US: Politics at the forefront – BBH

Analysts at BBH point out that there are three US developments to note as firstly, yesterday the US announced sanctions on ZTE Corp for violating the terms of its sanctions settlement (selling shipments of telecom to Iran and North Korea and lying and deceiving the US government) and imposed a seven-year prohibition against it buying US equipment.  

Key Quotes

“This weighed on its shares and its suppliers, which weighed on the tech sector in Asia.”

Second, Trump has made two Fed nominations.  As rumored, Clarida, most recently from PIMCO and formerly in Bush's Treasury Department, was nominated for the Vice-chair.  Clarida is regarded as a centrist and pragmatist.  The "new neutral" slogan at PIMCO and some of his writings suggest Clarida recognizes that the equilibrium rate for Fed funds is lower than it has been in the past.  Michelle Bowman, a Kansas banking commissioner, has been nominated to the Board of Governors, specifically to help represent the community banks mandated by Congress.   The Goodfriend nomination has passed committee and is being stalled on the Senate floor.”

Third, the US reported the Treasury's International Capital report after the markets closed yesterday.  The takeaway is that foreign demand for long-term US securities remained robust in February at $57.9 bln after $62.5 bln in January.  It averaged $34.15 a month in 2017 and $4.8 bln in 2016.  The $120.4 bln of long-term portfolio flows into the US likely financed the bulk of the Q1 current account deficit.  We note that foreign investors were net buyers of Treasury bonds and notes for the first timein four months, though they have been consistent but small buyers of Agency bonds.”

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