Even though Steve Bannon is no Beau Brummel, the music of this early rock song must be ringing in his ears. It seems clear to all but the dumbest media talking heads that the Bannon plan of Trump’s continued flow of tweeting is an attempt to make sure the Trump team controls the NARRATIVE. (See Ben Hunt’s magnificent piece at Epsilon about the significance of narrative.) This is important for investors and traders because of Trump’s ability to control the narrative makes us all focus away from the most events of the greatest possible consequence. Today, the airwaves were echoing the Trump tweet of the President-elect threatening to cancel the orders for two new Air Force One planes, the President’s personal fleet.
The Donald tweeted that the planes were far too costly and Boeing was gouging the U.S. government. The Trump tweet followed criticism from Boeing executives about the negative impact that Trump’s foreign and trade policy could have with Boeing’s business with China. In predictable fashion, the media took the bait of the excessive pricing of Air Force One and failed to delve deeper into the trade concerns of Boeing and others. As Jon of Vine Street consistently says: “It just a three card Monte game,” but that is a game in which the dealer certainly controls the narrative. This is going to be the setting for investors so I warn that it becomes mandatory to not lose focus on the important issues as the tweeter-in-chief tells us to look over there.
To the main stream media, Steve Bannon was heard singing:
Laugh, laugh, I though I’d die
It seemed so funny to me
Laugh, laugh, you met a guy
Who taught you how it feels to be
Lonely, oh, so lonely
***Now for things to focus upon: The Italian referendum was defeated by a huge margin in what was a heavy turnout. The Italian media had noted that increased percentage of voters would favor the YES outcome as young people would support Prime Minister Renzi. WRONG AGAIN! It seems that young voters were heavily opposed to the reform measures of promoted by the Italian prime minster. This has to be a concern for the euro elite for they tried to spin the narrative of Brexit as the old versus the young. The younger voters who are a more enlightened and global-oriented constituency didn’t turnout in large enough numbers and therefore BREXIT prevailed.
However, as I cautioned, a Renzi defeat would be beneficial for the sitting prime minister as Merkel, Juncker and Mario Draghi would increase aid to the Italian government in an effort to bolster Renzi. Eurogroup President Jeron Dijsselbloem maintained yesterday that Italy couldn’t be EXPECTED to meet its 2017 budgetary commitments. A Reuters article quoted Dijsselbloem: “Italy needs to take necessary measures to reduce its debt but it is impossible for now to demand more from the country given its current political uncertainty.”
Wow, I wonder how the Greeks feel upon hearing this from the Captain Javert of Greek austerity enforcement. Besides mercy from Brussels, Mario Draghi is actively purchasing massive amounts of Italian debt, trying to crush the yield differential between Germany and Italy. This is pure market manipulation by a man with a PRINTING PRESS. But the outcome of the ECB‘s actions and “forbearance” by Brussels has been a positive for the Italian stock market, except for the beleaguered banks. The problems of Italy are still there regardless of how much sovereign debt the ECB buys. Draghi is just making it harder for the Germans to say NO to its EU partners when it comes to debt sharing. The significance of the ECB and Brussels’ reaction function to the Italian referendum will be revealed at Thursday’s ECB meeting.
Some analysts believe that the ECB may announce a TAPERING of ITS QE purchases. I am highly skeptical of such an outcome. Mario Draghi will probably extend QE to the end of September from March, or increase the purchases from the current 80 billion euros a month. A more difficult proposition for Draghi would be undertaking the buying of bank debt, which is currently not allowed, but under the legal direction of the ECJ, anything that preserves the EURO and the EU is allowed under EC law.
In the current political situation there will be no ECB TAPERING. The ECB meeting will also reveal how much dissension there is from the German wing of the ECB board. Bundesbank President Jens Weidmann was talking today about the need for structural reform and fiscal policy to deal with weak growth. Continuation of liquidity providing should not be the sole agent of economic growth. Even thought his an official blackout period it reflects the unease of Germany with the ECB QE program.
***This was not tweeted: There is a vast difference of opinion between U.S. banks and EU banks on regulatory rules. In a Financial Times article, “US Banks Face Clash With EU Over Plan For Holding Groups,” it seems that EU regulators are proposing rules for the large U.S. money center banks that are in direct contravention of U.S. regulations. This seems to be a retaliatory move in response to U.S. regulators pursuing higher capital ratio rules for foreign banks with U.S. subsidiaries. This will push U.S. dollar-based funding higher as capital will not be available for currency swaps. Oh, but I will wait for Donald to tweet it before it gains any traction in the media. Laugh, laugh I’m beginning to cry.
***The Bank of Canada announces its interest rate policy tomorrow at 9:00 a.m. CST. The consensus calls for the overnight rate to be kept at 0.50%. I agree with that for things are steady in Canada with oil prices holding at recent elevated levels and the Canadian dollar is fairly stable. The only issue will be if Governor Poloz notes concern about the real estate market running hot, especially with the recent bout of fiscal stimulus from the Trudeau program (influenced by Larry Summers). The Canadian economy may begin running hot so let’s see if Poloz signals any forward guidance on future rate hikes. Do you work on Canadian dollar support levels. Be patient ans let the algos work for you.
Tags: Boeing, ECB, Germany, Italian referendum, Merkel, POTUS, QE, Renzi