US: Trump’s deal-making abilities missing - Westpac

Sean Callow, Research Analyst at Westpac, suggests that US President Trump’s self-proclaimed deal-making abilities haven’t been very evident this year, which reinforced market pessimism over the ability of Congress to reach agreement this month on raising the debt limit and funding government beyond 30 Sep.

Key Quotes

“Hence the surprise at Trump’s announced deal with the Democrats to combine emergency funds for hurricane relief with a suspension of the debt limit and funding for government operations until mid-Dec.”

“It remains to be seen how much resistance fiscal conservatives in the House provide but on the face of it, the risk of damaging political turmoil this month appears to have fallen considerably. We await the details on the debt limit but if government is indeed funded for another 3 months, then the risk around that shifts to Dec.”

“This raises some fresh doubts about a Fed rate hike in Dec. If Congress is upsetting markets with a stand-off on government funding, then to reach agreement to raise rates, the inflation trajectory is likely to need to be a lot more compelling than it is now. Governor Brainard made the case for caution this week but even more centrist FOMC members such as Dallas’s Kaplan don’t seem convinced of the need to do more than start balance sheet reduction at this stage.”

“This cools the outlook for the US dollar into year-end but does leave it on a better footing in the week ahead. It could help keep a lid on AUD/USD on probes above 0.80, despite the Aussie’s support from commodity prices and an optimistic RBA.”

“Australia’s busy data week has not helped AUD’s cause. The 0.8% q/q was decent but less impressive in context of the poor Q1, leaving y/y growth at 1.8% and just 0.2% excluding population growth – see chart. Moreover, Q3 has started on a soft note with July retail sales dead flat and exports slipping 2%. No cause for panic, but another reason to question whether AUD will find fresh buyers above 0.80 short term.”