Trump trashes the dollar
THIS has not been a good week for Donald Trump. The chaos in the White House, which led to the sacking of former Goldman Sachs financier Anthony Scaramucci and the disclosure that a Grand Jury has been empanelled by Special Prosecutor Robert Mueller, has cast a pall over Washington.
In spite of President Trump’s promise to lift US growth to 3pc a year, the data generally has been disappointing with the services sector at the lowest point for 11 months.
As in Britain, however, jobs continue to be created with the American unemployment rate dropping to a 16-year low of 4.3pc.
Market response to Trump has been bifurcated. Wall Street generally has been delighted and the Dow Jones has powered above 22,000 and hit records. Investors have responded positively to the White House deregulation agenda for energy and finance, despite a lack of tax reform so far.
In contrast, the dollar is showing deep seated anxiety about the dysfunction in Washington. Logically one might expect the dollar to be on the rise given that the Federal Reserve has been gradually raising US interest rates, whereas other central banks are holding back. Instead, the US currency has tumbled 10pc against a basket of currencies of the US’s major trading partners.
Negative Brexit remarks have failed to dent sterling’s recent showing against the dollar, where it has been holding in the $1.30 to $1.31 range. A big winner has been the euro as Continental economies bounce.
On the foreign exchanges, the Trump effect is working a little like Brexit. The depreciation of the dollar is helping the US’s global giants to boost export prospects and profits. It is no accident that Boeing shares are among the real stars.
The big question for Wall Street is can the share-and-bond boom continue given medi- ocre growth and weak government? Alan Greenspan’s famous irrational exuberance and the word ‘bubble’ come to mind.
Royal welcome
ROSS McEwan has delivered a present to the taxpayer. Ten years after the financial crisis, Royal Bank of Scotland is back in profit and would like nothing more than to remove HM Treasury from its share register. At £939m, the owner of NatWest is back in the black in the first half for the first time in three years.
The current six months could be more tricky, depending on whether or not the US Department of Justice gets its act together and settles with RBS over its sale of subprime mortgage securities. There has been some evidence in the last week of a more lenient approach to banking from the Trump Administration, with the effort to weaken the Volcker rule that stops banks trading on their own account.
The RBS chief executive makes it clear to the stock market that with growing income, reduced costs and improving returns for shareholders, the investment case for RBS is positive. It is to be hoped that the Chancellor Philip Hammond is listening. He needs to be gutsy and recognise that even if some shares are sold at a loss, later tranches will see the taxpayer recover their money. The payment of a dividend is a decoration rather than a necessity. Surely the Treasury would like to see the £25bn gap in the public finances, as a result of the RBS bailout, eliminated.
Inevitably, the referendum losers will make much of RBS’s announcement that it will be using former ABN Amro offices in Amsterdam as a post-Brexit European trading centre. It primarily will be responsible for foreign exchange and debt market operations should there not be a clear deal on financial services. That will mean around 150 jobs moving, as the numbers announced by UK institutions are starting to mount.
One suspects when measured against jobs moving in the opposite direction, we shouldn’t be too alarmist quite yet.
Surrender monkeys
BARELY a murmur has been raised by the board, shareholders or by the Government about the sale of payments group Paysafe to US private equity firms for £3bn.
It is a shameful reflection on financing in the UK that the board, chaired by former NatWest executive Dennis Jones, seems to think that it will be better looked after in the hothouse of the cost- cutting private equity sector than on the London Stock Exchange. So much for faith in Britain’s fintech revolution.