Market update: Trump’s verbal intervention freezes the Dollar, Helsinki keeps dominating politics

20 Jul

by Mihály Tatár

 

Good Morning!

 

  • As discussed here back at the time of the Italian elections, the only obstacle remaining in the way of the stronger Dollar has been Trump himself, who looks at everything from a business perspective and prefers a weak USD. The moment of this obstacle arrived yesterday, when the US President suddenly talked about being ’not thrilled at the Fed raising interest rates’ (altough quickly adding that Powell ’was a very good man’ and that ’I’m letting them do what they feel is best’). This caused the market to retreat rapidly from Dollar longs and wonder what is going on (EURUSD 1.1670 from 1.1570, GBPUSD back above 1.30 after dropping to as low as 1.2960 on Boris Johnson commenting that ’failure to keep our promise to the electorate (Brexit) will almost certainly lead to a catastrophe of Jeremy Corbyn becoming Prime Minister and I can not sit back and allow that to happen’), and stock traders also taking some profits (SPX -0.40%, DAX -0.62%, Nikkei -0.90%, Shanghai -0.30%). Market commentators seem to be evenly divided what Trump’s line really means for the Dollar: According to some, it will even strengthen the Fed’s resolve to show its indepedence, according to others, this independence is now in danger and the Fed will be more slow and careful). Personally I consider it as an early warning, which in itself won’t really change the course of things (the EU and the UK remain a political mess and the ECB won’t raise until September 2019, China lets the Yuan weaken as a shock absorber further appreciating the Dollar, and interest rates globally are relatively too low – the Indian Rupee just hit a record low and no relief could be seen on regional currencies either (EURHUF 327, EURPLN 4.35). The situation would be much more serious if Trump threatened the ECB or Berlin instead of talking about the Fed,  just as he called out the EU ’taking advantage of the US’ with the 5 billion USD Google fine and promised ’tremendous retribution’ in car trade yesterday).

 

  • Regarding the Google fine, not even European commentators call it a sensible decision: According to EU regulators, Google’s free Android licenses harmed consumers as they hindered innovation. Android, however, is free and open-source, resulting in the creation of 3 million apps by Google-independent developers. This doesn’t sound like Windows 95, and further infuriates Washington. The US is of course not innocent in fining European companies or making their lives unfairly harder – but perspective matters, and from the US point of view, the EU is doing everything in its power to sabotage US policy from Iran to re-arming NATO, while in the meantime allying itself economically with China. The European narrative is that Trump hates Europe for no particular reason – or worse, is on a crusade to weaken it -, which is not entirely groundless, but the leadership of the EU is doing its very best to feed the conflict, in my opinion, simply to strengthen the EU identity after the immigration policy discredited all its pro-EU left-wing or supposedly right-wing parties. (Meaning, this conflict will get worse, much worse, before it gets better.)

 

  • In the meantime, Trump provoked its opponents further by inviting Putin to Washington (you can imagine the press reaction), and gradually more and more details of the Helsinki summit are leaked, for example, that Putin proposed a referendum in Eastern Ukraine. Whether this would be a good thing or a bad thing I let you decide, but the imporant fact here is that according to the polls, 79% of Republicans support Trump’s Russia policy. Axios news – which can’t be accused of liking Trump – commented it as ’foreshadowing the coming national drama, (..), with every piece of data showing Trump having overwhelming and unbreakable support’). This comes at a time when the Democratic infighting intensifies – the new social media star of the party, ’free healthcare and education, abolish borders’ Alexandria Ocasio-Cortez clashed with the ’old White’ leadership including Joe Liberman – the latter telling her that her socialist policies ’would bankrupt the country’.

 

 

Have a nice day,

Mihály

 

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