After President Trump’s rather ignominious defeat at the hands of his own intransigence and self-belief, as observers, we must guard ourselves from laughing too loudly.
At the same time we can be equally dismissive of some of the grandiose but rather hollow self-congratulatory speeches we heard from Rome in the context of the 60th anniversary celebrations of the eponymous treaty.
Starting with Trump, and Friday’s botched repeal-and-replace exercise. This was a single issue defeat and investors should guard themselves from assuming that one stumble like this spells the end of the Trump administration’s ability to pursue its reform agenda.
If there is one thing the Donald is not, it is an ideologist. Policy objectives are not joined at the hip and the failure of one necessitates the adaptation and not the scrapping of the next one. The president’s lack of Washington experience is both an advantage and a disadvantage. We see the raging bull in a china shop but I am sure that he will have learnt a few lessons from the events of last week. Whether he changes Washington before Washington changes him is yet to be seen.
One way or the other, markets are not panicking and the correction in risk asset prices can just as easily be put down to a natural and healthy consolidation move after a long and hard rally as it might to seismic tremors on the legislative front. Whatever follows will be “unprecedented” in that there is no known precedent. Trump is unique in our sphere of experiences and second-guessing his next move or moves will remain tough. The only sensible take-away is that of whatever we have seen so far, there is more to come.
50 WAYS TO LEAVE YOUR LOVER
On this side of the pond, Rome was in focus. When asked whether the EU will see another 60 years, former Greek finance minister Yanis Varoufakis said that he didn’t believe it would see another six years. He is wrong. Meanwhile EU Commission president and muppet-in-chief, Jean-Claude Juncker, declared that it was a tragedy that the celebrations were taking place without the UK. He is right. What he might be asking himself, however, is what part he himself had played in causing the British people to vote to leave.
The US is struggling to deal with a movement that is trying to change the way it does things while Europe is struggling with people who what everything to stay the same.
Theresa “Kitten Heel” May is going to trigger Article 50 on Wednesday. Scary stuff. While she has been planning to negotiate very quietly and behind closed doors, the EU’s chief negotiator, Michel Barnier, has bowled her a googly by announcing that his side wants the dialogue to be open and transparent. The first issue on the table, so Barnier says, will be the fate of 4.5m EU citizens resident in the UK. So far the headlines have only dealt with the problems that Brexit will bring with it. From Wednesday onwards, our leaders, muppet-in-chief included, will have to focus on solutions. They have two years to do so. This should focus the minds and drive compromise. My money is on the hard Brexit ending up being a lot softer than current rhetoric would have it.
Meanwhile, Mutti Merkel’s CDU romped home in the Saarland regional elections, confounding all the naysayers. A lot of this is due to the popularity of local CDU supremo, Annagret Kramp-Karrenbauer, known locally as AKK, but the hard facts are that the CDU gained voters while the SPD with its freshly elected leader Martin Schulz went backwards. With 41% of the vote the CDU whipped the SPD on 29.5% but failed to win an overall majority. Only the Left and the AfD made it past the 5% hurdle – neither Liberals nor Greens will be represented – so the “grand coalition” will go on. Suggestions that Mutti Merkel is all washed up now look rather premature although the AKK-effect should not be discounted. All still to play for. Outcome sharply market neutral.
Four weeks until the first round of the French presidential elections; although it will keep on popping up as a reason why French spreads widen or tighten on a day to day basis, that race is run.
QUARTER PAST
So where does that leave pure economics as we head into the end of the first quarter of 2017? The universal cyclical recovery will continue to defy political uncertainty and books should be positioned for this with confidence that the central banks will be happy to remain behind the curve. Sure, stimulus will begin to wane but there is no need to fear any sharp movements on the monetary policy front. Investors in the UK will be busy realising capital losses ahead of the end of the tax year so any weakness in UK markets should not be too closely and too confidently associated with the triggering of Article 50.
Oil remains soft – no surprises there – and gold broke through US$1,250 to the upside although that is just as likely to be the effect of a generally weaker US dollar as it is the result of some post-Obamacare flight to quality. With the ongoing lack of conviction trades, the risk of big and meaningful moves in any of the major asset classes remains, even going into a week fraught with quarter-end technicals, fairly limited. Thus, steady as she goes.
Have a good week.