Fresh data today in the US consists only of housing starts

Outlook:

Fresh data today in the US consists only of housing starts, not normally a change agent but possibly important this time. In May, starts disappointed on the downside, only 1.092 mil-lion when 1.215 was forecast. The 5.5% drop in May followed -2.7% in April and -7.7% in March. A fourth month of decline could be a loud whistle that something is amiss when the economy is supposedly enjoying full employment. May permits fell 4.9% to 1.17 million, suggesting June starts could be awful.

Institutional factors always beat economic data. The key institutional factor is always the central bank. We get both the BoJ and ECB today and tomorrow. The BoJ policy meeting tomorrow will see some members retiring and new ones coming in. Little change is expected, although analysts keep expecting a change in the inflation target rate to make the actuals look less bad.

The more-watched central bank is the ECB, which has to walk a tightrope between admitting lower in-flation and inflation expectations and robust conditions that warrant tapering. Some tapering, any taper-ing. We all know it's going to be a long drawn-out affair but traders are getting impatient to see it acknowledged and started. We continue to guess that Draghi will repeat inflation is not sustainable and everyone will be disappointed again. Reuters reports some insiders want to keep the buying program open-ended. Well, gee. Of course any central bank worth its salt is going to say that purchases can be ramped back up if conditions warrant. Bloomberg reports the ECB staff is working on a "stimulus plan," which seems to be a misuse of language when what they are really designing is a measured retreat from QE with a reduced pace of asset purchases.

And everyone still expects Draghi to offer some hints and clues at the Kansas City Fed's shindig in Jackson Hole on August 24-26. We always expect more from Jackson Hole than we end up getting.

In the US, of new institutional importance since Trump is the ability of the US government to get any-thing done. We had "Infrastucture Week" but no infrastructure plans. We are having "Made in America Week" this week but absolutely nothing on how the US is supposed to replace imports. It's showman-ship and PR rather than governance.

Congress is now considering yet another unviable approach—repeal Obamacare but delay the actual date for two years to give Congress time to devise another plan. The Plubs blame the Dems for their own failure (the pot calling the kettle black) but no informed person sees anything except disarray and incompetence. Usually it's the Dems who are an incoherent mess so this is kind of fun.

But the problem remains that the Trump administration has achieved nothing in its first six months ex-cept a little immigration policy change. Doubts are growing by leaps and bounds that tax reform is go-ing to go the same way as the healthcare bill. For one thing, it's being designed in secret by a small group of only six persons. If ever you need transparency, disclosure, expert testimony and hard data from statisticians and economists, it's on tax reform. The suspicion is not unfounded that the reform designers will seek what Plubs always seek—lower taxes for the rich.

Then there's trade. Most people have their eyes glaze over when the word comes up. But the Trumpies are counting on the public and even the commentariat to wish trade would just go away. But trade is not all that complicated and it formed a solid leg on which the Trump electoral victory rested. We are stuck with it.

Today the US and China meet for something named a "Comprehensive Dialogue," meaning stuff other than trade will be allowed. The US wants China to stop dumping cheap steel into the US (a product Trump himself buys for his buildings) and also to step up its work in reining in N. Korea. A few facts—the US now imports hardly any steel from China, and China has already said (more or less) it can't do anything with N. Korea. The US trade deficit with China is $347 billion, the biggest two-country deficit of all time.

The FT reports "The problem is that the United States already blocks most Chinese steel imports. So any tariffs or limits on imports would instead hurt other countries, including such staunch allies as Can-ada and South Korea." One analyst suggests "the United States could try to coordinate sanctions against China by countries that do import Chinese steel."

But wait, there's a bomb coming. Commerce Sec Ross will be releasing a paper on the role of steel in national security. Think airplanes and tanks. If the president chooses, he can use a 1962 law that allows him to ban imports or set a catastrophic tariff on goods deemed central to national security. This would play well in those places where voted chose Trump. Therefore we expect it.

At the same time, China has a trump card, the purchase of US Treasuries. The latest TICS report shows China increased its holdings for the 5th month in a row to $1.10 trillion. (Japan has a little more, $1.11 trillion). The FT reports China's holdings rose by $10 billion in the May month and is the highest since last Oct. China has yet to threaten to stop buying US paper but it's one hell of an ace.

In other international relations, the US is falling far short of the threats it made on NAFTA, so far, and the peso and CAD remain firm. But just wait. If and when Trump needs a shocker to distract attention from his son taking a meeting with a Russian agent or the next scandal, NAFTA will come back up. Separately, the Trump administration says it may take strong action against Venezuela if the country re-writes the constitution, including sanctions against Us imports of oil. As we showed yesterday, the US imports the most from Saudi Arabia and Canada, but Venezuela is the third biggest oil exporter to the US. Trump, projecting again, said Maduro is "a bad leader who dreams of becoming a dictator."

The pinkos and "deep state" aficionados will love it.

Finally, trade permeates other matters, too, especially Brexit. Moody's warns that the probability is high the UK cannot make a trade deal with the EC and such a failure would trigger a recession. Some players are not waiting for things to fall apart. Citigroup picked Frankfurt as the post-Brexit location for European sales and trading. It will also move activities to Dublin, alongside Bank of America. Think tank Bruegel says 10,000 banking jobs could go in London, along with some €1.8 trillion of assets. "Standard Chartered, as well as Japan's Nomura and Daiwa Securities, have already picked the German city as their EU headquarters, while Goldman Sachs, JP Morgan, Morgan Stanley and Deutsche Bank have all said they would increase staffing in Frankfurt."

Yikes.

Currency	Spot	Current Position	Signal Date	Signal Strength	Signal Rate	Gain/Loss
USD/JPY	111.96	SHORT USD	07/19/17	NEW*STRONG	111.96	0.00%
GBP/USD	1.3032	LONG GBP	06/28/17	WEAK	1.2701	2.61%
EUR/USD	1.1534	LONG EURO	06/28/17	STRONG	1.1218	2.82%
EUR/JPY	129.14	LONG EURO	06/27/17	WEAK	125.73	2.71%
EUR/GBP	0.8850	LONG EURO	04/25/17	STRONG	0.8490	4.24%
USD/CHF	0.9537	SHORT USD	06/28/17	WEAK	0.9675	1.43%
USD/CAD	1.2634	SHORT USD	05/17/17	STRONG	1.3621	7.25%
NZD/USD	0.7370	LONG NZD	05/30/17	STRONG	0.7062	4.36%
AUD/USD	0.7935	LONG AUD	06/08/17	STRONG	0.7548	5.13%
AUD/JPY	88.85	LONG AUD	06/16/17	WEAK	84.65	4.96%
USD/MXN	17.5299	SHORT USD	05/17/17	STRONG	18.7098	6.31%
USD/BRL	3.1542	SHORT USD	07/17/17	WEAK	3.1794	0.79%