesday afternoons tragic events engulfed media attention and dismissed any complacency from the British people. Following such an event, there are any number of rallying calls. Then reality sets in and people go back to their routines. There are however, four families for whom this act will be burned forever in their minds.

The pound rode a rollercoaster all week. The announcement that Article 50 of the Lisbon Treaty will be triggered on March 29 saw the pound fall although ample liquidity dampened the effect and it settled at a low close to 1.2340.

This news was followed quickly by the release of Producer Price and Inflation data.

The prices paid for raw materials by manufacturers had risen by 20.5% in January. This was followed by a 19.5% rise in February. Producer prices are a reasonably accurate barometer of future inflation as raw materials, fuel and energy are the major components of finished goods.

The lack of wage growth had until now enabled the Bank of England to keep a lid on the inflation Genie! This scenario came a little unstuck as inflation crashed through the Government’s 2% target rising to 2.3% in February from 108% in January.

When questioned on this, BoE Governor, Mark Carney was fairly sanguine, commenting that he wasn’t about to take too much notice of a single month’s data and that he had already predicted that inflation would peak at 2.8% in the Autumn.

This stance was backed by two  members of the MPC. Both Ben Broadbent and Gertjan Vlieghe made comments supporting their boss. Broadbent was first out of the traps saying that it was possible interest rates would rise, but also highlighted a strong sense of caution among investors about the outlook for Britain after Brexit.”

Vlieghe showed himself to be a true dove saying that he could see inflation above 3% without the need for a rate hike. Looks like Kristin Forbes will need to look elsewhere for support at the next MPC!

Global Problem? Buy the Yen!

The JPY was a major beneficiary of risk aversion following the near demise of the TrumpTrade.

The low inflation, low interest rate JPY and CHF are the best stores of value when there is turmoil in global markets. The JPY is the High Priest of the  Counter Intuitive, gaining even when the turmoil is centred on Japan. For example this week Prime Minister Abe has become embroiled in a land scandal and the JPY appreciated. The same was true of the tsunami that started the nuclear incident…...up went the Yen!