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http://trackresearch.com/articles/the-weekly-track-decisions/
Extend and pretend works well into a crisis, fails during it and seems useless after one. There are only three ways to get rid of debt – growth, inflate (i.e. FX depreciation) or default. The focus in the next week is upon central bankers with a sideshow about geopolitics as the US/North Korea summit in Singapore will steal TV time while the UK Brexit vote in Parliament may still May’s time. We live in the aftermath of the Italian populist vote, the ongoing fragile coalitions in Spain and Germany and the stalled Macron push for reform. The American populist pressures from Trump continue with their march from NAFTA to NATO to China. The host of rate decisions this week ahead make clear that there is a fork in the road. The same fork was hit by the G7 this weekend as Trump accuses Trudeau of being weak, the allies of cheating on trade, all as he pulls out of a joint statement and storms away to see his new best friend Kim. The Swiss voters managed to defeat the Vollgeld
Referendum with 75.7% against – that would have ended banking as we know it there. The simple balancing act for the week ahead is about what matters to markets more – politics or policy? We already know the answer is about rates and the focus shifts to reaction functions to data and to the noise of a growing trade war. There is no doubt that the slippery slope of tariffs with allies makes the storyline of US/China talks eventually working out harder to believe. At some point investors have to decide whether to pretend that the ending will be good even as the path gets worse. The world knows that the decisions ahead matter and that the chances for significant rate hikes from Japan, Europe or the US will find a fiscal limit as debt costs soar and growth stalls. That is a long time from here but the path to paying back for the last nine years of good times will be painful.
The Weekly Track decisions
- The Weekly Track – Decisions by Bob Savagehttp://trackresearch.com/articles/the-weekly-track-decisions/
Extend and pretend works well into a crisis, fails during it and seems useless after one. There are only three ways to get rid of debt – growth, inflate (i.e. FX depreciation) or default. The focus in the next week is upon central bankers with a sideshow about geopolitics as the US/North Korea summit in Singapore will steal TV time while the UK Brexit vote in Parliament may still May’s time. We live in the aftermath of the Italian populist vote, the ongoing fragile coalitions in Spain and Germany and the stalled Macron push for reform. The American populist pressures from Trump continue with their march from NAFTA to NATO to China. The host of rate decisions this week ahead make clear that there is a fork in the road. The same fork was hit by the G7 this weekend as Trump accuses Trudeau of being weak, the allies of cheating on trade, all as he pulls out of a joint statement and storms away to see his new best friend Kim. The Swiss voters managed to defeat the Vollgeld
Referendum with 75.7% against – that would have ended banking as we know it there. The simple balancing act for the week ahead is about what matters to markets more – politics or policy? We already know the answer is about rates and the focus shifts to reaction functions to data and to the noise of a growing trade war. There is no doubt that the slippery slope of tariffs with allies makes the storyline of US/China talks eventually working out harder to believe. At some point investors have to decide whether to pretend that the ending will be good even as the path gets worse. The world knows that the decisions ahead matter and that the chances for significant rate hikes from Japan, Europe or the US will find a fiscal limit as debt costs soar and growth stalls. That is a long time from here but the path to paying back for the last nine years of good times will be painful.
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Robert Savage
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