Business

Potential 'covfefes' in the US and UK

US President Donald Trump last week included the word "covfefe" in one of his tweets, the meaning of which is unknown.

Many observers have suggested that it was a mistake on his part, possibly a typographical error when he meant to say something else.

What that something else might be will probably remain a mystery since Mr Trump has not shed any light on its meaning, and appears unwilling to provide any enlightenment.

Nevertheless, a search of the Internet reveals that the majority view is that "covfefe" carries a negative connotation and is likely to be criticism of some sort.

This makes sense since the tweet in which it originally appeared was directed at the media - arguably Mr Trump's least favourite public body and in his view, the originator of fake news.

So assuming that "covfefe" is a noun and assuming that it represents something undesirable or a mistake of some kind, let's see how it could apply in the context of the present market.

First, you would have to ask how voters in the United Kingdom, having possibly made a "covfefe" of their own in opting out of Europe, might vote at this week's general election.

The polls suggest that Prime Minister Theresa May's government's large lead over the opposition has narrowed drastically in the past month, so markets will surely be on their guard for any shock result.

Her original rationale for calling the snap elections was that she could get a strong mandate for her "Brexit" negotiations - but if the elections produce an upset, there is no telling what might happen.

If the electorate vote against Mrs May, can we then say that a "covfefe" has occurred which compounds the original "covfefe"?

Second, there is a European Central Bank (ECB) meeting scheduled for the same day as the UK elections. Although no action is expected on the interest rate front, investors will be keenly watching the language used in the accompanying statement to see if the expansion is on track.

Hopefully, with inflation low, the ECB will not commit a "covfefe" and raise rates or signal anything adverse.

Speaking of central banks, the US Federal Reserve meets next week, and the market is pricing in a 100 per cent chance that interest rates will be raised at that meeting. Some analysts, like those at the Bank of America-Merrill Lynch and Rabobank, think the data does not justify higher rates.

To be honest, the weak first-quarter growth - which the Fed seems overly keen to brush off as transitory - and low inflation do suggest that it would be a "covfefe" to raise rates next week.

Enhancing this view was last Friday's economic data - payrolls disappointed, prices paid by manufacturing companies fell and jobless claims rose more than expected. Both the Atlanta and New York Feds have trimmed their Q2 gross domestic product forecasts (after Q1 real growth has been revised to just 1.2 per cent) but despite this, stocks closed at new highs.

Which begs the question whether Wall Street has committed a big "covfefe" in banking on the Trump administration pushing through its budget and economic agenda when the new government has failed to accomplish anything of note in the months since it assumed office.

Here, it has to be pointed out that although the US economy is growing, the stock market rally is into its ninth year - which means it is beginning to look rather long in the tooth.

Moreover, if US growth is weakening, then record valuations cannot logically be justified. Logic however, does not usually play much part in daily stock market life - and for that matter, neither does inventing new words like "covfefe".

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts

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