Fighting a battle he cannot win.

Donald Trump likes issuing Presidential memoranda. It appears to give him a sense of the dictator, a role he likes to play. Not having to obtain the approval of Congress in advance suits his style but it keeps tripping him up.

Yesterday’s Presidential memorandum concerned trade with China. Trump had some harsh words for China but outside of “unnatural influence” there is little that can be done.

Corporate America forever driven by “the Gods of Profit” exported all the U.S.’s manufacturing industry and jobs to cheaper Asian, primarily Chinese, factories where labour costs were slashed.

To now to start accusing China of “raping” the U.S. economy as Trump said yesterday displays the crass deliberate misunderstanding of the reality of globalization.

The dollar index continues to “bump along the bottom” with nothing, including interest rate hikes happening, to provide a boost which is the scenario favoured by Treasury Secretary Steve Mnuchin.

Yesterday the dollar fell to a level versus the Japanese Yen not seen since 2016 as risk aversion hit home. It appears that Japanese retail investors had been shorting the JPY versus the TRL in a yield play. That trade began to be reversed and the TRL collapsed.

Sterling struggling maintain gains

It is hard to say that the Monetary Policy Committee of the Bank of England displayed a dovish tone yesterday, particularly since two members voted to hike interest rates. And yet, that is how it seemed as the pound fell, with traders disappointed that there wasn’t a greater hint regarding a rate hike in May.

No one reading my comments should ever doubt that I am generally dubious about any Sterling strength. I am firm believer that Sterling is a “banana skin” currency always likely to slip up when things start to look too promising.

The Brexit negotiators seem to have done a good job of making markets believe that there was a genuine negotiation about the transition period where I believe that the truth was slightly different. It is far more likely that they met on day one, Barnier gave Davis a list of conditions. They then adjourned for sixty or so days to give the appearance of consideration then met again, this week, where Davis agreed all that Barnier demanded.

Last night following cool support for the UK over Russia from an EU scared of Putin turning off the gas, Theresa May made a speech to the EU summit yet again outlining her vision for continued cooperation.

I noticed that she referred to the “Northern Ireland issue” rather than the “Irish Border issue”. This makes me nervous and gives me the feeling that bad news for the DUP is just around the corner.

Surely Mr. Crystal Ball cannot be right again?

Mario Draghi has constantly counselled against a hawkish view of Eurozone interest rates when placed against the uncertainty of an economy which he has always believed is not yet self-sustaining. He has virtually demanded that interest rates stay low and accommodation remains for, basically, the foreseeable future.

Yesterday was undoubtedly another good day for Sr. Draghi even if it wasn’t for the Eurozone. Activity indices were released for manufacturing and services and both showed considerable weakness. Now, they have no real precedent to understand just how strong the economy should be at this stage of any recovery since the Eurozone is less than twenty years old.

Draghi’s insistence on a level playing field and yesterday’s data proves that stories released earlier in the week that the ECB was considering rate hikes in mid-2019 and the tapering of the Asset Purchase Scheme to be little more than fake news.

The Euro remains in the relatively tight range that suits the ECB and is reactive to the myriad issues facing other G7 currencies. One pair to watch is Eur/Gbp which looks a little overvalued to me. The almost one-way fall in the common currency over the past two weeks looks set for a correction particularly following yesterday’s price action which while not screaming REVERSAL is certainly whispering it.

 

 

 

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Alan is a highly experienced banker with an in depth knowledge of Corporate Banking, Treasury and Trade Finance. He has had a varied career in Global markets, Risk management, FX Trading and Sales & Interest Rate Management. He has managed sales teams mentoring his team in both markets and marketing.He has been published in a number of journals and has appeared daily on radio to discuss market movements and events. His first novel was recently published.