The pound gets more action from behind-the-scenes political events than the dollar
|Outlook:
Today the key data is US retail sales. As we know, the consumer is driving the US economy (and working against the drag of falling capital investment). In December the rise in retail sales was 0.3% and steady, with core sales up 0.5%. On the year-over-year basis, Dec had a whopping 5.8%. The calendar year had 3.6% (after 5% in 2018). These will be tough numbers to match, let alone surpass. And everyone knows it, so if there is a disappointment, it won't have a lasting effect on the dollar.
We advise against trying the "trade the news." The number of unknown variables is just too big. Yes, we have the expected vs. the actual, but we don't know the positioning of the majority going into the release. Sometimes we get "buy on the rumor, sell on the news" and sometimes it's the other way around.
The only danger to the dollar is that conditions are not so awful that it gets the safe-haven bid nor so promising and hopeful that the dollar gets a boost on good economic performance. When conditions are so-so and risk appetite is on the rise, that's when the dollar takes a hit. For reasons we do not understand, Trumpian misconduct still has no effect at all. The pound gets more action from behind-the-scenes political events than the dollar. Curious.
Tidbit: At the risk of putting our size 10's in our mouth, we are pleased that the UK cabinet shake-up involves one British Indian guy replacing another one and no comment at all on religion or brownness. The new guy Sunak is madly impressive and had already been tapped to sun a "super-ministry" that would encompass trade as well as the economy and Treasury. The FT puts it this way: the new superstar will manage a "beefed-up business ministry — absorbing the international trade department — with a remit to attract inward investment and "level up" Britain's economy by targeting help at poorer areas including parts of the midlands and northern England."
Sunak's other qualification: he is a true believer in Brexit. And he represents "change" to Boris, a primary goal of Brexit. Well, not if you read the resume—high middle class parents, fancy public school, Oxford then Stanford MBA, marriage to the daughter of a billionaire, Goldman. This reeks of upper crust traditional British, if not with a long landed lineage. Queen Victoria and Mr. Bagehot would approve. And by the way, he's really very good at the job and it's not clear he is just a Boris (or a Dominic) lackey.
Note the difference between shaking up and reforming the bureaucracy in the UK and staffing it with first-class change agents, and what Trump is doing in the US—installing unqualified people, disparaging the establishment, pretending no bureaucracy is needed in the first place (deregulation), and breaking the government, not reforming it.
US Politics: Attorney General Barr criticized Trump by saying all his tweets make his job impossible. He claims he will not be bullied and he was going to ask for the Stone sentence to be reduced even before Trump tweeted about it. He delivered this bumpf in a TV interview with a straight face. Nobody but the most addled would believe it. Justice Dept officials confirmed that no Attorney General has EVER asked for a change in the official Sentencing Guidelines. And this request is for a Trump crony, and crony is the correct word. It's a little funny that harsher sentencing guidelines were imposed across the board by Trumps' first Attorney General Sessions at Trumps' request.
The judge can, of course, make up her own mind. And Trump can, of course, choose to pardon Stone. You have to wonder if the judge will lower the sentencing in an effort to avoid the pardon. The sad thing about this farce is that the base does not object to the president favoring cronies. After all, Stone stayed "loyal" and that's the only criterion.
One of Trump's more toxic tweets was that the four prosecutors who resigned in the Stone sentencing case did so because "they got caught," a whopper of a misrepresentation. This is what we have to worry about—not just outright lies, but misinformation and disinformation.
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