EUR 8.46 For Business Accounts Only

The Morning Track talking-down

- The Morning Track – Talking Down by Bob Savage
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The US President Trump talked down the USD and berated the FOMC for hiking yesterday and that remains the news today. Repeating news usually doesn’t move markets but for the fact that positions were too comfortably long USD and that markets are thin given the summer holidays. Markets didn’t get a lot of other news either and so the focus is on geopolitical games still more than economic progress. The comparisons of Trump to Erdogan dominate analysis with the clear difference between US and Turkey being the independence of the FOMC. Trump can’t get rid of Powel. This begs the question of what comes out of the Jackson Hole Symposium from the Fed Chair as many expect some thought shift on the role of emerging market disruptions, the USD and policy. If the path forward for US rates is 4% 10-year bonds, the pain trade abroad will be worse than at home and this is the point. Trump’s talking down the USD has had some unintended consequences that show the limits to his
bluster –
1) Oil is higher, which hits the consumer harder and leaves focus on US supply next.
2) CNY is higher, which makes the arguments of FX depreciation as a tool in trade talks less convincing.
3) US debt fears rise – with funding of US deficits in play as the talking down of the USD puts the safe-haven status at risk.
This puts the US 10-year yield back as the key driver for attention as to whether the Trump blast really matters. Talking down your own currency is usually seen as a path to crisis unless it’s followed by real action. This is the risk for September as the President grows increasingly worried about the US mid-term elections and the need for growth to support his voter base. The September 10-year bond futures look to be at the limit with 121 stops against 118.50 retests or yields 2.8% to 3.0% again in play.