Has the time finally arrived?
For as long as most of us can remember the ECB has been dovish and concerned about a level playing field for all the economies of the Eurozone. That perception will have to change at some point and there is a growing feeling that the first seeds of a tightening of monetary policy could be sown today.
As is his style no one will expect Mario Draghi to announce a major shift in the tectonic plates of Eurozone monetary policy but something subtler could easily be introduced. A change in the bias from easing to neutral is probably overdue now as the economy is under no real threat of recession. The major concern will be a rally in the common currency should a shift in monetary policy be
signalled. The ECB is going to have to live with a stronger euro once monetary policy starts to be tightened but they appear to be adopting an “if it ain’t broke why fix it?” stance for now.
Looking at where the expectation for the euro’s average rate for the year sits, most see it above the medium-term resistance of 1.2520 which betrays an expectation for tighter monetary policy.
Brexit Transition close?
The UK Government seems to exist in some kind of “Alice in Wonderland” world when it comes to the reality of the UK’s departure from the EU. Nothing appears as it really is and a sense of hope over expectation prevails. Yesterday Philip Hammond, the Chancellor (finance minister) said he believed that a transition deal will be agreed within a month and that financial services should be the cornerstone of any future relationship.
Hammond seems to forget just how jealously Frankfurt, and, to a slightly lesser extent, Paris covet London’s pre-eminence in financial services and this position should be protected although historically a centre right Government has championed the City and its importance to the country.
There are many potential “banana skins” to be negotiated but the Irish Border is going to be by far the biggest with both sides being committed to positions that seem immovable and impossible to be solved by words alone. Theresa May is bound by the agreement that keeps her as Prime Minister and as she said last week a proposal that in any way weakens the UK will never be acceptable to any Prime Minister.
Trade becoming a continuing theme
There is always speculation as to what Presidents of the U.S. will be remembered for and after a year in office there is already an extensive list for the current incumbent. Foreign policy looked likely to be a winner early on following continued rhetoric with North Korea’s Leader but that has to a certain extent faded as Kim Jong-un has seemingly softened a little.
Then it was tax cuts. They have now been enacted and Trump has led his own cheerleading to celebrate that fact. It is not sure how the world will react to a budget deficit in excess of one trillion dollars (it is Trump’s Dr Evil moment) but that can has been kicked down the road for now.
Now we have trade and protectionism. This story has legs and is likely to run and run. Speculation is rife about tariffs being little more than a tactic to ensure that dialogue continues. Trump will need to choose his battles carefully. He may be able to dominate and force compliance with his terms in negotiation with Mexico and Canada, but it may be a different story with China, India and the EU.
There is plenty of time for further defining moments and there sure to be personal favourites particularly in the area of personal accountability but for now he is a marmite figure both domestically and overseas.