Kudlow follows Cohn as Chief Economic Advisor.

President Trump has continued to surround himself with like-minded people as he strives to drive home the policies that got him elected.

Larry Kudlow, like Trump with a background in TV, has been appointed as the President’s chief economic advisor replacing Gary Cohn who resigned recently in protest at Trump’s position over trade. Kudlow is known to be an advocate of free trade but will likely temper those views as a member Trump’s team

In his first interview, Kudlow said he would like to see the dollar “just a little higher” This comment together with the recovery from the shock of Rex Tillerson’s sacking as Secretary of State allowed the dollar to recover from its recent lows.

Kudlow also supported his boss’s stance on trade supporting Trump’s call for a $100 billion reduction in China’s trade surplus.

It is hard to see how this can be achieved since the U.S, has a voracious appetite for Chinese goods and China has little need for the few items that are still manufactured in America! Kudlow also said that he believed that China has “earned a tough response from the U.S. on trade given its past performance”.

That is unlikely to win him many friends in Beijing.

Sterling strength unlikely to last.

I may have said this before, but the storm clouds are gathering again for Sterling. It has appeared to be relatively strong recently as it has benefitted from weakness of other major currencies but next week sees the approach of several drivers that could conspire to push it appreciably lower.

Inflation is unlikely to have climbed any higher than last month’s 3% as the November rate hike and the recent sterling rally provide a brake on prices. Where it to be 2.9% or even 2.8% then the need for a rate hike would be called into question and one leg of support would disappear.

Unemployment data is also due for release next week and although the headline will show a slight improvement, the gap between prices and wages will persist.

The Bank of England Monetary Policy Committee meets and will leave rates unchanged. Governor Mark Carney could continue to talk Sterling higher as he has done recently but any shift towards a more dovish stance will see a fall for the pound.

Finally, and perhaps most importantly, The EU Heads of Government Summit will decide on the Brexit Transition agreement. There has been little official comment over the past couple of weeks and true to form, a sense of optimism has grown. The outstanding issues, in particular the Irish Border, remain unsolved but it would be a major surprise if no transition were to be announced next week.

ECB: Patient, Persistent and Prudent.

Mario Draghi, the President of the European Central Bank spoke yesterday of the light touch that the Central Bank continues to exert over the Eurozone economy. He said that the inflation forecast for next year had been lowered, while for this year and 2020 it remains unchanged.

Without saying it in so many words, the unremarkable “steady as she goes strategy” that has continued for some time will most likely stay in place for the remainder of his tenure. Sr. Draghi has shown himself to be quietly determined to provide conditions which benefit the Eurozone as a whole despite calls for a more proactive stance. Given the inflation forecast, it is unlikely that rates will be increased while Sr. Draghi is President.

Given the near collapse of the economy following the debt crisis, it is likely that history will view him as having performed incredibly well in the face of a series of difficult challenges. The concerns over the next President are already coming to light with the Governor of the Banque de France being favoured over the Bundesbank President. This is not due to either Francois Villeroy de Galhau’s or Jens Weidmann’s individual personality more the type of ECB they would represent influenced by their own domestic Central Bank agendas.

 

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Alan is a highly experienced banker with an in depth knowledge of Corporate Banking, Treasury and Trade Finance. He has had a varied career in Global markets, Risk management, FX Trading and Sales & Interest Rate Management. He has managed sales teams mentoring his team in both markets and marketing.He has been published in a number of journals and has appeared daily on radio to discuss market movements and events. His first novel was recently published.