The Revolution Will Be Televised... But Is Anyone Watching

Submitted by Michael Every of Rabobank

‘The Revolution Will Be Televised’. But is anyone actually watching?

US President Trump’s speech at the Economic Club of New York contained few surprises. for those who have been paying attention (which seems to rule out most markets at present). There was the usual pre-election self-aggrandizement, emphasis on how amazing the US economy is, Fed-bashing (‘where are my negative interest rates?’)...and while the carrot of a US-China trade deal was dangled, the clear threat was that if there is no trade deal then tariffs are going to go much higher, not the much lower that the market has been pricing for. “Substantial” and “Substantially” where the two words Trump used to describe future tariff hikes, if seen: does that mean 40% or 50%? The response from the Chinese side did not bode well either: the editor of China’s Global Times effectively said “boring!”, and specifically retorted to Trump’s attacks on China’s alleged sharp trade practices that “a lie repeated a thousand times becomes the truth”. (Or ‘what a lot of Goebbels’).  

It says something about how the market is ‘working’ at the moment that even Trump openly stating things can easily get far worse, not better, on the trade front did not see it blink much: US Treasury yields were only marginally lower, equities largely shrugged, and so did USD. “Nothing to see here (except the open threat of US-China divorce): move along, please.”

Indeed, as the Middle East sees missiles flying, for a change, as Sydney burns, and as Hong Kong does too (indeed, the police warn the city is “on the edge of total collapse” after this week’s chaos – and that’s before the latest reported suggestion that this month’s elections might be cancelled) it’s still all largely Risk On Regardless; that was underlined by the upbeat German ZEW survey of market analysts, who now think all is well with the world; and by the RBNZ, who left rates on hold at 1% when the whisper had been a surprise 25bp cut to 0.75%.

Up, up, up went NZD as a result--1% on the day--as there is no meeting now until February. Up, up, up went Kiwi rates -20bp on the day too. I am sure the RBNZ are thrilled with that RBA-esque outcome, and that it will help ensure that soft landing they want. How could it not: a higher currency and nearly the equivalent of a whole rate-hike when they are still pledging to cut more.  

Over in Spain, the far right are up (+28 seats) but also out, as is in not in power, while the far left Unidas Podemos are down (-7 seats) but also in power now, as the Socialist party does a deal with them to scrape together a new government. Once again, a party outside the usual Overton Window (or La Ventana del Overton?) edges into government. Of course, Europe and Mr Market will say, the mainstream governing party will ensure that the radicals don’t act radical. And that’s been true in some cases (Greece) and not so true in others (Italy).

In Bolivia, we have a new President Jeanine Añez, whom neither former president Morales, now in Mexico, nor his supporters recognise. I wonder if we will be seeing more of that kind of thing ahead.

In the UK, the latest YouGov poll this morning shows the Conservatives on 42% (+3), Labour on 28% (+2), the LibDems on 15% (-2); and the Brexit Party on 4% (-6), with the Greens on 4% (unchanged). Not much hope remaining for Remain on that kind of trend, even if it is still all to play for. Two quick UK political questions: what will LibDem policy be if Brexit actually happens? Shouldn’t the manifesto allude to that possibility? And which party will Chuka Umunna be in 12 months from now?

Overall, the bigger picture: pressures continues to build from below, and centres everywhere are finding it harder to hold. Apart from in markets. Perhaps today will change that Panglossian perception a little, however, as the revolution starts to be further televised (though I doubt it).

Day Ahead

For example, today we will get Fed Chair Powell testifying to Congress. Although we only recently heard from the Fed--as they cut rates and declared mission accomplished for the nth time--it is still going to be an opportunity for some of the feistier members of Congress to ask increasingly-awkward questions of the monetary powers that be.

Look around you, or at your TV: a revolution seems to be brewing on that front. What else is it when the president demands the same negative interest rates other public figures are begging Europe to stop having? Or when we hear talk of more QE and Green New Deals? Of course, markets are saying otherwise after those self-same central banks delivered their latest wrenching policy U-turn. But then again, they would given markets are also in the revolutionaries’ cross-hairs!  

We also have the start of the TV segment of Trump’s impeachment process over Ukraine-gate. What fun and games this promises to be, as we wade through the murky waters of “I was told that he was told that they were told that something was wrong with the phone call. Oh, and quid pro quo.” / “Oh no you weren’t!” / “Oh yes I was!”

That will meanwhile be counterbalanced by the clock counting down to when Department of Justice Inspector General Horowitz releases his report into the equally murky origins of the Russia-gate scandal – which is of course linked to Ukraine-gate in some ways. Criminal charges are being whispered about, apparently, and not for the White House this time. How many will be left standing when this is all over, one wonders? Or will we need a Poland-gate or Belorussia-gate to finish the job? (Of course, markets are, again, still yawning for now.)

For those who really don’t enjoy watching TV, there is always public access Congressional coverage too. The US Senate will also be getting busy with legislation imminently to support Hong Kong, according to Senate Leader McConnell, although it has been foot-dragging so far due to key senators with China-focused industries in their states. The House of Representatives has of course already acted on a bill threatening sanctions on Hong Kong officials, and if the Senate does too it could throw further sand in the wheels for the “US-China trade deal”.