Trump’s Conundrum Spooking Market

He really can’t help himself

President Trump appeared at his regular press conference on Friday on the White House lawn to praise himself for the great job he had done in raising U.S. GDP from 2% in Q1 to 4.1% in Q2. There is little doubt that the tax cuts and infrastructure projects he has introduce have been the primary reason for this growth spurt. He managed to stop himself short of promising similar numbers for the third and fourth quarters as he has no further “rabbits to pull from the hat”.

Of academic interest to the President but more interesting to the Fed was the PCE inflation data which was also released. This is the Fed’s favoured measure of inflation since is less seasonal than CPI and is more objective.

This measure fell to 2% in Q2 from a 2.2% read in Q1. Q1 was revised lower from 2.3%. This illustrates perfectly that the Fed’s actions are having the desired effect on inflation while the economy continues to grow at a healthy pace.  

In the coming week the entirely spurious non-farm payrolls data will be released. This number is a lottery, proven by the fact that most bank treasuries run a sweepstake on the outcome. Of far more significance to traders is the wage inflation data which is likely to have remained at 2.7% unchanged from June.

Trump wants trade deal but dollar not helping.

President Trump met with European Commission President Jean-Claude Juncker this week and, rather alarmingly, the two seemed to along. They even managed to make progress over the U.S import of non-auto industrial goods. Of course, vehicles will be a whole other story Juncker is probably more looking forward to his vacation than opening that particular can of worms.

While Trump was praising his handling of the economy, the trade deficit rose from $64.85bn in May to 68.33 in June. Naturally, he will blame the dollar’s strength on interest rate differentials even though they are entirely justified given the disparity between U.S. GDP and growth data from other G7 nations.

The ECB General Council met this week and there yet another eminently predictable outcome. Sr. Draghi maintained his dovish view on rates although he did pronounce himself pleased with future growth prospects. Greece was again precluded from its bonds being included in the Asset Purchase Programme. Although it will start being reduced in a couple of months acceptance to the scheme would have given a measure of acceptability to Greek debt issues. This news was met with dismay by several banks, including HSBC, which had been actively promoting greater acceptance of Greek debt by the market in general.

Bitcoin mature enough to bring an acceptable ETF

While it may seem like regulation by the back door, the prospect of a Bitcoin ETF came closer this week as the SEC commissioner added his weight by saying the he felt the cryptocurrency is now sufficiently “mature” to be considered.

This was in response to the rejection of an application from genuine cryptocurrency evangelists the Winklevoss Twins to start a fund. The SEC commented in its judgement that Bitcoin and Bitcoin markets including the Winklevosses own Gemini exchange were insufficiently resilient to manipulation.

While this ruling was not entirely unexpected, the comments from commissioner Hester Pierce were. She said that “Apparently, bitcoin is not ripe enough, respectable enough, or regulated enough to be worthy of our markets.”

Elsewhere the regulation story rumbles on. While it is now mostly agreed that regulation is necessary it is difficult to decide what is needed and how it should be implemented.

There is the age-old argument; on one side those who don’t see the need are tarred with the “you must have something to hide” brush. While those in Favour are accused of being backwards looking and halting progress.

Meanwhile in Brexitland

No news is, well, no news. Let summer begin!