It’s not a beautiful day in Mr Trump’s neighborhood

By Michael O’Neill

“It’s a beautiful day in the neighborhood” began every episode of Mister Rogers’ Neighborhood, a TV program aimed at pre-schoolers. The show had its genesis in Canada in 1962, before relocating to the US in 1968 where it ran until 2001. The show lasted for 912 episodes, and taught young children the wonders of learning, how to feel good about themselves, and how to get along with others.

Obviously, President Trump never watched a show.

Mr Trump’s is the antithesis of Mr Rogers’.   Where Mr Rogers welcomed and valued everyone, Trump built a wall to keep people out.  Mr Rogers spent hours teaching kids “What do you do with the Mad that you feel?” Trump can’t control his mad.  He bullies and belittles staff, colleagues, and political opponents, with a simmering rage that turns his hair to orange (or maybe its just a bad dye job).

Mr Rogers was all about friendship saying “Friends often have hard times and sad times. But friends can come together again and again, and build a stronger and stronger friendship between each other.” Mr Trump slaps tariffs on Americas’ friends.

The show had its genesis in Canada in 1962, before relocating to the US in 1968 where it ran until 2001.

The Office of the US Trade Representative is contemplating levying $3.1 billion in new tariffs on goods from France, Germany, Spain, and the United Kingdom.  Ostensibly, it is because Americans believe that EU subsidies to Airbus are illegal.

Canada, Mexico, and the US spent close to two years wrangling over a replacement to the North American Free Trade Agreement (NAFTA). The US ratified the United States Mexico Canada Agreement (USMCA) deal January 29, 2020.  At the time Trump proclaimed “This is a cutting edge, state-of-the-art agreement that protects and defends the people of our country.” Left unsaid was “for at least six months.” The US is threatening to impose 10% tariffs on imports of aluminum from Canada, effective July 1.  US aluminum producers say Canadian imports have surged which violates the USMC.  Canada denies the claims.

According to CBC News, the USMCA states “In the event that imports of aluminum or steel products surge meaningfully beyond historic volumes of trade over a period of time, with consideration of market share the importing country may request consultations with the exporting country.”

The statement is so vague and lacking quantifiable measures, it screams for action, especially if one of the governments is facing an election, and is hoping to jump-start a floundering campaign.

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Ranting and raving that Americans were being taken advantage of by unscrupulous trade counterparties helped get Trump elected in 2016. Why not try it again.

And President Trump’s re-election campaign is floundering. The latest FiveThirtyEight poll shows that not only do 55% of respondents disapprove of President Trump, he trails Joe Biden by 6-8% in election polls.

For now, the threat of another US/Canada tariff spat is not a factor in USDCAD trading.  However, if it becomes a reality, it will limit USDCAD downside even in the event of a positive shift in global risk sentiment.

Bank of Canada Governor Tiff Macklem’s neighborhood is a labyrinth.  It is a maze without an entry or exit judging by Mr Macklem’s June 22 speech. The title should have read “Befuddled Monetary policy in the context of COVID-19.”

If you thought policymakers had a clue, you might be dissuaded from that notion after reading the speech. Mr Macklem said the BoC’s inflation measure, is the midpoint of the 1-3% range for annual inflation.  He noted that monthly inflation can be “quiet volatile” so they look at specific measures of core inflation to get a better sense of the underlying trend in inflation.  Apparently, that used to make sense, but not so much today.

The BoC said the COVID-19 pandemic changed spending habits and that the current consumer price index (CPI) “isn’t fully reflecting people’s current inflationary experience.” But not to worry, BoC staff are working to “look through the temporary shifts while capturing any more enduring changes” although now they don’t know what they are.

In a nutshell, that means the BoC expects supply to recover and inflation to fall.

The BoC noted that the pandemic complicated supply and demand.  They said it will be “crucial to understand how much supply and demand have been damaged by COVID-19 and how both will recover.”  Then he went on to say he knew how it would recover.

Mr Macklem said “If, as we expect, supply is restored more quickly than demand, this could lead to a large gap between the two, putting a lot of downward pressure on inflation.”

In a nutshell, that means the BoC expects supply to recover and inflation to fall.  Except they don’t.  Blame the fog…

The Governor also said, “The pandemic has created a fog of uncertainty.” “The course of the coronavirus is the biggest source of uncertainty. Beyond that, we don’t know how global trade and supply chains will evolve, or what will happen with domestic supply and demand.” In other words, they do not have a clue.

The BoC is struggling to come to grips with the impact of the COVID-19 pandemic on Canada but Fitch Ratings Inc, has no issues.  They stripped Canada of its AAA rating, cutting it to AA+. The Trudeau government’s unprecedented spending spree, which ramped up the debt to 115.1% of GDP, triggered the downgrade.

It may not be a beautiful day in Mr Trump’s neighborhood but is that worse than the “befuddled day” in Mr Macklem’s realm?  Probably.