"Kee" Points with Jim Kee, Ph.D.

  • US Policy
  • Amazon’s Second North American Headquarters
  • Quick take on the Global Economy

US Policy

This is potentially a big news week for the market, with the possibility of tax reform clarification on Wednesday, a potential statement on Trump’s preference for the Federal Reserve Chair on Thursday, and the October payroll report (jobs created) on Friday. The September jobs report (Bureau of Labor Statistics) indicated a decline of -33,000 jobs, largely attributed to Hurricanes Harvey and Irma (expectations were for 150,000+). Some of September’s decline is just due to the mechanics of how these surveys work, with those temporarily unable to work pushing the numbers down and then up. I think markets are just looking for some reassurance of that, with expectations in the 300,000 range for Friday’s report.

A good payroll number would be consistent with recent economic releases, particularly Friday’s GDP report (from the Bureau of Economic Analysis), which showed that the economy grew at a 3% annualized rate in the third quarter. “Nowcasting” models are indicating similar growth for the fourth quarter as well. All of these are subject to revision as new data come in, but they all point to continued expansion in the US.

As for President Trump’s choice of who will chair the Federal Reserve, I will reiterate that the only rationale for not reappointing Janet Yellen (from Trump’s point of view) would be a preference for someone more enthusiastic for bank deregulation. I think that’s what makes Fed Governor Jerome Powell the high probability candidate. And I suspect that any tax reform proposals this week will amount to more of a negotiation wish list than a hard and fast set of expected rates, brackets, exclusions, etc. In the words of Rob Arnott, “picking winners and losers is a bit of a dangerous game because the sausage factory (Congress) hasn’t even begun to weigh in on how to construct this thing.”

Amazon’s Second North American Headquarters

Dozens of cities across the US and Canada are vying to attract Amazon for the location of its second North American headquarters, although Moody’s analytics cites Austin and Atlanta as highest on the list. It’s a big deal, as Amazon intends to invest over $5 billion and employ 50,000 workers (Financial Times). Cited as must-haves by Amazon are a population of over 1 million, proximity to a major airport, and a good university system. Over 100 cities have submitted bids.

Quick take on the Global Economy

Looking globally, I mentioned that the global data has come in a bit stronger than was expected at the beginning of the year, although country-by-country there is a lot going on. Here are a few things to keep an eye on (from wading through a couple of weeks’ worth of Financial Times):

Japan: Prime Minister Shinzo Abe won a decisive election which investors cheered as a continuation of stimulus and stability, with the Nikkei 225 stock index enjoying a record 15 consecutive days of gains.

Europe: UK Prime Minister Theresa May expressed an interest in keeping a “deep and special” partnership with the European Union regarding Brexit, something much of Europe, including Germany, desires based upon what I would say is widespread recognition of interdependence and a limited stomach for disruption. In France, President Emmanuel Macron is proposing tax cuts in a follow through of his stance as a business-friendly government (Japan Times).

India and China continue to expand, with government funds in India providing capital ($36 billion) to shore up banking system problems there. China’s President Xi Jinping closed the Communist party congress in Beijing and appears to have no immediate successor, while China’s highly esteemed central bank governor (People’s Bank of China) Zhou Xiaochuan confirmed his pending retirement. He expressed ongoing concern over credit/capital control policies there. Banking/financial systems in both China and India have a long way to go (growing pains?) with regard to matching the developed world, so I expect these stories to be an ongoing part of the news flow.

Latin America too is growing, with each country there experiencing its own problems and political uncertainties. Mexico, for example, is dealing with the aftermath of a terrible earth quake, declining energy investments (mining sector) and uncertainty regarding potential changes (“updates”) to NAFTA (North American Free Trade Agreement).

Finally, an interesting take on the destabilizing efforts in the cyber-security realm from both Russia and North Korea, for while Russia has a continued interest in and is integrated to the global financial system, North Korea does not.