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If you can’t beat ‘em

Merkel becomes isolationist.

 

A weekend with Donald Trump clearly has an unusual effect on women!

 

Trump ended his first overseas sojourn as President by attending the G7 summit in Italy where climate change was the primary matter on the agenda.

 

He stood alone (fast becoming his stock position) in disagreeing with the Paris agreement and refused to confirm that the U.S. would be a signatory.

 

German Chancellor Angela Merkel in a speech following the summit commented that Europe could no longer rely upon its allies (U.K. and U.S.) and must fight for its own destiny as Europeans. President Trump, who agreed a form of words for the communique in which fighting protectionism was included, would have been proud of such an isolationist statement.

 

Merkel seems to have found a potential ally in new French President Emmanuel Macron. Clearly concerned about Macron’s election pledge to be tough on and demand reform from Brussels said Germany will do all it can to help France defeat its deeply worrying unemployment problems.

 

The new French administration is expected to be at the forefront of spearheading a new era of EU growth and prosperity. Spare a thought though for Greece. They will announce Q1 GDP and economic activity later this week. Activity will have contracted to 48 and GDP will show that Greece remains in recession.

 

Mrs Merkel is maybe looking in the wrong direction!

 

Opinion Polls hit pound

 

The weekend press in the U.K. has long been a driver for markets as opinions and various forms of rumour come to the fore. It is, however, stretching belief to the limit to imagine that the Conservative Party has only a 5% lead as the latest opinion polls suggest. It seems credibility flies out of the window when a worthwhile story emerges.

 

The credibility of opinion pollsters was destroyed by the Brexit vote and to a certain extent this was exacerbated by Trump’s victory.

 

One thing is certain. Sterling has run into a brick wall and whether the uptrend started by the resilience of the consumer and continued by the announcement of the election is over will be played out over the next few weeks.

 

Last week’s revision to the Q1 GDP data was a surprise. It has led to a fall of more than 2% over the week for the pound against the dollar and a 1.75% rise for the Euro. At best, opinion polls are fickle but economic data is the primary driver of currency value. Taken at face value, the GDP data and the reasons for the revision are going to be the long-term factors steering the pound.

 

Is it a bird? Is it a plane?

 

North Korea fired what appeared to be a short-range ballistic missile on Monday that landed in the sea off its east coast, South Korea’s military said. It must be only a matter of time before President Kim’s antics provoke a response. So far, the market has become pretty much immune to these launches and unless there is an escalation the Jpy, as the risk aversion barometer, will remain unmoved.

 

Oil fell again overnight as last week’s OPEC failure to curb a supply glut hit prices. It is perhaps ironic that 40% of U.S. oil needs are met by domestic supply. America is no longer hostage to OPEC as it was in the early 1970’s and can together with Canada is becoming less and less reliant on the Middle East. This is a major positive for the U.S. economy and will lead to stronger growth.

 

Later today, Mario Draghi will address the European Parliament. His past few speeches have continued his cautious wait and see approach to monetary policy. Rather than sporadic pockets of growth the Eurozone is now only seeing small pockets of concern and the economy is growing at close to trend. The withdrawal of the Asset Purchase Scheme is likely to happen sooner rather than later but an increase in official rates? Not for a while yet!

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