Politics set to trump data as Fed hike looks cer­tain

Kuwait Times - - BUSINESS -

BRUS­SELS: Clues on fu­ture US pol­icy un­der Don­ald Trump rather than eco­nomic data will likely dom­i­nate minds and markets in the week ahead given a US in­ter­est rate hike in De­cem­ber is now a near-cer­tainty. In­vestors are mak­ing plans with an im­plied mar­ket prob­a­bil­ity of a De­cem­ber rate hike in the mid-90s per­cent, but they are much less sure about what a Trump pres­i­dency will mean in the months and years af­ter that.

James Bullard, a vot­ing mem­ber of the US cen­tral bank’s rate-set­ting com­mit­tee, said the Fed­eral Re­serve will raise US in­ter­est rates in De­cem­ber bar­ring a ma­jor shock, such as global mar­ket volatil­ity or bad US jobs data.

The next monthly pay­rolls data, for Novem­ber, is due on Dec 2. Ex­cept for a blip in May, US em­ploy­ers have been hir­ing com­fort­ably more than 100,000 work­ers each month since the last rate in­crease in Dec. 2015. Rob Car­nell, chief in­ter­na­tional econ­o­mist at ING, said it would need some­thing cat­a­strophic to prevent such a rate rise, some­thing like a sub100,000 pay­rolls fig­ure.

“Then it’s all down to the politics, who’s Trump go­ing to pick for his cabi­net,” Car­nell said. “We’ll to have to take a view as to whether these peo­ple are pro free trade or not as anti-free trade as Trump sounded on the cam­paign trail and what we’re likely to get in poli­cies such as fis­cal ex­pan­sion and the dol­lar.” Fed Chair Janet Yellen said a rate in­crease was prob­a­bly war­ranted “rel­a­tively soon” but cau­tioned there would only be grad­ual in­creases in the rate over time.

Trump’s plan to spend on in­fras­truc­ture has raised in­fla­tion ex­pec­ta­tions and a pos­si­ble need for faster Fed ac­tion. The prospect has al­ready ended a 30-year bull run in bonds.

How­ever, while the main fo­cus has been on stim­u­lus, econ­o­mists say the Trump ad­min­is­tra­tion’s plans for trade are more cru­cial. “From a global per­spec­tive that could be the most dam­ag­ing part of the Trump ad­min­is­tra­tion. If you start to im­pose tar­iffs, of the mag­ni­tude the cam­paign talked about, it’s hard to see it would not lead to a trade war and then lead to recessions,” said Uni­Credit chief US econ­o­mist Harm Band­holz, adding there were signs that the tone had mod­er­ated.

UK BUD­GET, FRENCH PRI­MARIES

Bri­tish fi­nance min­is­ter Philip Hammond will of­fer firm plans and an out­look on the UK econ­omy as it pre­pares for Brexit talks with his Au­tumn State­ment to par­lia­ment on Wed­nes­day. No longer seek­ing a bud­getary sur­plus by 2019/20, the Bri­tish gov­ern­ment is ex­pected to an­nounce raised spend­ing on roads and rail­ways.

On con­ti­nen­tal Europe, Ger­man busi­ness morale from the Ifo in­sti­tute may be the big num­ber. It is seen broadly un­changed from a two-and-a-half year high set in Oc­to­ber. Flash pur­chas­ing man­ager in­dices are ex­pected to show a con­tin­u­a­tion of mod­est growth across Europe af­ter a post-Brexit vote wob­ble, with greater buoy­ancy in ser­vices than in man­u­fac­tur­ing. Most ma­jor economies will wait un­til De­cem­ber for their cen­tral banks’ rate-set­ting pan­els to meet. Mone­tary pol­icy com­mit­tees will sit in Hun­gary, South Africa and Turkey next week, al­though none are seen chang­ing rates.

Ja­pan’s core con­sumer prices are seen fall­ing for an eighth straight month in data to be re­leased on Thurs­day, keep­ing pres­sure on the Bank of Ja­pan to main­tain its ag­gres­sive stim­u­lus pack­age when it meets next month. Politics dom­i­nates again in France which holds a first round of pri­maries to­day for the cen­tre-right, be­fore the sec­ond and final on Nov 27. The win­ner is seen as the most likely next French pres­i­dent. Ger­man Chan­cel­lor An­gela Merkel is also ex­pected to an­nounce to­day she plans to run for a fourth term. Ital­ians vote on Dec. 4 in a ref­er­en­dum on con­sti­tu­tional re­form be­ing pushed by Prime Min­is­ter Mat­teo Renzi, who has said he will re­sign if he loses. Opin­ion polls al­ready show a clear lead for the cam­paign to re­ject the changes, rais­ing the prospect of po­lit­i­cal paral­y­sis. —Reuters

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