Good morning, and welcome to 2017, which promises to be a very interesting year.
One reason is that the incoming President and Republican Congress have the best opportunity this decade to enact significant legislation – an option that’s been stymied by partisan gridlock since 2009.
In an interview with radio host Hugh Hewitt before the holidays, incoming White House Chief of Staff Reince Priebus suggested three major pieces of legislation would lead the year – “Obamacare repeal and then replace”; “a small tax reform package’; and then “a bigger tax reform package at the end of April.”
Health care and tax reform are both tar pits that could bog down even the most skilled legislative team, particularly with partisan rancor running as high as it is in Washington. But the “small tax reform package” offers an interesting opportunity for quick, and even bipartisan, action. Priebus didn’t elaborate, but a tax bill allowing companies to bring home some of their giant stash of overseas cash – estimated to exceed $2 trillion – at a reduced tax rate could be a win for both business and the U.S. economy.
Critics are quick to point out that such “tax holidays” have disappointed in the past, with much of the money going into mergers or share buybacks rather than job-creating investments. But this is where Trump’s deal-making skills could come into play. Unlike previous Republican presidents, who were loath to interfere with the market, he has already shown his willingness to bully and cajole individual companies into making specific commitments for new investment projects. And they have already signaled their willingness to play his game, given the huge tax benefits involved. A Trump-led industrial policy could score some significant early wins.
Interestingly, The Wall Street Journal this morning reports the climate for business investment in the U.S. is already turning up. This is the space to watch in 2017.
More news below.
• Markets Carry on Where They Left Off
Financial markets have opened the year broadly reaffirming the trends visible in December. Both the dollar and crude oil prices have strengthened, the dollar lifted by expectations of higher growth and interest rates, oil by the first confirmations of output cutbacks as the deal between OPEC and other producer nations kicks into effect. The Chinese yuan is under pressure again despite a better-than-expected business survey for December. The authorities widened the official basket of currencies against which they track the yuan’s value to 13 over New Year, a move that cynics (including many Chinese households, it would seem) saw as aimed at presenting a picture of a more gradual decline than a brutal looking USD/CNY chart. FT, metered access
• Another Trade Hawk in the Administration
President-elect Donald Trump is expected to nominate Robert Lighthizer, a veteran trade lawyer and advocate of greater protection for U.S. industries, to the office of the U.S. Trade Representative, according to various media reports. Together with Death by China author Peter Navarro at the head of a new National Trade Council, the nomination is another sign of a more interventionist and assertive stance on trade policy against low-cost producers such as China and Mexico. Fortune
• Indonesia Vents Frustration On JPMorgan
This is the way Sam Peckinpah or Quentin Tarantino would have the messenger shot. Indonesia cut all business relationships with JPMorgan Chase & Co, after Jamie Dimon’s shop downgraded its equities and bonds to “underweight” from “overweight” in the wake of Donald Trump’s election victory. No more juicy fees from underwriting government bond issues or processing tax payments. JPMorgan’s analysts had said they expected the country to be one of the losers of a more assertive U.S. trade policy, something they said warranted higher risk premia on Indonesian assets. Jakarta said the research was neither credible nor accurate and could destabilize its financial system. It’s going to be a long year for emerging markets. Fortune
• Netanyahu Questioned by Police in Graft Probe
Out with the old, in with the new. After a year in which the Presidents of Brazil and South Korea were both ousted in corruption scandals, the first world leader to figure in related news in 2017 is Israeli Prime Minister Benjamin Netanyahu, who was questioned under caution Monday for three hours on suspicion of receiving improper gifts from businessmen. Netanyahu has ridden out similar scandals in the past and denies any wrongdoing. Fortune
Around the Water Cooler
• Twitter's China Boss Quits
Kathy Chen said she was leaving Twitter, only eight months after being hired to drum up more revenue from Chinese advertizers. Chen’s appointment had raised eyebrows due to her previous connections with entities owned or controlled by the Chinese state, and while ad revenue grew sharply from a very low base, there was no sign of the company breaking the ban on its service in mainland China that has been in place since 2009. Chen is the latest in a series of executives to leave the microblogging service as it tries to cut heavy operating losses. Fortune
• But Anshu Jain Is Back…at Cantor Fitz
Anshu Jain, under whose stewardship Deutsche Bank racked up billions of dollars in conduct-related liabilities for mortgage-security fraud and market-rigging, has joined the private Wall Street firm Cantor Fitzgerald. The Financial Times said Jain would take a newly-created role overseeing company strategy. This may boil down to exploiting gaps created by the withdrawal of larger banks from some markets due to tighter regulation. Cantor had been the world’s biggest broker of U.S. Treasury bonds in its 1990s heyday, but has struggled to recover from the 9/11 attacks, in which it lost over two-thirds of its staff. FT, metered access
• Finland's Great Experiement
A groundbreaking experiment begins this week in Finland. The country is piloting a scheme to give a universal basic income to citizens with no strings attached, in an effort to simplify its welfare system and eliminate the worst effects of insecurity generated by the upheavals of the latest wave of technological innovation. Some see the program as a dangerous distortion of the labor market, while others see it as a necessary support to consumer demand that will become more and more necessary as technology disrupts ever-wider swathes of the economy. It’s going to be very narrowly targeted in the first instance: only 2,000 jobless people will take part in the pilot, receiving 560 euros ($587) a month, which will be deducted from their existing benefits. Fortune
• Korea Steps up Campaign Against Foreign Carmakers
South Korea confirmed a ban on 10 auto models made by Volkswagen’s Porsche unit, Nissan and BMW, saying the companies had falsified certification documents regarding emissions and noise levels. The ban follows less than a month after it imposed a record fine on VW for false advertizing in relation to its emissions levels, as well as filing criminal complaints against five current and former executives. As with emissions, EU carmakers had had decisive inputs on draft regulations regarding noise levels in their home market, with the end result conspicuously indulging high-performance German marques. Elsewhere, Korea’s biggest car-making alliance of Kia Motors and Hyundai Motor said its sales would rebound 5% this year after falling for the first time in nearly 20 years in 2016. Reuters
Summaries by Geoffrey Smith Geoffrey.email@example.com;