sexta-feira, 18 de novembro de 2016

Wall Street looks like a winner under Donald Trump

In a ranking of global financial centres last month, published by Z/Yen, London topped the think-tank’s league, a whisker above New York.

Little surprise there: London has led several league tables in recent years. But when Z/Yen publishes its index in a couple of years’ time — in a Trumpian world — there is a good chance those rankings will have changed.

For one point about last week’s US presidential election result is that Donald Trump’s policies are likely to make New York more attractive as a financial centre. And that could make London a relative loser — unless British authorities are ready to fight back.

Why? The reason is not necessarily any deliberate “plan” Mr Trump holds for Wall Street; he does not seem to have one. He barely mentioned the financial sector on the campaign trail — and most bankers ignored him back. Indeed, the industry donated only $737,000 to him this year, compared with $78m for Hillary Clinton and $33m for Jeb Bush.

But what could raise New York’s status is a confluence of four crucial factors.

The first is obvious: London’s future is being undermined by uncertainties unleashed by Brexit. In public, international bankers insist London remains highly attractive. This week, for example, Jes Staley, Barclays chief executive, pointed to its “gravitational pull”. But in private, senior bankers are preparing to move at least some of their activities when Brexit hits. And, while continental European centres such as Frankfurt and Paris are pitching to grab business, many senior bankers say America looks more attractive, given its infrastructure, talent pool and flexible labour laws.

“It is pretty unlikely anything like what we call ‘London’ could be replicated in the foreseeable future in one place in the EU,” Jon Cunliffe, deputy governor of the Bank of England, told the House of Lords last month. “But it already exists in New York.” Or as Mark Boleat, policy chairman of the City of London Corporation, observes: “The biggest beneficiary of any job losses in the UK will be New York.”

However, Brexit is not the only factor here; a second is the regulatory and political climate. A decade ago Michael Bloomberg, then New York mayor, commissioned a McKinsey report that concluded London was grabbing business from New York because it had a more welcoming regulatory climate.

No longer. Since the 2008 crisis British regulators have, quite rightly, implemented reform. Bank levies have been imposed amid a political backlash. Of course, regulation has been tightened in America too; look at the hefty Dodd-Frank rules. But in America the bank-bashing has waned. And now Mr Trump’s policy team are not only muttering about rolling back some reforms; they are also considering bringing bankers into the administration. Jamie Dimon, head of JPMorgan Chase, has been mooted as possible Treasury secretary. The symbolism is profound.

A third factor is the health of banks. In recent years American banks have cleaned up their balance sheets and recapitalised themselves. The Europeans have lagged behind, which means American banks are resurgent on the world stage. This is likely to be magnified if Mr Trump loosens regulations. If the Federal Reserve raises rates next month — and Janet Yellen, Fed chair, hinted on Thursday that it would — that would bolster US banks’ fee income.

The US economy is likely to grow, partly as a result of Mr Trump’s reflation plans, which could in itself provide a fourth supportive factor. After all, rising business confidence and activity typically boosts demand for financial services. In Europe, by contrast, economic gloom and intractable political splits have undermined confidence.

“Anything which can move to the US in the coming years will move — the US is ultimately going to be a huge beneficiary,” Gary Cohn, Goldman Sachs president, said this week. “As far as [financial and business] investment in Europe is concerned, that is going to be on hold.”

Of course, some European observers will dismiss this as a self-interested sales pitch. If Trumpian policies spark US social unrest or geopolitical uncertainty, or if Mr Trump unleashes a debt binge that goes bust, that will not create stability.

But, while those risks are real, the crucial point now is this: whatever Europeans think of Mr Trump, they need to recognise that animal spirits are rising in New York, and this is likely to boost finance and the standing of Wall Street. If London wants to fight back, the British authorities need to find a way to unleash some animal spirits of their own. Bickering about Brexit is not a good place to start.

Gillian Tett

Fonte: FT

quarta-feira, 16 de novembro de 2016

Australia snubs US by backing China push for Asian trade deal

Australia is throwing its weight behind China’s efforts to pursue new trade deals in the Asia-Pacific region amid a growing acknowledgement the US-led Trans-Pacific Partnership agreement is dead in the wake of Donald Trump’s election victory.

Steven Ciobo, Australia’s trade mininister, told the Financial Times that Canberra would work to conclude new agreement among 16 Asian and Pacific countries that excludes the US.

He said Australia would also support a separate proposal, the Free Trade Area of the Asia-Pacific, which Beijing hopes to advance at this week’s Asia Pacific Economic Co-operation summit in Peru.

“Any move that reduces barriers to trade and helps us facilitate trade, facilitate exports and drive economic growth and employment is a step in the right direction,” Mr Ciobo said Wednesday.

Mr Trump put opposition to the TPP, which the US and 11 other countries agreed to this year, at the heart of his presidential campaign and his election has all but killed the prospects of its ratification by the US Congress. This has offered Beijing, which was excluded from the pact, an opportunity to argue for faster adoption of the broader FTAAP, a move foreign policy analysts say would strengthen China’s influence in the region.

