Bitter pill for Trump rally
THE dollar and Dow Jones had to leave la-la land at some point and put an end to the Trump rally. Trigger for the reversal was the failure of Congress to end Obamacare.
The President’s critics immediately declared it a political disaster, saying Trump would have huge difficulty in getting his economic agenda past Capitol Hill despite the Republican majority.
This is as much wishful thinking as anything else and a reflection of the political naivety of Wall Street.
There is a respectable school of thought that the real winner from the defeat of the Obamacare reform is Trump. He was able to use it as a weapon during his campaign for the White House but by allowing it to fail reaps none of the opprobrium which would have fallen upon him if he deprived millions of Americans of heathcare.
The hard Right-wing Freedom Caucus is cast as the bad guy, not the President.
Trump’s effective decision to let health reform go means that the White House can focus on its core economic goals of tax reform, infrastructure spending and deregulation. As for the financial markets, clearly they moved ahead of events – counting on a Reagan-style bonanza before it happened – and have had an important reality check. It is as well to remember that even though recovery in the Obama years was sluggish and below trend, Wall Street had a bull run, rising 123pc. Only Ronald Reagan and Bill Clinton, a beneficiary of the Goldilocks economy, did better than that. Bull markets do not go on for ever and if the Trump team made a mistake it was to take ownership of the Dow Jones soaring through 21,000 rather than keeping schtum.
The dollar retreat from a 14-year peak sparked a sterling rally, carrying the pound to a seven-week high at $1.26. Congress is expected to move rapidly on tax reform. No Republican can quarrel with lower taxes and it is hard for Democrats to oppose.
A complication is the ‘ border tax’, an attempt by Congress to punish imports to the US and give exporters a tax break.
It looks fiendishly difficult to administer (a bit like VAT) and may get in the way of the straight cut in corporation tax, which aims to repatriate hundreds of billions of profits secreted in Bermuda.
The big sweetener designed to keep the Democrats on side is the middle-class tax cut. This reaches into the Democratic heartlands as well as the disaffected bluecollar workers who voted for Trump.
Can the President deliver tax reform by August? Of course he can. Will that mean a sugar rush for growth? It should do. But we must also remember that the economic cycle doesn’t go on for ever and the Fed is engaged in a gradual tightening.
We may have had the best of the Trump rally despite stimulus still to come.
BT woes
AS BRITAIN’S leading mutual, directors of Nationwide may be regretting reaching into BT and its Openreach division for chief executive Joe Garner.
The £42m fine levied on Openreach by regulator Ofcom, together with the order to pay £300m to its competitors, suggests that far from playing fair and square as the broadband wholesaler, BT was cheating on a grand scale when Garner was at the helm, and then covered up misdeeds. BT failed to pay the required compensation to its rivals when installation targets were missed.
BT boss Gavin Patterson sought to portray the telecom firm’s lapse as ‘historic’. Where history ends and contemporary begins is semantics given that some of the wrongful compensation was still happening as recently as August last year.
All of this comes on top of other expensive mistakes. BT lost £513m in Italy because of faulty accounting.
Global services are being probed by the Hong Kong Competition Commission over alleged manipulation of a contract auction for services provided to Hong Kong’s Young Women’s Christian Association.
Last week BT was fined for continuing to invoice customers of Plusnet after they had cancelled. New chairman Jan du Plessis will need a very big broom if he is going to clean the stables.
Cancer cure
UNDER fire from some investors for failing to meet bid-defence revenue targets, AstraZeneca needed blockbusters.
It has just found one in China, which has just approved its Tagrisso lung cancer pill. Sales last year reached $423m (£336m) and are on track for $2.8bn (£2.2bn) by 2020.
Ye of little faith…