Rallying speeches mask lack of economic plan

President Donald Trump has, rather remarkably, embarked on a series of rallies in the south west of the country designed to bolster support for his re-election campaign. While he continues to “do what he is good at” his real job of running the country and providing the basis for sustainable growth is being neglected. He has a relatively new team in place inexperienced in Government so this roadshow is causing more harm than good.

His approval rating is the lowest of any President in his first year in office but it will be actions rather than bluster that will see that improve. The rift with members of his own party shows no signs of healing with local senators ignoring his rally in Arizona.

The dollar which has fallen by close to 15% this year against the single currency is at least behaving as President Trump demands and maybe he believes that it is the effect rather than the cause that is most important. This is short-termism at its most blatant and any sustained improvement can only be brought about by a cogent economic plan that provides for job creation and economic stability.

Draghi hoping to avoid confusion

The last time ECB President Mario Draghi made two speeches in a week, he managed to appear hawkish in one and dovish in the other. He did at least introduce the concept of “monetary policy for the entire Eurozone” which has been well received by the market and has brought clarity of purpose.

His first speech, in Germany later today, is more likely than the one he will make in Jackson Hole on Friday, to contain advance guidance on ECB policy. There should be little doubt that interest rates in the Eurozone remain firmly on hold.  He may wish to introduce the idea of a tapering of bond purchases to start as early as next month but it is a lack of clarity or guidance that may produce a reaction from the single currency.

At Jackson Hole his speech will be about the wider issues facing the global economy and how Central Banks in general can be of influence. It is unlikely that, in this context, he can be sufficiently specific to elicit a reaction from the market.

Following its recent shallow correction, the Euro is starting to show strength again and a test of 1.2000 is possible as liquidity returns to the market.

Brexit the “only game in town” for Sterling

It has taken a while but those who sold Sterling following the result of the Brexit referendum are being proved right. It is the domino effect of Brexit pervasive intrusion into all aspects of life that is most concerning. No C level executives of businesses in the U.K. are going to invest while their ability to sell go their chosen market is under threat. This has the knock-on effect of employees of those businesses receiving pay increments substantially below the rate of inflation. This leads to a fall in real wages and a drop in consumer confidence and retail sales.

The release of several Brexit discussion papers by the U.K. Government has done nothing to ease the concerns of business since they understand no clarity over trade and customs can be found until the three demands of the EU have been addressed.

It seems that Theresa May and her Ministers feel that they are in a high stakes game of bluff where the EU will fold first when it realizes the size of its trade surplus with the U.K. and the difficulty the like of Mercedes and BMW would have replacing those sales.

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