Australia’s decision to back China’s vision comes amid soul-searching in Australia about the impact a Trump presidency will have on its long-established military and strategic alliance with Washington.

On Wednesday the opposition Labor party said Mr Trump’s election marked a “change point” requiring a careful consideration of Australia’s foreign policy and global interests. It is calling for more engagement with Australia’s Asian partners, although the party says the US-Australian alliance is bigger than any one person and will endure a Trump presidency.

Malcolm Turnbull, Australia’s prime minister, has reassured the public that the alliance will continue under Mr Trump. After phoning the billionaire to congratulate him on his election victory, Mr Turnbull told reporters Mr Trump would view the world in “a very practical and pragmatic way”.

Australia’s military alliance with the US dates back to 1951 when both countries signed the Anzus treaty, along with New Zealand. However, Australian troops have fought alongside US forces in every major military conflict since the second world war.

James Curran, a professor at Sydney University and author of a new book on the Australia-US alliance, said the elevation of Mr Trump to the White House would test the alliance but would survive his presidency.

“Labor's call for a rethink shows they might finally be rediscovering the foreign policy tradition of the Whitlam, Hawke and Keating era, which stressed greater freedom of movement for Australia within and at times without the alliance,” he said. “The apocalyptic view that the alliance will fall apart is alarmist.”

Mr Ciobo said he would not comment on whether US failure to ratify the TPP would undermine Washington’s influence in the region. He said he had sought a bilateral meeting with the US trade representatives at the Apec meeting in Peru to advocate ratification of the TPP.

“Australia does not shy away from being an advocate about the multitude of benefits that flow from liberalising trade,” he said. “If the TPP does not come into effect it will mean there will be higher barriers to trade, which of course means you have a more subdued trading environment.”

Fonte: FT

terça-feira, 15 de novembro de 2016

Three ways to make sense of the dollar in uncertain times

The only reliable guide to the dollar’s value in the wake of Donald Trump’s electoral victory is the wisdom of legendary investor Bernard Baruch about the stock market: it will fluctuate. If the prospects for the US economy have never been so uncertain, then the prospects for the dollar similarly have never been so uncertain.

Still, we can attempt to make sense of this scenario from three angles. A first is from the vantage point of US fiscal and monetary policies. One thing we know is that a more expansionary fiscal policy is coming. It may take the form of tax cuts for the wealthy and tax credits for investors; or it may be a more balanced programme, including a significant rise in infrastructure spending.

Either way, growth and inflation are likely to accelerate, and the US Federal Reserve will respond by raising interest rates sooner and faster. We know from the Reagan era that a mix of loose fiscal and tight monetary policies makes for a strong dollar. No surprise, then, that investors are bidding up the greenback.

But we also know that doubts about debt sustainability can lead those investors to think twice. Large, unfunded tax cuts will heighten their doubts. Questions about fiscal sustainability will be particularly troubling to investors in US Treasury bonds, given Mr Trump’s offhand comments about renegotiating the debt.

Thus the macroeconomic policy mix should be dollar supportive in the short run but dollar subversive in the longer term. If markets are myopic, then the dollar will continue to strengthen for the moment. But if investors look forward, that moment will be relatively brief. Anyone care to bet on its duration?

A second perspective flows from the likelihood that the new administration will adopt protectionist policies. Taxing and otherwise discouraging imports will strengthen the US trade accounts, and a smaller trade deficit will be dollar positive. The increased price of imports will translate into modestly higher inflation, again encouraging the Fed to raise interest rates sooner and enhancing the appeal of dollar-denominated assets.

But those same trade policies run the risk of provoking foreign retaliation, with precisely the opposite effect. New tariffs will also reduce the efficiency of US production by disrupting global supply chains. If the result is slower growth, investing in the US and the dollar will be less attractive. Hence the new administration’s trade policies are likely to be dollar positive in the short run and dollar negative in the longer term.

A third perspective is the dollar’s haven status. The greenback benefits from uncertainty. Even when the US is the source of the problem, its currency benefits. The US Treasury market is the most liquid financial market in the world, and there is nothing investors value more in a crisis than liquidity. Thus some will argue that heightened uncertainty from Mr Trump’s accession to power will benefit the dollar.

This view fails to appreciate the deeper roots of haven status. These go beyond deep and liquid markets. The policies of the central bank issuing the currency and the government standing behind it must also be sound and stable.

A currency is regarded as a haven only if the country issuing it is geopolitically secure. It must have a strong military but it also must have strong alliances. The pound was the haven currency before the dollar because Britannia ruled the waves and because Britain successfully constructed a web of geopolitical alliances.

So whether Mr Trump adopts policies that heighten trade tension with China, scales back US foreign commitments and turns his back on Nato will tell the tale. The fate of the dollar, and potentially much more, will turn on the answer.

