The potential for a trade deal linked dollar revaluation is frightening some East Asian investors in a way that could turn into a run out of dollar assets. Trump has pointed to FX as a potential non-tariff barrier, and past Administrations have also highlighted currency manipulation concerns in countries like Taiwan, South Korea and Japan. These countries run persistently large trade surpluses with the U.S. that have in part been used to finance large holdings […]
The market's enthusiasm for a China trade deal is misplaced because it is increasingly likely that there may not be a China trade deal. The Administration's signal to lower China tariffs to around 50% suggests that they are settling down for an extended trade war and setting tariffs at a rate that balances business concerns and trade policy. This shift is highlighted by the escalatory actions taken by the Administration, as well as the unachievable […]
Trump will eventually get his Fed Chair, so a weakening dollar looks to be a structural trend that will drag down equities until foreigners have sufficiently reduced their exposure. Trump is clear in his desire for lower interest rates, and that will be implemented through his Fed Chair appointment next May or potentially sooner. The dollar is already losing its luster from the tectonic shifts in trade policy, and fears of financial repression will only […]
The price action the past week is consistent with a foreign investor exodus out of dollar assets that could potentially be the beginnings of a currency crisis. Despite significant risk off moves in equities, Treasury yields actually rose notably throughout the week. The dollar depreciated significantly against major currencies even as it had recently strengthened in response to tariffs. Most alarmingly, gold emerged as the market's only safe haven asset. While these moves could simply […]
A durable bounce in the market is much more likely to come from a Fed pivot to an accommodative policy stance than a Trump pivot on trade policy. President Trump's has believed strongly for decades that tariffs could rekindle American industry and he is unlikely to alter his path due to a decline in asset prices. However, the Fed is both capable and bound by their mandate to respond to rising recession concerns. Powell has […]
The Administration's overall revenue goals suggest that Liberation Day will unveil tariffs that are both large and persistent. Officials have guided towards a goal of a reducing the fiscal deficit from 6% to 3%, which implies a $2t deficit reduction. Recent communication suggests half of this amount will come from austerity, and the balance from higher revenue. Secretary Lutnick has proposed golden visas, tax reform, and tariff revenue as the three primary mechanisms to raise […]
