EUR 20.34 For Business Accounts Only

The Weekly Track climbing-the-wall

- The Weekly Track – Climbing the Wall by Bob Savage
http://trackresearch.com/articles/the-weekly-track-climbing-the-wall/

Growing up in the cold war left a mark on today’s global leaders. Forget fake news there was Pravda. There was a zero sum game quality to all events. The competition between the US and the USSR was global and forced many nations to chose a side – though most preferred some third way. The wall in Berlin became a physical demonstration of the separation of peoples and ideas. Globalization in the last 30 years sprang from that dismantling in November 1989. There are new walls for investors to climb now for globalization. The Trump trade war fears are linked to the view that China made promises when it joined the WTO in 2001 – namely to become a more open economy – which haven’t panned out. The reform movement that reached a peak in 2014 has reversed with SOE and Party control of the economy rising again. This concern has left the US at odds with China’s vision for 2025 and led last week to a rather sharp turn for Trump as looks for alternatives – with the TPP
and the upcoming Japan PM Abe visit key for changing the US approach to globalization. What happens to WTO now matters but that seems unclear. Technology transfers from U.S. to Chinese companies and other controversial Chinese business practices will likely eclipse tariffs as the main source of contention for both countries in the long term. What seems clear is that Japan, Europe, Canada, South Korea and many others are interested more in the US and China talking than raising tariffs and trouble.

In the week ahead, the IMF/World Bank meetings will likely focus on this issue along with the rising debt in emerging and frontier markets involved with the Chinese Belt and Road projects. The debt being generated from these infrastructure builds may not make much sense for the peoples involved and the terms and controls aren’t transparent – leaving the US and others wondering who will really foot the bill when it becomes due. Venezuela maybe the extreme risk and example of such. Last week, was a break from all of this trade war fear as real war doubts sank in but this weekend, the US, UK and French surgical response to Syria’s Assad and his use of chemical weapons was benign for Russia and Iran. This leaves many relieved and risk moods enabled as a broader conflict has been averted, but with a clear message sent that further use of such weapons will elicit more violent responses from the US and others. Investors climb the wall of worry into the 1Q earnings which start
in earnest next week and this maybe the key focus for the next 2 weeks as geopolitical fears again take a back seat. We are back to measure risk in terms of FX and rates and less with the VIX. The more technical and mundane work of markets could drive – as earnings link back the USD weakness in 1Q as a positive and put the focus back on US rates and the link it has to the USD as a risk for 2Q and beyond.