A slapdown for Mrs Merkel, Trump puts his foot in it, and a whole list of crises .... well, it is Monday morning, after all.
Monday 25th September 2017
A slapdown for Mrs Merkel, Trump puts his foot in it, and a whole
list of crises .... well, it is Monday morning, after all.
ref :- "Time spent thinking about the next financial crisis
is not wasted" , by John Authers in the Financial Times 22/9/17, and "Merkel's fourth-term victory
marred by rise of rightwing AfD" , the Financial Times
It may have been a fourth election win for Angela Merkel but a
resounding victory it certainly wasn't. A reduced share of the vote (around
32.7%) for her Christian Democrats and a strong showing for the nationalist
Alternative for Germany party (AfD) were probably both manifestations of the
same thing -- widespread residual discontent at the Chancellor's
"open door" immigration policy in 2015/16. Capturing an estimated 13.4%
of the vote means that the anti-immigration AfD will have a significant
representation in the Bundestag, the first time an overtly right-wing party has
been in such a position since WW2.
With her erstwhile coalition partners the Social Democrats suffering
a very poor night (just 20.2% of the vote) and opting out of maintaining the
coalition, Mrs Merkel will probably cobble together a deal with the Free
Democrats (10.5%) and the Greens (9.4%). Such an alliance is known in Germany
as the "Jamaica Coalition" due to the colours of the three parties
being black, yellow and green -- which of course are the three
colours that make up the Jamaican flag.
The outcome of the election represents a fragmentation in German
politics that mirrors electoral developments elsewhere, with established
(establishment ?) parties losing support to protest movements --
very often of the populist variety. In their heyday in the 1970s, the CDU
and the SPD had 90% of the vote between them and this time could only muster
53%. Some will welcome that fact as evidence of democracy in action, while
others might be too uncomfortable with the strong showing of a nationalist
right-wing party (particularly in Germany) to get any pleasure from a
shaking-up of the old order.
Anyway, what have the markets made of it all ? In short, not too
much. The Euro has been marked lower as an understandable reaction to a
disappointing result for the EU's most powerful leader in its most powerful
nation. And for sure the increased influence of the Right is not good news for
France's Emmanuel Macron as he seeks key German support for further financial
and political integration in the EU.
But Mrs Merkel was never likely to go more than a short way along
the lines proposed by Mr Macron anyway -- Germany's fiscal conservatism
would preclude it. In truth, the comparatively minor market reaction so far
suggests that that the market effects of the election result will be
short-lived. You could even make a case for suggesting that in order to win
back some of her lost support amongst those not feeling the benefits of
Germany's economic strength, Mrs Merkel might consider spending some of the
massive current account surplus on infrastructure initiatives --
generally accepted to be much needed. Such a growth-friendly move could
in fact strengthen the Euro.
It's just possible that in the future this election result and the
substantial vote for the AfD will be seen as a seminal moment in German, and
therefore EU, politics. It's not however a possibility likely to bother the
markets ..... not yet, anyway.
And so what's the Don been up to now ? First of all, some context
:
The repeal of Obamacare was the first policy objective taken on by
the Trump administration, and by anybody's reckoning they made quite a mess of
it. Their second attempt now looks likely to fail too, which would be another
embarrassing setback. The Republicans have a 52 - 48 majority in the Senate and
although John McCain and Rand Paul have made it plain that they will vote
against the bill, under the process known as "reconciliation" 50 votes
would be enough to get it passed rather than the usual 60 so long as they get
it done by Sept. 30th. Sadly for the Administration, Ted Cruz and probably
Susan Collins have joined the list of Republican rebels, which looks to have
put paid to the bill's chances.
Against that kind of background, the importance of a good
reception for the Trump Administration's proposals for tax reform, due to be
laid out this week, is hugely magnified. Perhaps as much as anything else, the
record-breaking stock market rally has been founded on Mr Trump's plans to
slash corporation tax and on the multi-billion dollar boost it would give to US
companies. Furthermore, those companies' plans for investment and expansion are
based on those promised cuts. So it's vital that the message this week is
delivered clearly and without unwanted distractions.
Not a good time therefore for the President to be grabbing all the
headlines with an unseemly slanging match with NFL players "taking a
knee" during the playing of the national anthem. Among other things, Mr
Trump is urging team owners to sack those players for their lack of respect,
but since many of those players are black and are taking the action in protest
against racism, there are obvious dangers for a president already struggling
with accusations of racial prejudice. Privately, and increasingly publicly,
there's much gnashing of teeth among officials at the president getting
involved in such an unnecessary and ill-judged spat -- particularly
at this precise time.
Will it affect the course of the tax reform bill ? Probably not.
Will another divisive intervention by Mr Trump undermine the support he will
need to get other plans through in the future ? Almost certainly .....
Lastly, those crises ..... and we're just going to point you in
the direction of John Authers' article penned on Friday, which in turn
is a commentary on a report from Deutsche Bank's market research
team.
Commentators spend an awful amount of time waving red flags about
some imminent crisis or other -- too much, probably. After all, if
you're so scared of the perceived potential for disaster that you miss all the
upside moves then you're not doing a very good job. But it's as well to be
aware of the dangers even if you don't subscribe to the Doomsday scenario and Deutsche
Bank, who think that the chances of a future crisis are overwhelming, are
good enough to list the possible causes. They can't all happen at once, indeed
some are contradictory, but they include :
Economic recession, which would find central banks "out of
ammunition" and powerless to address
A central bank unwind, as they reverse extreme stimulus to push up
rates and cause a collapse
Deflation, which would require more monetary stimulus leading to
negative rates and a banking collapse
Overblown asset prices, with overpriced equities and bonds finally
collapsing amid investor panic
Lack of market liquidity meaning huge moves to the downside can be
triggered by small volumes
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