Market update: The Trump team shocks Davos, Dollar down, commodities jump

25 Jan

by Mihály Tatár


Good Morning!


  • While European leaders kept sounding the alarm over ’the fate’ of globalization and free trade in Davos – somewhat ironically, however, Macron also raged against global tax cuts, calling them ’the race to the bottom’ at the same time –  the Trump economic team went into full offensive: US Commerce Secretary Ross told shocked reporters at Davos announcing that the US has been engaged in a trade war ’for quite a little time’, but now ’the US troops are coming in’, and that the ’Chinese have been superb at free-trade rhetoric but even more superb at protectionism’. (Danger: Truth-talker!) He also told his audience that he doesn’t imagine ’solar panel, washing machine tariffs were a big shock’ – this was interpreted as a threat by many – and adding injury to the insult, Treasury Secretary Mnuchin talked about a ’weak Dollar that is good for US trade’. The result was naturally another leg down in the USD (EURUSD 1.2450, USDJPY 108.80, GBPUSD 1.43, USDHUF 248.50, USDPLN 3.33, USDTHB 31.34), stock traders suddenly feeling insecure  (SPX -0.06%, Nasdaq -0.61%, DAX -1.07%, Nikkei -1.13%, Shanghai -0.14%), and commodities rallying further on the weaker Dollar (WTI 66.20, Brent 71 USD – also helped by the news that US inventories declined for a record 10th straight week -, Copper +4%, Gold 1365 USD – up more than 10% since mid-December, not bad in this otherwise euphoric atmosphere). In my personal opinion, the Davos developments yesterday were a watershed moment, and will go down in history and economic books as the day of the regime shift in thinking about trade. At the same time, I believe immediate fears about international trade are vastly overdone – for the exact reason that China and emerging economies are greatly enjoying the benefits of open borders, so that they can do little to retaliate against their export markets being more regulatory – limiting the ’domino of tariffs’ that mainstream economists are so afraid of. What has really broken here is the popular ideology that national interests will eventally disappear and a supranational world order (eg. ’world government’, ’world money’) will replace them. In a truly shocking Harvard poll, 81% of Americans would support reducing immigration levels, and 63% want it cut it by at least half – this is way bigger than Trump’s base and mirrors the trend in Europe.


  • Today the market will focus on the ECB meeting: Analysts are expecting no change in actual policy but it will be interesting to see what Draghi has to say about the Euro strength – the Euro appreciated 8% since November, not helping Eurozone exports and achieving the inflation target – and the strange December ECB comments, essentially hinting that the first rate hike should come sooner than the ’never-ever, sometime 2019’ communicated earlier.


Have a nice day,



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