Trump Trump’s Himself!

Meuller

Friday was a quiet day and if Trump had not put himself in the news for all the wrong reasons the markets would barely have twitched. So, Donald challenged Mueller then fired a spray at his Deputy Attorney General via twitter, then sprayed about fake news and his investigation, then there was the admitting that he was under investigation and then his lawyer said he wasn’t. Are you confused? I for one am and totally. This is what his followers love and why he is so sticky even though stronger men would have fallen. His gall and panache and hubris overwhelms everything in his way. Donald will be difficult to impeach and the Republicans won’t because they hold power.

What is happening though is Brexit and this is where Donald’s inadequacies may be of tremendous benefit. His inability to support and attract a team has made any attempt of drafting policy somewhat superfluous. However, it’s this incompetency that could ultimately trump Trump. You see whilst the U.S. is struggling to grow at much over 1.2% as per the first quarter GDP release, Europe despite Brexit, despite electoral uncertainty, despite terrorism, and despite a lot of other things is growing at 2.3%. Why is this so important? It’s because those U.S. companies that are operating in Europe are benefitting significantly as opposed to the domestic companies that are waiting for the tax cuts and the incentives that Trump said he would do.  Simply put, free trade is benefitting many large U.S. firms significantly. Trump may have to remain incompetent to keep those major businesses happy. Multinationals will not want to play in an environment where they are no longer wanted as a result of Trump’s policies if ever they are to become law.

Brexit starts very soon and it will be tricky. There, are a whole legion of issues that must be discussed. For example, the U.K. Universities now are in a different category, what happens to current Europeans studying there, are their student fees about to jump. If they do then places like Trinity College Dublin will benefit enormously. What happens at the North and South Ireland border, is it a hard border in which case the police fear they will once again become target practice. Other issues such as voting rights. Britons living in Spain for example can vote in local elections, will they be allowed under Brexit. Some of these issues are trivial whilst others are huge. It is said that New York is eyeing off London’s position in the Financial Markets however it remains to be seen if Trump’s isolationist policies have an impact on those decisions. Likewise there the announcements that Goldman’s are doubling staff in Frankfurt. There is a lot to discuss for example Belgium stands to lose some $15bio how would they be compensated, who pays for current expected expenditures. As you can see the negotiations could rapidly become very complicated.

For markets on Friday, the equity market was quiet. Amazon’s takeover of Wholefoods sent both a shiver of excitement and fear into the retail space. The S&P rose 0.03%, the Nasdaq fell 0.3% the Dow rose 0.11% and the Stoxx 600 rose 0.7%. The rise in the European markets could see money move out of the U.S. into Europe. The European markets have rallied significantly over the last few months.

Currencies were mixed. The Bloomberg Dollar Spot Index fell 0.3% on the back of weak U.S. economic data. Consumer spending and housing were weak.

Bonds rallied slightly. The U.S. 10-year closed at 2.15%, the 2 year at 1.315%, and the treasury market is now firmly betting no more rate rises this year with a 60% probability of no rate rise. The UK 10-year gilts rallied 1 bp to close 1.01% and the benchmark bund closed at 0.27%.

Commodities were mixed. Oil stirred off the bottom with a rise of 0.6%. Gold rose 0.1%. Coffee looks likely to rise following strong demand and flat production.

The Aussie Market Today

The Aussie should be a little stronger on the day as a result of a weak U.S. dollar. I expect bonds to rally a little whilst equities should add a few cents. Political uncertainties in Australia could lead to volatility however any moves are likely to be muted especially with June 30 rapidly approaching.

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