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President Donald Trump bet on a stronger dollar perhaps the most risky trade in world markets. The Bloomberg Dollar Spot index was pushing to its highest level since last July, until Trump told CNBC in an interview that "our currency is going up, and I have to tell you that it puts us at a disadvantage. . " The dollar gauge was quickly wiped out a gain of 0.63 percent before ending the day a little higher. By minimizing the dollar, Trump plays a dangerous game.
According to Trump, one of the keys to winning a trade war is a weak currency, which helps make exports more attractive. But the greenback is not cooperating, with the Bloomberg Dollar Spot index rising about 6 percent since mid-April. To be sure, Trump's remarks should not be surprising. In April 2017, Trump told The Wall Street Journal: "I think our dollar is getting too strong, and partly because people trust me." Then, in January, Treasury Secretary Steven Mnuchin said that Commerce . In April, Trump wrote on Twitter that "Russia and China are playing the game of Devaluation Devaluation while the United States continues to raise interest rates." Not acceptable! "A big reason for the strength of the dollar was the Federal Reserve's decision to raise rates, attracting foreign capital to dollar-denominated assets. Here too, Trump told CNBC that he was "not thrilled" by the Fed's decision to raise rates.
In some ways, Trump is right. So far this season of results, companies have highlighted a stronger dollar as the main drag on revenue, not tariffs, according to Bianco Research. But these are small potatoes compared to what might happen if foreign investors believe that the United States is abandoning its long-standing strong monetary policy. These investors, who hold about half of the US government's debt stock and help fund the budget deficit, would be less inclined to hold dollar-denominated assets they felt the US was doing. pressure on the greenback. This could boost borrowing costs for the government, businesses and consumers. The Trump administration's desire for a weaker dollar could "become self-fulfilling if that is the goal of the White House," warned ING strategist Viraj Patel in an email to Bloomberg News
. The day after Trump's comments, yields fell as bond traders focused their attention on Fed criticism and the risk that policymakers would slow the pace of rate hikes. Maybe they would not be so optimistic if the comments manage to weaken the dollar. The fact is that the government has more than ever needed foreign investors to buy the bonds that it has to sell to finance a growing budget deficit as a result of the tax reform. Wells Fargo & Co. economists and strategists released a joint report Thursday that according to their deficit estimates, the US Treasury will need to raise about $ 1.1 trillion in cash from the public until the end of March . But there are signs that foreign investors are hesitant. Treasury data shows that foreign investors increased their US government holdings from about $ 2 trillion in 2006 to about $ 6.2 trillion by the end of 2014. But that amount did not changed since then. Data from the International Monetary Fund also show that the dollar's share of foreign exchange reserves fell to 62.5% at the end of March, from 66% in 2015 and the lowest percentage since early 2014. The ICE BofAML indices show that US Treasury report on average 2.20 percentage points more than the rest of the global government bond market, compared to about 1.10 percentage point when Trump was elected in November 2016.
US equities were largely Lower sympathy for global equities in the face of worries about the economy and the Chinese currency, but that did not stop the bulls from feeling pretty good at the S & P 500 index at its most high level since early February and above the psychologically key level. They have a lot to fear, corporate profits for the second quarter are expected to have increased about 20 percent over the previous year – despite the stronger dollar – and the government is expecting to say next week that the economy has developed 4% rate for the period from April to June. Perhaps they would not be so encouraged if they removed the blankets from the market. If they did, they would see that this gathering was very close. As David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates Inc. on Twitter, pointed out on Twitter, when the S & P 500 broke through 2,800 in January, the share of the index that had already reached new heights exceeded 20%. Now this share is barely 5%. "When your width is bad, it's time to cool off," Rosenberg wrote, adding that it's a "feature of a market in mind." Rosenberg is well known for its bearish trends, predicting a recession in 12 months, but broader market measures are sending similar signals. The number of US stocks having hit a high of 52 weeks has risen from more than 600 in January to 176 this week
CORRECTION OF GOODS The commodities market formally recorded a correction Thursday, l & # 39; Bloomberg Commodity index fell by 10%. cent of its peak of almost three years in May. Weakness has been widespread, with everything from oil to base metals such as copper to declining agricultural products. For those who believe that the commodities market is an early warning system for the global economy, the latest moves are painful. What is perhaps more worrying is that those trading in the commodities market are not optimistic about a rebound soon. Although commercial trends show that the Bloomberg Commodity index has become "oversold", suggesting that a rebound could be imminent, this may not be the case this time, according to Gary Christie, Head of North American Research at Trading Central in Ottawa. The problem is that losses have risen as the index crosses the uptrend line on July 11, fueling liquidation, according to Bloomberg News' Luzi Ann Javier. As such, the gauge of convergence-divergence moving average of the gauge, a measure of the price dynamics known as the MACD, is maintained below the so-called signal line that could trigger a rebound. This suggests that there is "no sign of reversal for the moment" and that the downtrend is gaining momentum, Christie told Bloomberg News
CHINESE YUAN INCITE CONCERN One of the main reasons why commodities have been weak: China, the world's leading consumer of raw materials. materials. The worry that the country's economy is decelerating rapidly has risen on Thursday after its currency has fallen to its lowest level in a year, as the central bank has shown no signs of intervention. to slow down the fall of the yuan. The People's Bank of China has weakened its hold beyond 6.7 Thursday for the first time since the currency began to tumble in June, according to Tian Chen and Emma Dai of Bloomberg News. Signs of further monetary easing are also adding tensions, as China Business News makers have made efforts to encourage bank lending and investment in low-interest debt securities. The yuan has fallen more than 4% in the last month, the worst performance among the 31 major currencies. The fixing "signals that the PBOC is not defending any line in the sand for the exchange rate and is comfortable with the gradual depreciation of the yuan," Bloomberg News quoted Tommy Xie, an economist from Overseas. Chinese Banking Corp. in Singapore. Signs of easing do not "certainly support the yuan, and the currency could experience a new wave of pressure on sales." China has seen this month one of its biggest debt defaults. business, with the fall of a minor When the Bank of Canada raised interest rates last week, she described a near-capacity economy where higher oil prices, a higher Canadian dollar low and a business investment, which is expected, fully offset the negative effect of commercial uncertainty. A number of high-profile economic reports to be released on Friday will help determine whether this assessment is consistent with reality. First, the government should say that retail sales jumped 1% in May after a 1.2% drop in April. In addition, it should indicate that the consumer price index rose 2.3% in June, up from 2.2% in May. In his statement at a press conference after the decision on rates, Bank of Canada Governor Stephen Poloz said he understood that he feared an escalation of global trade tensions, but the governor said stated that the policy could not be based on hypothetical scenarios. . "
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