Russia, Mexico, and the Fed
It's okay to have business links with Exxon or even Goldman Sachs but nyet to ones with the Kremlin.
The chances of a restart of US-Russian relations are rapidly falling because any move by our presidential deal-artist will now be hampered by his and his team's lies about Putinland relations during the campaign. Instead of cautiously rebuilding relations, we will instead be seeing vast new military spending, to prove links with the Russkis did not compromise Team Trump.
An opportunity lost, with a third president in a row unable to reset relations with Moscow. I think it almost certain that meetings between Jeff Sessions and the Russian ambassador to Washington were authorized by then-Republican candidate Trump. An experienced Congressman and lawyer knows how to cover his back better than a maverick general like former National Security Adviser Mike Flynn, why Sessions will survive.
Bloomberg today presents another take on the Administration's harassing Mexico, suggesting that two million jobs in border states like Arizona and Texas—which went for Trump—are linked to exports southward. So tit-for-tat tariff battles would hurt US jobs. Meanwhile in a CNBC interview, new US Commerce Secy Wilbur Ross suggests that rather than tariffs and retaliation, the new NAFTA trade deal should aim to strengthen the peso and stabilize the exchange rate. He said “if we and the Mexicans make a sensible trade agreement, the Mexican peso will recover quite a lot. This is already happening in the relationship between the two central banks, the Banxico and the Fed, which arranged swap deals to boost the peso (MXN) this week.
There is a secret reason for this reasonableness over trade and currency. If Mexico is forced to raise interest rates further to protect its currency, there will be negative impact on growth and prosperity south of the border—triggering new immigation, the worst solution for either side. So improvements in the Mexican economy can cut the move northward of workers seeking to improve their standard of living. Rather than building an un-affordable wall, wiser heads in Washington are working on building links. The MXN has been rising against the Greenback in anticipation of policy changes, up 2.45% today after falling over 8% in the last year.
Apart from treating ADR shareholders the same as Mexicans in proxy votes, my personal hobby-horse, the NAFTA reforms will tighten up rules of origin for goods assembled in Mexico with parts from Third Countries, according to Ross. The target will be “preventing illegally subsidized goods from coming in, and really enforcing it.” We ran into a problem with one of our Mexican shares last year because its access to US markets was being undercut by subsidies to Chinese competitors, on which it filed a complaint with the Federal Trade Commission.
There also is work to be done on tariff and non-tariff barriers to trade (Ross failed to say on both sides, but I will. Blocking Mexican trucks from operating beyond the frontier in the US heartland is an example of a US NTB.)
*Janet Yellen seems set to raise US interest rates this month rather than waiting. One hint on why came from a BBC interview with Alan Greenspan the night before last. When asked where the funds were for the spending in the Trump State of the Union address, he answered “hidden”. He called the populist's votes “a cry of pain.”
Wall Street is trying to decide if it will closed the week above or below the 21,000 the Dow hit earlier. Financials are up and not only here, but other sectors more troubled.
More news today from Canada, Britain, Germany, India, Colombia, Mexico, Finland, Ireland, France, Spain, Sweden, Switzerland, and a few other places. I am catching up with news skipped over this week in the coverage of results, so there are many snippets.