THE DAILY MACRO BRIEF: Trump, The Fed, Brexit, Russia, Italy and China...
Divergence between what Trump wants and what the Fed thinks. Donald Trump strongly recommended that the Fed lower its rates to counter the accommodating measures that the Chinese Central Bank may adopt.
China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!— Donald J. Trump (@realDonaldTrump) 14 mai 2019
For Esther George, boss of the Kansas City Fed, a rate cut is not justified. She advocates a wait-and-see approach by the Fed: "Lower interest rates could fuel asset price bubbles, create financial imbalances and ultimately a recession".
Brexit: next vote scheduled for June. Theresa May and Jeremy Corbyn spoke yesterday and discussions are expected to continue on Wednesday. Both parties intend to break the deadlock on the thorny Brexit issue and "honor the result of the referendum to leave Europe". The Downing Street spokesman said that Parliament will vote again on the Brexit agreement in the week of June 3. "Unfortunately, we will vote against it again... because it is unacceptable for 27 countries to impose laws on us that we have no say in," said Owen Paterson, Member of the British Parliament.
Trump liked by Putin. Vladimir Putin told Mike Pompeo, the US Secretary of State, that he believes Trump wants to restore Russian-American relations and contacts, and that he was keen to resolve issues of common interest. Russia reiterated that it had never interfered in the American elections. Both sides had "very productive" discussions on Syria and Afghanistan. They intend to work together on the issue of North Korea's denuclearization. In short, the two countries are embarking on a new collaboration and the two presidents may meet soon, on the occasion of the G20 meeting in Japan.
Polemic around Matteo Salvini's speech. Italian Deputy Prime Minister Matteo Salvini said yesterday that he was ready to violate certain limits, such as the 3% of GDP as the ceiling for the annual public deficit, or 130-140% debt-to-GDP ratio if necessary. His comments were criticized by Luigi Di Maio, the leader of the 5 Star Movement, who considers it "irresponsible" to revive tensions on the financial markets by referring to an increase in public debt.
Disappointing April statistics in China. Retail sales (7.2% year-on-year) reached their lowest level in 16 years and industrial production (5.4%) fell sharply after reaching a peak in March (to 8.5%).
In other news. Xi Jinping welcomed China's efforts to open up to the world. In the euro zone, GDP was in line with expectations (at +0.4%). In France, inflation in April was slightly higher than expected, at +0.3% over one month and +1.3% over one year. As expected, German GDP grew by 0.4% in the first quarter after stagnating last quarter. According to Bank of Japan Governor Kuroda, the institute plans to take further steps to boost inflation.