Are businesses starting to fear Donald Trump? | Larry Elliott
Financial markets are starting to have doubts about Donald Trump. The euphoria that sent stock prices on Wall Street to record highs quickly dissipated amid fears the new president was dangerously unpredictable.
The evidence that Trump doesn’t really have a clue of what he is doing is mounting day by day. The failure of Congress to agree to the repeal of Obamacare was the first sign of trouble, as it raised the question of whether the White House would be able to pass an economic stimulus package.
But there has been more to disrupt investors since then – a lot more. First there was the U-turn on Syria, then the saber-attack on North Korea. Now Trump has decided, in flagrant contradiction to what he said during the election campaign, that China does not gain unfair trade advantage by manipulating its currency.
The nicest take on this latest flip-flop is that Trump wants to keep Beijing soft while the United States launches military action against North Korea, although that prospect isn’t exactly designed to make investors less nervous. . A more accurate assessment of Trump’s first three months of work is that he makes it up as he goes.
Not only did Trump reconsider China’s alleged currency manipulation in an interview with the the Wall Street newspaper, he hinted that Janet Yellen might after all get a second term as the Federal Reserve Chairman and said he believed the dollar was getting too strong.
On this last point, at least, there was some sense in what the President had to say. That sounds great about imposing tariffs and taxes on imports, but a rising currency would lessen the impact of any protectionist measures by making US exports more expensive. This assumes, of course, that there will be protectionist measures. On the current form, there probably won’t be.
Trump seems to think that the strength of the dollar is a vote of confidence. If only. The greenback is strong because the Fed is the only major central bank in the world to raise borrowing costs, and investors assume the US central bank will step up the pace of interest rate hikes in response to an inspired recovery by Trump. growing. This scenario is starting to seem less likely.
The reaction of the currency markets to Trump’s latest comments was predictable. Traders took their signal from the White House and dumped the dollar. Perhaps more importantly, demand for gold and the Japanese yen, traditional havens in uncertain times, has reached its highest level since the US presidential election last November.
Stock prices stay close to their all-time highs, but for how long? Cannier investors took a look at Trump’s foreign policy antics a la Dr. Strangelove and decided to park their money elsewhere. US defense actions seem like a decent bet; the rest of the stock market doesn’t. Caveat bouncer.
Lenders Get Bank’s Message on Unsecured Debt
The Governors of the Bank of England have never struggled to make their feelings known. Once upon a time, they did it by raising the governor’s eyebrows. Today, they do this through the deliberations of the Financial Policy Committee. The bottom line is the same. The lenders sit down and take note.
The The concern of PFC is that there are too many unsecured loans: too much credit card debt; too many payday loans; too many cars are bought under attractive finance offers. He wants lenders to be more cautious because he knows all the conditions are right for a credit card crash: ultra low interest rates, a strong job market, lenders vying for the best deals. tasty and inflation that is rising faster than wages. Consumers are tempted to use debt to bridge the gap between their income and spending aspirations, and many lenders are all too willing to nurture this habit.
Lenders seem to get the message. The Bank’s latest survey on credit conditions marks a radical change. After years of easing debt, credit availability declined in the first three months of 2017 and is expected to decline further in the second quarter. The result will be fewer people with financial problems, less unaffordable spending and a more sustainable economy.
This is the good news. But the survey also shows that lending to small and medium-sized businesses has declined, not because lenders make it harder to borrow, but because businesses are unwilling to invest. This is bad news.