Barry Eichengreen is professor at the University of California, Berkeley, and the author of ‘Exorbitant Privilege’

Fonte: FT

Donald Trump’s false promises to his supporters

Will Donald Trump benefit the enraged white working class that brought him into the White House? To answer this, one must examine his plans and the desires of congressional Republicans. One must also consider how these plans might affect the world economy. The conclusion is straightforward: some people will indeed benefit but the white working class will not be among them. Republicans have long stoked rage they do not assuage. Mr Trump has taken this approach in new directions.

Huge, permanent and regressive tax cuts seem the one certainty. It is something on which Mr Trump and congressional Republicans agree. The revised Trump plan would reduce the top individual income tax rate to 33 per cent and the corporate tax rate to 15 per cent. It would also eliminate the estate tax. The highest-income taxpayers — 0.1 per cent of the population, those with incomes over $3.7m in 2016 dollars — would receive an average cut of more than 14 per cent of after-tax income. The poorest fifth’s taxes would fall by an average of 0.8 per cent of taxed income. To those who hath, it shall be given.

Mr Trump (much less so the congressional Republicans) plans to increase infrastructure spending. This is desirable, though it would have made even more sense if Republicans had supported such a programme in the midst of the Great Recession. But as noted by Lawrence Summers, former US Treasury secretary, the Trump plan relies mainly on private investment. Experience elsewhere suggests this often leads to exploitation of taxpayers and a failure to put into effect public investments that deliver high social benefits but have limited commercial returns.

The net effect of these plans would be a large rise in fiscal deficits. Calculations by the Tax Policy Center at the Brookings think-tank suggest that by 2020 the deficit would increase by 3 per cent of gross domestic product. With current forecasts as the baseline and ignoring any additional spending, this would mean a deficit of around 5.5 per cent of GDP in 2020. Cumulatively, the increase in federal debt by 2026 might be 25 per cent of GDP.

Congressional Republicans such as Paul Ryan would surely demand matching cuts in spending. Annual federal outlays are close to 20 per cent of GDP. Spending on health, income support, social security, defence and net interest absorbed 88 per cent of this in 2015. Elimination of spending on all else (a catastrophic mistake) would merely halve the prospective deficit. In sum, the plan’s logic leads towards either big increases in federal debt relative to GDP or sharp cuts in spending on programmes on which Mr Trump’s supporters depend.

The envisaged rise in US fiscal deficits would however be expansionary, even though the concentration of the cuts on the wealthiest would limit this effect. Still, a jump in US fiscal deficits would accelerate rises in US short-term interest rates. Mr Trump could hardly complain since he has attacked the Federal Reserve’s low rates. Yet, as Desmond Lachman of the American Enterprise Institute notes, the world economy is fragile. A swift rise in US interest rates might destabilise it.

Furthermore, the combination of fiscal loosening with monetary tightening would mean a stronger dollar and a rising current account deficit in the medium term. The US would re-emerge as the global buyer of last resort, so helping the world’s structural mercantilists: China, Germany and Japan. A strong dollar and rising external deficits would, as in the early 1980s, increase protectionist pressures — Ronald Reagan’s administration was quite protectionist in its first term. The decision to launch the Uruguay round of multilateral trade negotiations to liberalise world trade was then the response.

This time, however, a strong dollar would reinforce the bias towards protectionism of the Trump administration. But protection against imports would raise the currency’s value further, shifting the adjustment on to unprotected sectors — above all, on to competitive exporters. In all, a strong dollar must weaken the manufacturing Mr Trump seeks to help.

A likely response would be to cajole the Fed into slowing monetary tightening. Janet Yellen’s term as Fed chair expires in 2018. Her successor could be told that the 4 per cent growth mentioned by Mr Trump has to be attained. The last time such growth was achieved over a five-year period was before the crash of 2000 — an ominous warning. If the Fed tried to achieve this goal, it might trigger inflation, financial instability or, more likely, both. In all this there seem to be few, if any, gains for Mr Trump’s working-class supporters.

The president-elect has also promised to eliminate Obamacare and most environmental and financial regulations. It is hard to believe any of this would succour the prospects of the working class. They are more likely to suffer from even worse health cover, a dirtier environment, more predatory behaviour by financial institutions and, at worst, even another financial crisis. Protectionism, too, will fail to help most of his supporters. Many depend on cheap imported goods. Many would be badly hurt by the dire results of a tit-for-tat global trade war. Meanwhile, rapidly rising productivity would still ensure a steady fall in the share of manufacturing in US employment, despite protection.

Mr Trump promises a burst of infrastructure spending, regressive tax cuts, protectionism, cuts in federal spending and radical deregulation. A big rise in infrastructure spending would indeed help construction workers. But little else in these plans would help the working class. Overall, his plans might indeed generate a brief economic surge. But the longer-term consequences are likely to be grim, not least for his angry, but fooled, supporters. Next time, they might be even angrier. Where that might lead is terrifying.

Martin Wolf

Fonte: FT