The FT quotes analyst Hardman at MUFG:
“The US dollar has now fully reversed all the initial gains following the election victory for President Trump, providing further evidence of the ongoing loss of confidence in the Trump administration’s ability to materially boost US growth.” Even if Congress wanted to write their own tax reform and stimulus bills, they are too distracted by investigations and shifting sands. Note that hardly any are standing up for Trump, although hardly any are siding with the Dems, either.
The WSJ reports those who see yields falling was steady at 16% for the week that ended Monday, while those seeing yields higher is also unchanged at 27%. “Fence-sitters still dominate, at 57% of the pool,” according to a JP MorganChase survey.
It’s hard to square the survey with the CME FedWatch tool showing a 69.2% probability of a rate hike. The likely explanation is that confidence in the Trump administration is so low that bond traders see “flight to safety” in bonds as the likely outcome in the near future, pushing yields down or at least not lifting them by much. This shows the difference between The Government Bond Market and the current government in office.
As for the influence of scandal and even the prospect of impeachment, the Fed has to show a steady hand and independence from political events more than ever. Thus the high probability of the June rate hike. Having said that, probability of the June hike is creeping downward. The CME version has been as high as 88% vs. 69.2% today. The Bloomberg version is down about 5 points from 95% a week or so ago.
And finally, the dollar index is not an accurate reflection of the FX market. The euro constitutes 57.6% of the index, and the euro has it own reasons to be on the rise that have nothing to do with Trump. The Japanese yen, on the other hand, while affected by the Trump stories, is also influenced by fear of North Korea as well as conflicting and confusing economic data. The yen is only 13.6% of the index. The Canadian dollar is 9.1%, only a little under the UK pound (11.9%) and the AUD isn’t in there at all. Then there’s the Swedish krona at 4.2% of the dollar index, an anachronism.
Note that the Swiss franc is not in the mix at all, despite its status as the ultimate safe haven. And the Swissie in on a tear. See the chart. The dollar/CHF has fallen as much in the past three days as it usually moves in a month.
Yesterday we showed the Commitments of Traders euro speculative position going net long for the first time in a year. Now the Daily Shot offers another chart, from Goldman, that’s even better. It suggests that earlier capital outflows in the flight from zero and negative rates was pretty big. Reversing that when tapering finally comes—and remember, Der Spiegel reported the announcement could come as early as July—implies a flood of money returning to the euro. Hmm, wonder where it will be coming from? The US, of course, but also emerging markets, probably.
Meanwhile, capital is overflowing into the UK and France, according to Bloomberg. “Investors piled into long-dated bond sales on Tuesday with the U.K. and France seeing orders of more than $67 billion following Emmanuel Macron’s election win. Orders for U.K. 40-year gilts were said to exceed 26 bil-lion pounds ($33.5 billion), the most on record, according to people familiar with the matter, who were-n’t authorized to speak publicly and asked not to be identified. Orders for French debt expiring in May 2048 were said to be above 31 billion euros ($34 billion).”
Yikes! This is probably a one-time event but still, it shows an appreciation for reduced political risk—all this paper is very long-term.
Bottom line—our worst fears about Trump tanking the dollar are coming true. Around election time, we worried about a trade war with China and China pulling out of the Treasury market, or at least threatening it. We worried about the impulsive Trump starting a stupid war. We worried about corrup-tion in office and impeachment on the emoluments clause, and indeed a lawsuit was filed on those grounds (by Harvard lawyer Tribe and amicus friends) on the first day after Trump took office. But impeachment fell off the radar screen until last week. We have been Googling it daily. Today there are 10.5 million entries.
And yet we still expect the Fed to hike rates in June.
We also dispute that lousy economic data is as bad as some analysts and headlines suggest. Case in point—housing starts disappointing but the sentiment survey way, way up. In the past, political events have had only a muted effect on the currency market. We impeached Clinton and the dollar barely burped. Congress shut down the government—three times—and the dollar barely moved. But Trump is, clearly, an entirely different kettle of fish. Talk of Trump as an existential threat to American democracy is overblown, but to mix metaphors, the proof is in the pudding—or, in this case, the price of gold. We predict gold at $1350 in the near term, surpas-sing $1294 on May 18.
