All those economic elites around the world, and especially in Anglophone countries, who thought Donald Trump’s crass populism and fascist inclinations would be tolerable because he’d make life even easier for corporations and shareholders might have to think again. The increasingly ill-tempered president is proving a wrecking ball for shareholder value across the world.
Trump’s extraordinary attack on Federal Reserve chair, Jerome Powell in a tweet last Friday has sent tremors through central banking and global finance at the most senior levels. It has further undermined the shrinking level of confidence these policymakers have in Trump and his administration. Trump’s attack on his own appointee and escalation of the trade war with China set off a 3% slump in share market values on Wall Street. That slide will echo through markets today and tonight with Wall Street poised to fall another 240 points tonight according to futures trading on top of the 600 point plunge on Friday.
The attack on Powell came hours after the Fed chair made a major speech at the central bank’s annual Jackson Hole seminar in Wyoming (RBA Governor Phil Lowe was a panel member for the closing session of the conference, which is the most prestigious among central banks around the world).
In his speech Powell indicated — with typical central banker circumlocution — that the Fed would continue cutting rates to keep the US economy on an even keel as Trump hammers confidence. Data out last week showed a sharp 12.8% slump in new home sales in July, the largest monthly fall since mid-2013. The figures are prone to volatility — the June figures were revised upwards and new home sales were up 4.8% from July 2018 — but economists said the sharp July fall was a surprise. And US factory activity contracted for the first time in a decade, with new orders dropping by the largest amount in 10 years as well.
So far, thankfully, these are isolated examples of negative data. US job creation remains strong, and wages are growing. But Trump’s policy flip flops and trade wars with China, Europe (especially France) and his lashing out at Powell are quickly quickly wiping away what’s left of the optimism among business elites that the crass New York bankrupt would, no matter what else, be good for business. US business groups are now much more concerned about the impact of the trade wars on their business. On Friday, US Steel revealed it is closing a blast furnace at one of its steel plants in Michigan, with 200 people to be laid off, because of weak demand and “low priced imports”. That’s despite the imposition of 25% tariffs on steel imports in 2017. US Steel’s move came only days after Trump claimed his tariffs were creating jobs in steel.
Trump’s tantrum at Powell is motivated by his worry that his trade war really is risking a serious economic slowdown, and he’ll need someone to blame for it ahead of his re-election campaign next year. But political theatre aside, the slide in bond yields and the much talked about meaning of yield curve inversions (where long term bond yields fall below short term or official rates like the RBA’s cash rate) are the realisation of the rising level of fear investors large and small have about 2020 and the impact of a presidential election campaign even more unhinged than 2016. Business as usual seems a long, long way off.