Trump relies on rhetoric to showcase his achievements

President Trump delivered his first State of the Union Speech last evening. It is traditional that the President outlines his achievements over the previous year and showcases his intentions for the year to come. In the case of this President and his unpredictability there was never going to be too much in the way of future planning.

He called upon Congress to progress his $1.5trn infrastructure bill without really considering how such a huge investment will be paid for. As the dollar weakens, Government bonds become less attractive to overseas investors, particularly the Japanese and Chinese who currently hold many bonds issued.

The irony of the theme of Trump’s address won’t have been lost on Congressmen, Senators or the administration as Trump called for greater unity. This form the most divisive President in history.

The dollar index has given back the knee-jerk gains it made following the difference of opinion between Trump and his Treasury Secretary last week and it seems that the dollar is going to be allowed to drift lower without verbal intervention. It remains close to its multi-year low and with inflation benign it is unlikely to gain any support from a change in monetary policy.

“Hang Dog Carney” Struggling to provide policy

Bank of England Governor Mark Carney, fast approaching his final year of a quite turbulent term in office faced MP’s yesterday in his regular testimony on inflation and the wider economy. He places the current lack of business investment totally at the feet of Brexit.

He mentioned several parts of the economy that are struggling, and he lamented that in a global economy that is growing at or more than 4% the UK is lagging and that will become harder and harder to close.

Next week sees an MPC meeting where there will be no change in official rates but he BoE will release its quarterly inflation report. In this report, it is most likely to say that inflation has now topped out although that doesn’t mean he it is returning to the Government’s target any time soon. The gap between prices and incomes remains far too wide but with inflation beginning to gradually fall there is nothing to say that it won’t close entirely going forward, particularly if inflation reacts as it should to the pound’s recent rally. The pound remains above the important 61.8 Fibonacci retracement of its fall from 1.5019 to 1.1986 and while it remains above this level, further gains cannot be ruled out.

FOMC says farewell to Janet Yellen

It will be a sad day for Janet Yellen the first female Chairman of the Federal Reserve after just a single term in office. She finds herself a victim of President Trump’s insatiable desire to clean away any reminder of the previous administration.

While lacking the Charisma of a Greenspan or Bernanke, Yellen handled some very difficult and unique issues for the economy. The timing of the rate hikes may have lent themselves more to a “fantasy monetary policy game”, but no damage has been caused to the economy, so far.

The rush to normalize policy and show its economy is booking while the UK hang of doggedly to the additional stimulus and the Eurozone struggles to hold on to the Asset Purchase Scheme until growth becomes more uniform across the entire region.

Jerome Powell, who takes over from Janet Yellen, has only been approved in the past couple of weeks by Congress.

It will be interesting to hear him speak over the next few weeks/months since different isn’t always better!

He has this week’s employment report and one more to decide on the rate hike that is being discounted by traders and analysts alike with a headline of +180k and wages growth of 2.6%

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