Politics: We find Trump repulsive, erratic and not fit for the presidency. Even so, we suspect most of the mainstream press is going overboard with talk of building a case for impeachment. NYT columnist Douthat calls for Congress to invoke the 25th Amendment—intended for use when the president is unfit for office (from a stroke or other disability). But Trump is not disabled. He’s just childish, unstable, dishonest, narcissistic and a boor.
As we wrote yesterday, Trump threatening Comey with a tape to prevent testimony about their meeting doesn’t rise to the level of “obstruction of justice.” Merely asking the FBI director to end an investiga-tion is not the same things as ordering it. Trump is reported to have said “I hope you can let this go.”
Comey’s memo written immediately after the dinner meeting will have more credibility than Trump denials, but it’s still not hard proof of the intent to obstruct justice. We already know Trump lies. Evidently intent is the key component to the obstruction charge (as in proving fraud). Trump doesn’t intend to lie. It’s just his habit.
Bloomberg’s Feldman writes that what Trump reportedly did is not a crime. It’s probably an impeacha-ble offence, but no prosecutor would bring criminal charges. Impeachment is up to Congress. “Using the presidential office to try to shut down the investigation of a senior executive official who was also a major player in the president’s campaign is an obvious and egregious abuse of power. It’s also a gross example of undermining the rule of law.
“This act is exactly the kind that the Founding Fathers would have considered a ‘high crime.’ And it’s a high crime the president could perform only by virtue of holding his office.”
But the Republican dominated House is hardly likely to bring impeachment charges and two-thirds of the Senate is not available to convict him. “But a Democratic House would have more than enough ma-terial now to start the impeachment process — including the revelation of the request to Comey. And the House could choose to impeach even if it calculated that the Senate probably wouldn’t convict. The act of impeachment would have tremendous symbolic ramifications. And it would include the detailed investigative oversight that so far has been lacking in Washington.”
As for campaign staffers and/or National Security Advisor Flynn improperly trying to make a deal with the Russians (if that’s what they were doing), it could be a rookie mistake. After all, Trump probably thought sanctions are a very large ace up the US sleeve with which to make a deal. Maybe he wanted a stupendous announcement in the first week.
We’d like to know what he was seeking from the Russians in return for loosening sanctions (if that’s what it was). Trump was almost certainly not seeking a retreat from Crimea. It had to be something else. The press is so besotted with outrage they are not even raising the question. But it’s a perfectly plausible scenario and a darn good question.
The same reasoning applies to Trump supposedly giving away top secret information to the Russians in the Oval Office. Presidents are legally allowed to do that. It may not be wise but we don’t know what he was seeking to get from the Russians in return. We can imagine it had something to do with joint anti-terrorist actions in the Middle East.
If Trump is putting the Republican agenda at risk, as the WSJ says, it’s because of his personality and the very absence of principles that appealed to his voters in the first place. They wanted a bull in the china shop and that’s what they got.
These and other incidents show Trump is not good at managing his image, or “brand.” His unfavorability rating is a whopping 57%. For a guy who used the press so well in the campaign, getting billions of dollars of free press and airtime, he is a bumbling jackass once in office. Two things: Trump denigrated and insulted the intelligence community and the press. Neither are part of the checks and balances the Constitution framers intended but they are acting as a check all the same. Both of these groups are on high alert for STS (stupid Trump stuff).
Trump has brought criticism down on himself and destroyed his own credibility. The drip-drip-drip of bad acts could conceivably add up to impeachability—but not tomorrow. Meanwhile, educated citizens and foreign leaders alike are amused by such a blatant show of childishness–and equally appalled. It would be fun to hear what Netanyahu has to say in private. Something we are not yet seeing is contem-plation of Pence taking over. Pence is the dimmest bulb in the chandelier.
Note to Readers: RTS has launched a Trade Copier service. We place our trades from the Afternoon Traders’ Advisory in the retail spot market and your MT4 account mirrors the trades taken in the RTS account. You don’t have to lift a finger. You get to pick how much leverage and exactly which curren-cies you want to include. If you are interested, please contact Paul Harris at email@example.com or visit http://www.rtsforex.com/trade-copier/.
Note to Readers 2: We will not publish any reports during the week of May 22-26. We will be travel-ling. Note that the following Monday, May 29, is Memorial Day and markets are closed, so no reports that day, either.
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