“The Honeymoon Period Is Over” – Bullard Ain’t Buyin’ Trump And Other Overnight News

Right, so by far the most amusing soundbites to hit the wires overnight came from St. Louis Fed chief James Bullard who, in an interview with Bloomberg TV in Tokyo, decided to talk a little bit about how the Trump administration might actually want to think about getting something done, lest this market should suddenly realize that betting on a reality TV show host who lies for fun was a bad idea.

“The equity markets are up a lot in the U.S. since the election [and] my interpretation is that a lot of that is in anticipation of corporate tax changes and possibly personal tax changes that are afoot in the U.S.,” Bullard said, adding that “all by themselves those tax changes would revalue the U.S. corporate sector on the order of 10 to 15 percent, which is about what has happened since the election.”

Right. So what’s the problem, Jim?

“Washington does have to deliver at some point and I think that is a concern going forward, whether the honeymoon period would end at some point and maybe the reality of American politics would settle in,” Bullard remarked, before delivering the following rather skeptical assessment: “We’ll see if that happens or not. I think the jury is out on all that.”

You know what Jim? I think for once in your life, you might have said something that is 100% accurate. Of course he also had to give us a little bit of that Bullard dove magic: “I disagree with idea that 200bps of hikes needed.” Great. Thanks.

Meanwhile, markets were predictable. The euro fell following Monday’s dovish Draghi comments and then yen was buoyed by Japanese retail sales data that showed the fastest annual growth rate in two years:

Japan Apr. Retail Sales m/m: 1.4% vs -0.2% est; y/y 3.2% vs 2.3% est.

That said, the household spending data wasn’t great. Here’s Goldman:

Real consumer spending in April declined 1.4% yoy, the 14th straight month it has fallen on a yoy basis. Meanwhile, core consumption, which excludes nonproductive spending items such as money gifts, printed at -1.3% yoy, extending the improvement trend (March: -1.9%), but remaining in negative territory yoy for the third straight month.

“Japanese retail sales showing the fastest annual growth rate in two years helps provide a short-term boost for the yen and neutralize the previously bearish bias, but much more progress will be needed to turn yen’s long-term macro fundamentals positive,” former FX trader Mark Cudmore said this morning.

Whatever the case, the yen gained against all its major peers, helped by concerns about geopolitics.

It’s also worth noting that gold had added to gains after climbing to the highest level in almost a month, but thanks to Draghi-fueled broad dollar strength, bullion gave some back. “Strong gold buying from last week continued this morning but hit some resistance from the stronger dollar, causing the retreat,” Ole Hansen, head of commodity strategy at Saxo Bank A/S told Bloomberg by phone, adding that “investors seem happy to trade within a range with a technical ceiling of around $1,270 to $1,280.”

In the US, we’ll get some data today. Here’s the docket: