Daily Comment (February 22, 2017)

by Bill O’Grady, Kaisa Stucke, and Thomas Wash

[Posted: 9:30 AM EST] Donald Trump has released a pair of memos that lay out a plan to cut down on illegal immigration into the United States.  The memo expanded the definition of criminal aliens from those who have committed serious crimes to those who have been convicted of any criminal offense.  The change is designed to increase the number of immigrants who are considered priorities for deportation.  The White House plans to use all of its resources to enforce immigration laws, in addition to hiring 10,000 immigration agents to assist with the process.  This new immigration order does not come as a surprise as President Trump campaigned on tackling illegal immigration.

There have been concerns that an increase in the crackdown of immigrants could have a negative impact on the U.S. economy as many industries such as hospitality services and construction rely on them for labor.  It is worth noting that this is not the first time the U.S. has taken such strong measures against immigrants.  In 1954, Dwight Eisenhower deported many undocumented immigrants through “Operation Wetback,” which sought to forcibly repatriate Mexican immigrants. At this time, we don’t believe there will be an immediate impact on the economy, but the president’s aggressive approach suggests that our relationship with Mexico may worsen.  Secretary of State Rex Tillerson and Homeland Security Secretary John Kelly will meet with Mexican officials today and tomorrow to discuss law enforcement cooperation, border security and trade.

In other news, German yields have fallen to a record low due to concerns that Marine Le Pen, the anti-establishment candidate, could win the French election.  As mentioned in our previous reports, polls suggest that she should make it out of the first round of voting.  Popular opinion suggests that she could lose in the second round, but we are a bit more optimistic about her chances.  Le Pen, insistent on Frexit, has led many to look at German bonds as a hedge against currency risk.

Despite Le Pen’s pugnacious rhetoric, her strategy to leave the European Union has been vague.  Earlier in the year, she stated that if elected she would spend her first six months creating a basket of “shadow European currencies” that would be pegged to the reinstated franc.[1]  It is unclear how she plans to structure the basket or whether she plans to maintain a relationship with the European Union after the currency is dropped.  All things considered, we believe that Frexit could lead to the breakup of the Eurozone.

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[1] https://www.wsj.com/articles/marine-le-pen-centers-presidential-run-on-getting-france-out-of-eurozone-1484735580