EUR 9.06 For Business Accounts Only

The Morning Track talking-down-and-up

- The Morning Track – Talking Down and Up by Bob Savage
http://track.com/articles/the-morning-track-talking-down-and-up/

The Trump Administration has talked down the USD and this is the chance for the FOMC to change the course and talk up rates. The ability for the central bank to make the March meeting “live” matters to the overall US dollar trend today. Without that, more USD liquidation will follow and the “Trumpflation” trade which inspired many with its force will continue to unwind. January taught investors something about balance – with tax cut and deregulation hopes good, trade barriers and immigration restrictions bad for markets. The obsession with the USD seems different this time around – with the Trump cabinet all over the place with snippets about FX as a tool for trade advantage from China to Japan to Germany and others. This puts the PPP measures back in play for many traders – with any nation that has a current account surplus on call. The OECD version sees the EUR 25% undervalued, the GBP 16.5%, the JPY 11% and the MXN 145% too cheap. Unfortunately for th
e US, its twin deficits of trade and capital make it hard to believe that the Trump Administration really doesn’t want free capital flows in exchange for some version of free trade. To fund the $500bn deficit, the US will have to pay up for its debt and that will overtime matter more than any decision about the FOMC today or in the future. We maybe returning to a pre-Rubin strong USD world where US debt reflected a term risk premium as well as a USD risk premium. Devaluing a currency is easy if you have negative real rates and don’t want other people’s money but its expensive to turn it around – just ask Brazil or Turkey. The overnight PMI reports were mixed – China off a smidge, Korea worse, Japan better, Europe strong except for Greece. Focus is on inflation and the role of weaker FX driving it something for the BOE tomorrow and for the EUR still today. The New Zealanders have a firm election date of Sep 23 – not a shocker but still another vote to watch
on the long list for the year. The surprise from Trump overnight was the stately announcement for his Supreme Court nomination – Gorsuch is a solid conservative but one that got unanimous support from the Senate when first nominated to the 10th court. Doubt that happens again. The politics remain problematic for Trump as the boycott from the Democrats slowed his cabinet yesterday and who know what happens today beyond the Fed and their “wordsmithery” – as they try to make good on their gradual normalization meaning more than 1-2 hikes in 2017. This leaves the USD as the barometer for risk today – lower means trouble.