Be careful what you wish for, President Trump

Outlook:

Today's big theme is central bank independence. The international financial press, led by the FT and Bloomberg, are full of dire warnings about Trump wrecking the Fed. Ideologically deranged Fed nominee Stephen Moore had said at the time of the December rate hike that Trump could fire Fed chief Powell for the "cause" of wrecking the economy. Since then, Trump has said he is "stuck with" Powell, but Trump is erratic and can easily change his mind, especially if he needs a distraction from some other failure, like trade talks.

The NYT—which we know Trump reads—is more restrained in its reporting of the flood of worries expressed recently at political interference in the Fed's business and the potential loss or weakening of Fed independence. Former Fed chief Yellen says, carefully, "He's in a world where there is inevitably going to be speculation about a political motive. You can't avoid that. The only reasonable thing you can do is get it all out of your head and make decisions based on facts and analysis, and that's what Jay is doing."

The key words here are "facts and analysis." Less obvious are the remarks by BoC chief Poloz, who said too much is expected of central banks after the 2008 financial crisis. "Somehow we got to a point where people think central banks can do just about anything, which is not actually true. It's a very imprecise business." If this is a message directed at Trump, it means "be careful what you wish for." Cutting rates hard now and nurturing expectations of lower rates in the future can backfire. On top of warnings from IMF chief Lagarde, Draghi and just about every other big central banker on the planet, Trump can hardly say he has not been given guidance by real experts.

And since when has that stopped him? His intelligence community told him in no uncertain terms that Russia interfered in the 2016 election and he refuses to believe it or to take any action to counter it. Experts, schmexperts. Trump is well known for willful ignorance.

Given the US has the yield advantage in G7, you'd think the TICS report today would be wildly favorable. Not so fast. Gittler at ACLS shows the inflow both short and long-term is contracting, if only a little. "Unless the trade deficit narrows as well, this suggests a weaker dollar sometime in the future." We get the trade balance on Wednesday this week.

And yields are not about to reflect any change in inflation expectations. The Atlanta Fed's business inflation expectations for April are unchanged at 1.9%. Companies reports sales and profit margins are about the same as before, with unit costs up a little to 2.1%.

Forget the US data as an FX driver. That claim goes to China again, with a slew of releases coming out late tomorrow (Wednesday morning in Beijing). Included as fixed asset investment, industrial production, retail sales and Q1 GDP, with a tiny dip by 0.1% to 6.3% (the Econoday forecast). Coming in a poor second is the ZEW from Germany. Mr. Draghi thinks recession is not likely. As surveys go, the ZEW is pretty good and we shall see if experts concur. The list of factors is too darn long this week. We have Trump likely interfering with the Fed. We have trade talks with China AND Japan, with Europe gearing up. We have (likely) a worsening of the US trade balance. We have US yields reaching an upper bound given no inflation and risk premiums from deficits yet to kick in. We have foreign investors backing off the US as a safe haven. We have earnings not yet reflecting the expected slowdown. At least we can set aside Brexit for the moment. Nobody can trade on these factors, at least not until there is more information and greater clarity. The markets may be thin today as procrastinators take the day to complete their 2018 taxes before midnight. That pretty much leaves retail sales on Thursday as the potential market-mover. Unless we get happy news about a trade deal, we are likely in a state of suspension until some hard news comes out.

Tidbit: Goldman Sachs predicts Trump will win the 2020 election. Other analysts agree. Over the weekend, the cable TV news and opinion slugfest pointed out that it's a battle between immigration and health care. The Trumpies are sticking to their guns on the immigration crisis and prejudice against brown people, while falsely claiming the Dems want an open border. The Dems are falling into the rabbit hole of Medicare for all, something that would cost $2-3 trillion that can come only from the Defense Dept budget and is "socialism."

Note to Readers: Get ready. Passover and Good Friday are on the same date this year, April 19. Markets will close early if they are open at all. Today, Monday, April 15, we will publish the morning report but no afternoon reports (oral surgery, eek). We will not publish any reports on Thursday or Friday. Publication resumes the following Monday, April 22.poli

 

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