This will be the week when the serious money starts to figure out the economic consequences of Trumponomics. Last week saw the financial pundits as confounded as the political ones. Wall Street was expected to plunge. It hit a new “high”. Expectations of a December rise in interest rates were expected to be put on hold. By the end of the week they were reckoned to be a near certainty. Even the greatest fear, that the US would retreat into protectionism, had receded a bit.
This week we will get a better feel. First thing to look for will be the US bond markets. They plunged on Friday, pulling down world bond prices with them. The message here is that a looser fiscal policy in the US – more spending, lower tax rates – will mean that the US has to pay more to borrow long-term. That will echo round the world, for it would signify that the past eight years of ultra-cheap money will be coming to an end. If that is right, it is huge. Where America goes, the rest of the world eventually follows.
Next we should look for anything that gives a feel about US tax policy. There won’t be much until we start getting names for. Who will be Treasury Secretary? Everything we have learnt in the past four days is that President Trump will seek to reassure the worlds of business and finance. We may not get the names this week, but an experienced head of the Treasury is vital for confidence in the US and abroad.
Third, any information about the position of the Federal Reserve Board Chair, Janet Yellen. In recent months she has been attacked vigorously, some of us think disgracefully, by leading Republicans. Constitutionally the Fed is independent both of the administration and of Congress. Will that independence be reasserted? Will the attacks continue?
Fourth, what does China say on trade relations? We have already heard quite strong criticism about any shift in US environmental policy, in particular the rowing back on the Paris agreement. That is interesting because it shows that China, the world’s biggest emitter of carbon dioxide, is serious about climate change. But what about trade? It is massively in China’s self-interest to maintain an open global trading regime. What concessions, for example, on dumping, might it be prepared to offer? Maybe it’s too early but anything on trade will helps us figure out whether globalisation runs on or reverses.
Finally, what about UK fiscal policy? We are 10 days off from the Autumn Statement. A fiscal boost in the US cuts Philip Hammond more slack to ease here, for though we have much less freedom than the US (and a higher budget deficit), a shift in policy there helps us here. We will get a looser fiscal policy and a tighter monetary one. Expect leaks on the budget plans as the markets are prepared for a (modest) reset of austerity.Reuse content