U.S. President Donald Trump will meet with German Chancellor Angela Merkel on Tuesday as the two world leaders plan to discuss a variety of topics and work to strengthen ties between the two countries.
Germany has the strongest economy in the European Union along with the largest population, and has taken the lead role of absorbing the largest number of refugees in Europe over the past 2 years from the Middle East.
Chancellor Merkel has developed an open policy of accommodating millions of refugees which has led to some anti-immigrant sentiment in areas of Germany along with some political pushback.
Merkel is faced with the reality that her pro-immigrant stance hasn’t been fully embraced across Germany which holds an election on September 24th.
Germany has benefitted from the European Union’s dovish monetary easing policies over the past year that has sent the euro lower versus the dollar and allowed German exports to be sold for cheaper in the U.S.
President Trump has floated an import tax on foreign goods that could potentially hurt German exports. The topic is bound to surface on Tuesday as Trump attempts to confront a $65 billion trade deficit with Germany and make amends with a country that is at the forefront of maintaining cohesion in the European Union, despite Great Britain’s June referendum Brexit vote which President Trump supported.
President Trump has been critical of NATO European countries like Germany that contribute less than their 2 percent of GDP towards defense while German Chancellor Merkel has expressed concerns about Russian President Vladimir Putin’s power grab of Crimea and destabilizing efforts across eastern Ukraine.
President Trump pledged to improve ties with Russia during his presidential campaign although Trump administration officials such as Michael Flynn and Jeff Sessions have already taken heat from their past contacts and cover-ups with Russian officials before the U.S. election.
U.S. intelligence officials have widely concluded that Russian hacking during the 2016 presidential election season was supported by top officials in the Russian government.
The Week Ahead
Besides watching developments between U.S. President Trump and German Chancellor Merkel, this week investors will also be paying close attention to the Federal Reserve’s 2 day monetary policy meeting that wraps up on Wednesday with an interest rate decision followed by a press conference from Fed Chairwoman Janet Yellen and updates with economic projections from Fed Committee members.
Expectations have grown stronger in recent weeks for an interest rate hike of 25 basis points with the target rate for the federal funds during the Fed’s 2 day policy meeting this week.
A variety of Fed officials, including Fed Chair Janet Yellen, have spoken in hawkish terms about the likelihood of an approaching rate hike.
Friday’s 235,000 non-farm payroll jobs number for February should also serve to remove any doubts that the time isn’t right for a rate hike.
The market appears to have priced in an upcoming rate hike at this week’s monetary policy meeting with the yield on the U.S. 10 yr. Treasury already climbing to over 2. 57 percent and the CME’s Fed Watcher tool showing a 88.6 percent probability that the Federal Reserve will increase rates by 25 basis points to between .75 – 1.00 percent.
Besides the rate decision on Wednesday, investors will also be watching CPI inflation and February retail sales figures.
PPI inflation for February will be released a day earlier on Tuesday and later in the week housing starts and building permits for February are reported.
Full U.S. Economic Calendar
Tuesday- PPI inflation (Feb)
Wednesday- FOMC rate decision, Retail Sales (February), CPI Inflation (February), MBA Mortgage Applications Index, Empire Manufacturing (March), Business Inventories (Jan.), NAHB Housing Market Index (March), Crude Inventories, Net Long Term TIC Flows (March)
Thursday- Housing Starts (Feb), Building Permits (Feb.), Initial and Continuing Claims, Philadelphia Fed (March), JOLTS-Job Openings, Natural Gas Inventories.
Friday- Industrial Production (Feb.), Capacity Utilization (Feb.), Leading Indicators (Feb.), Michigan Sentiment (March).
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