Daily Comment (September 12, 2018)

by Bill O’Grady and Thomas Wash

[Posted: 9:30 AM EDT] Financial markets are mostly quiet this morning.  PPI (discussed below) came in lower than expected.  Here are the other items we are watching today:

EU pushes back against Hungary: With populists gaining political leverage in the EU, the establishment is fighting back and targeting Viktor Orban, the PM of Hungary.  Orban has been aggressively promoting populism.  He has erected barriers to African and Middle Eastern refugees, curtailed the domestic press and has described his government as “illiberal democracy.”  The European Parliament will vote today[1] on whether to suspend Hungary’s voting rights within the EU.  Sanctioning Hungary will require a “yes” vote from 28 leaders of nations in the EU, which might not be possible; it is not certain that Italy[2] will vote to sanction Hungary.  The sanction vote, called “Article 7,” is described in this reference.[3]

Trade: There does appear to be some progress on NAFTA.  According to reports, Canada is willing to offer at least some degree of access to its dairy market.[4]  The American business sector is beginning to ramp up objections to tariffs.[5]  As we noted earlier, U.S. trade actions against China have led Beijing to improve relations with Japan, which is also facing threats from the U.S.[6]  The United Steelworkers are pressing steel companies to boost wages in light of tariff-driven price increases on domestic steel.  We believe this outcome is what the Trump administration wanted but will be unwelcome for financial markets.[7]

Tech under the gun: Although anti-trust theoreticians are debating the underlying principles of enforcement, any change in policy could be years in the making.  A more immediate threat could come from the Federal Trade Commission.  The FTC will hold public hearings tomorrow which could set the stage for regulation surrounding data, privacy and other corporate behaviors.[8]

Rupee recovery?  The Indian rupee (INR) has come under pressure along with other emerging market currencies, recently falling to new all-time lows against the dollar.

(Source: Bloomberg)

This weekend, PM Modi is holding an economic review meeting[9] to come up with measures to bolster the exchange rate.  Indian equities and the INR bounced on the news.

Tropical situation: Hurricane Florence remains a significant threat, although we have seen a change in the path forecast over the past 24 hours.  Yesterday, we were expecting a more northerly path.  The current forecast has the storm turning south, making landfall near the border of South and North Carolina and heading toward Georgia.  Most of the Eastern Seaboard, excluding Florida, will be affected by the storm.  We have seen a jump in oil prices due to expectations of rising gasoline demand for evacuation.  The other event we are tracking, a disturbance now over the Yucatan, probably won’t develop into anything more than a tropical depression.  It is expected to reach the Texas coast later this week but probably won’t disrupt energy flows. 

View the complete PDF

[1] https://www.nytimes.com/2018/09/11/world/europe/viktor-orban-european-peoples-party.html?emc=edit_mbe_20180912&nl=morning-briefing-europe&nlid=567726720180912&te=1

[2] https://www.lapresse.it/politica/ue_berlusconi_sente_orban_fi_vota_contro_sanzioni-571360/news/2018-09-11/?utm_source=POLITICO.EU&utm_campaign=6c7501ff37-EMAIL_CAMPAIGN_2018_09_12_04_34&utm_medium=email&utm_term=0_10959edeb5-6c7501ff37-190334489

[3] https://www.politico.eu/article/graphic-what-is-article-7-the-eus-nuclear-option/?utm_source=POLITICO.EU&utm_campaign=6c7501ff37-EMAIL_CAMPAIGN_2018_09_12_04_34&utm_medium=email&utm_term=0_10959edeb5-6c7501ff37-190334489

[4] https://www.cnbc.com/2018/09/11/reuters-america-update-1-canada-ready-to-allow-u-s-dairy-access-in-nafta-talks-sources.html

[5] https://www.wsj.com/articles/u-s-businesses-ramp-up-lobbying-against-trumps-tariffs-1536724811

[6] https://www.wsj.com/articles/japan-and-china-find-common-ground-in-trumps-tariffs-as-leaders-meet-1536732536

[7] https://www.wsj.com/articles/steel-workers-demand-higher-pay-raises-as-tariffs-lift-profits-1536668815

[8] https://www.axios.com/ftc-hearings-competition-tech-industry-innovation-58c116fa-5e93-485f-9a30-4c0163fdf857.html

[9] https://economictimes.indiatimes.com/news/economy/policy/pm-modi-may-call-review-meet-to-check-fall-in-rupee/articleshow/65781598.cms