Enduring legacy

For many, the images of a pro-Trump group storming the US Capitol was a rude awakening to the power of propaganda in the digital age and a cautionary tale about weakened checks and balances in the US political system. For Democrats, this last straw permitted a stronger recharacterisation of the Trump movement, while Republicans have awakened to the viral nature of the personality cult surrounding the President. Even this early into 2021, we have witnessed great change, but the past will continue to haunt us for some time yet.

For much of the moderate US political class, the past four years have been a trial of patience. The President was uncharacteristically bold and brash, breaking through political and social boundaries at break-neck pace. It’s critical to understand that the unfortunate biproduct of this divisive Presidency has been to polarise the electorate, strengthening the far-left and far-right elements rather than the middle, which was seen as ineffectual in the wake of globalisation.  

It’s when we look through the lens of the Democrat’s response to last week’s actions—to brand the demonstrations a mob and seek a second Trump impeachment—that we see problems gathering on the horizon. Even the Republicans that tolerated Trump for the sake of party unity—a sacrifice at the altar of legislative progress—and are making a break, have found themselves a subject of far-right conspiracy theories.  Arguably, most politicians understand the legacy that Trump leaves behind, his post-truth gift to the disenfranchised, but there are two ways to view the way forward for Democrats. On the one hand, you have those that take the ‘appeasing an aggressor makes them bolder’ view, using past political events to inform their mantra and seek to cauterise Trump’s political damage. On the other hand, you have more moderate voices, that believe a fresh Trump trial is likely to strengthen his political hand as a marginalised figure and prevent a 2021 political reboot.

The Republican party has a much larger issue to deal with in the wake of last week's events. There are those that wish to capitalise on this new brand of politics (such as Marco Rubio and Ted Cruz) as the only relevant path forward and see the neighbourly politics of our collective experience as out-moded in the digital age. There are those moderates who wish to move on from 2020, but see a rising Democratic wave and are reluctant to secede any political territory to what they perceive as far-left ambition. The next steps are far from certain, though the political calculus hasn’t become any easier to understand because Trump’s personal hold over a segment of the US political voter is very real.

Bottom line: Trump’s de-platforming is a logical consequence of the heightened scrutiny of social media platforms and the delegitimisation of Trump’s position in the wake of last week’s violence. Of course, the outbound President is making ever larger waves by enacting further prohibitions against Chinese companies, that have been ambiguous, leading to widespread uncertainty among markets.  From the foreign vantage point, the confusion during and in the aftermath of the election has only highlighted the fragility of an evidence-based, rational political process. In the EU, this has manifested as caution of US global leadership and a need to take more independent action in the recent political vacuum. This may ultimately mean Joe Biden’s bid to heal the breach and reboot pre-2016 US political clout faces some serious fresh hurdles.

The week ahead

GBP

On a trade-weighted basis, Sterling finished 2021’s first full trading week nearly 1% lower after three weeks of gains surrounding the trade agreement announcement. The UK continues to grapple a deteriorating coronavirus situation with strict lockdown measures nationwide, while attempting an ambitious vaccination programme. Expectations of negative interest rates in the UK are rising, with rates markets beginning to price in greater likelihood of a Bank of England (BoE) interest rate cut in 2021. Rhetoric of negative interest rates in the UK will develop this week, as policy-maker Tenreyo hosts an online discussion titled ‘The international evidence of the transmission of negative interest rates’. Other policy-makers will also be speaking throughout the week.

  • Friday’s Industrial and Manufacturing production for November are expected to read 0.4% and 1.0% respectively, indicating slowing growth in the sectors compared to October, although it should be noted this was during the UK’s November lockdown.
  • On Friday, the monthly GDP estimate for November is expected to read -4.8%, down from 0.4% in October. Again, this accounts for the UK’s November lockdown.

EUR

Last week, the Euro initially started strong, climbing above the 1.23 figure against the US Dollar and pushing GBP/EUR towards the 1.10 level. However, it finished the week largely unchanged on its trade-weighted Index. The common currency fell victim to a stronger US Dollar last week as US Treasury yields climbed, pushing EUR/USD below its recent upward trend channel. Furthermore, European nations continue to fight coronavirus with strict lockdown measures, which hinder economic growth, that could last for months as governments scramble to get their populations vaccinated. European Central Bank (ECB) Chief Lagarde will be speaking on Wednesday, in what is otherwise a light week on the data calendar.

  • On Wednesday, Eurozone Industrial Production for November is expected to show 0.2% growth, slowing significantly from 2.1% in October.
  • On Friday, the final readings of French and Spanish CPI for December are forecast 0.2% for both nations. The year-on-year CPI readings are forecast 0% in France and -0.5% in Spain.

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USD

The US Dollar finished strong last week, climbing nearly 1.5% from its mid-week lows as US Treasury yields rose. This week begins in a similar fashion with the US Dollar gaining against most of its peers. However, analysts expect the recent Democratic win in the Senate to add pressure to Dollar weakness, as Biden seeks to ramp up fiscal spending. In addition, Federal Reserve Vice Chairman Richard Clarida, said last week he doesn’t expect a pullback in bond purchases anytime this year. Members of the Federal Reserve Open Market committee will be speaking throughout the week amid a busy data calendar.

  • On Wednesday, December CPI in the US is expected to read 0.4% up from 0.2% in November, while the year-on-year reading is expected to tick higher to 1.3%.
  • Thursday’s Initial Jobless Claims is expected to show another 785k people claiming unemployment in the US, a touch lower than last week’s 787k.
  • Friday’s December PPI is expected to read 0.3%, up from 0.1% previously while the year-on-year reading is expected to come in at 0.7%.
  • Friday’s Empire Manufacturing Index reading for January is expected to tick higher to 5.5, up from 4.9 in December while the University of Michigan’s sentiment survey is expected to show a deterioration from 80.7 last month to 80.0 this month.
  • Also on Friday, December Retail Sales are expected to show 0% growth after contracting 1.1% in November.

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