Outlook:

Today we get the US purchasing managers index and Canadian retail sales. We already have the Japan, UK and European PMI’s so perhaps come comparisons are warranted, even if manufacturing is a lower proportion of economic activity everywhere. One area of consensus is that the next Chinese service sector PMI is going to be disastrous, since services are the most affected by the travel ban. And Davos comes to its ending ceremony.

The German PMI shows a bottoming in September and what may be a rebound. The US version, to be updated today, shows a straight line downward. It’s important to differentiate between the manufacturing version and the composite that includes services, the biggest chunk of the US economy. US manufacturing is down (47.2 in December, the lowest since June 2009) but the composite is okay (52.7 in Dec).  Little change is expected in the US numbers today.

Next week we get a Fed meeting and the first estimate of Q4 GDP, with the Atlanta Fed issuing its forecast on Tuesday. Remember that the last Atlanta forecast for Q4 is a lousy 1.8%.

One report yesterday said that after Trump left Davos, the self-appointed global leaders addressed the subject. They dislike Trump and think he is incompetent and dangerous, but are jealous of the US economy he presides over. Just as the stock market is not the economy, the president is not the economy, either.

If there is a message of leadership in the Trump managerial mess, it’s “leave the economy alone.” To be sure, Trump has subsidized the farm sector and let Congress give a giant tax handout to companies, but these are not structural economic measures. The farm sector remains dependent on Chinese imports and the tax cuts did not increase capital spending. We never did get the infrastructure plan. Well, maybe deregulation was a key. Yeah, if you want more pollution.

One other lesson the Europeans could learn is to stop studying policy issues to death and doing very little, and doing it very late. The Trump model of disorderly, childish, impetuous, and uninformed decision-making is awful, but perhaps inaction in the name of well-examined policy purity is worse.

If we consider that the level of the dollar reflects the economy—and over long periods of time, currencies are correlated with economic growth—we still don’t see the dollar rout on the horizon. Sterling is up because Brexit should have been catastrophic for the UK economy but somehow is turning out to be not so bad. If Europe has some green shoots, we need them to get a little higher. And nobody knows how much activity is going to get squashed around the world from the Chinese virus. The SARS virus reportedly shaved 2% off Chinese GDP, and that would echo around the world but most loudly in Germany.

So, these days it’s the dollar that is Teflon. It goes up on risk aversion. It goes up or doesn’t fall when risk aversion abates and attention turns elsewhere. In fact, the dollar is positively correlated with the stock market these days, an anomaly.

Tidbit: This chart is from The Daily Shot (WSJ). Yikes! How can this be true? It works only if you assume either they are using up savings or living on debt. Quick, go short Visa and Mastercard.

Politics: The Dems again did a good job of presenting the case for impeachment, but again, repetitious if you had watched the hearings. Some of the commentary is interesting, too. You’d think everything that could be mentioned has already been mentioned, but nobody wonders what Zelenski was thinking. We can assume he knew exactly what was happening—he was being extorted by the president of the United States. But why did he hold out for so long? In the end, he was rescued from having to make that announcement of the Biden investigation only by Trump getting caught and the military aid being released—by two days.

Something that does come up is “what else did Trump do that is wrong/illegal/immoral/dangerous” that was hidden better and has yet to be disclosed?

One possibility is that it was Putin who suggested to Trump that he could strongarm Ukraine for personal advantage. (Those telephone calls were not recorded or shared.) After all, Trump is an ignoramus who probably couldn’t find Ukraine on a map (and perhaps still cannot). Where did he get the idea in the first place? One bully to another bully—here’s a weakling you can exploit. As Pelosi said, “All roads lead to Putin with you.” Now that’s a scary thought.

The commentators note that while the Dems are showcasing both facts and law, the upcoming defense can’t use facts and its legal position is weak and supported by only a small minority of constitutional scholars. That leaves pounding the table, and there’s just so long the defense can do that before it runs out of grievances, procedural and otherwise. The defense is likely to be quite quick. It begins on Saturday.

The Atlantic magazine has a story by a former NY prosecutor that might be used to get witnesses and documents, an issue still not resolved. Here is an excerpt (we like precedent in legal matters despite having practically none when it comes to impeachment). “Although the Senate has broad discretion to set the rules for the trial, Supreme Court Justice Byron White, in a concurring opinion in Nixon v. United States (1993), a case involving the impeachment of federal Judge Walter Nixon, found in the impeachment-trial clause of Article I, Section 3 of the Constitution a limitation on the method by which the Senate can conduct an impeachment proceeding. The text of the clause states, “The Senate shall have the sole Power to try all Impeachments.” Justice White interpreted the word try to mean that the impeachment proceeding must be in the nature of a judicial trial, and concluded that “a procedure that could not be deemed a trial by reasonable judges” would be unconstitutional.

“White found support for his conclusion in the Framers’ understanding of the impeachment process, particularly the arguments by Alexander Hamilton, the delegate to the Constitutional Constitution who devoted the most attention to the impeachment function of the Senate. Contrary to McConnell’s assertion that impeachment is actually a “political process” and that “there’s not anything judicial about it,” Hamilton described the Senate in “Federalist No. 65” as possessing a “judicial character as a court for the trial of impeachments,” and in “Federalist No. 66,” he repeatedly referred to the Senate as “a court of impeachments.”

Hamilton is not the Constitution, but much quoted these days. Since there is no such thing as a proper trial without witnesses and documents, this trial needs those things, too. We think it’s pretty cool that the rule of law is getting such a good airing. The Reuters/Ipsos poll released Wednesday and quoted everywhere (except Fox News) shows that 72% of voters think witnesses and documents should used. That’s 84% of Dems and 69% of Republicans. “About 44% of adults in the United States say Trump should be removed from office, another 15% say he should be reprimanded formally with a congressional censure, and 31% said the charges should be dismissed.”

“About 40% of Americans said they had a favorable view of Senate Majority Leader Mitch McConnell, while 60% said they have an unfavorable view of him. The poll showed that two out of three Americans are paying attention to the proceedings, with Democrats more interested than Republicans.” The poll was conducted over two days and encompassed over 2200 persons.

Two out of three! All is not lost.  

 


 

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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