It’s possible the Europeans really are close to a trade deal, as they are saying
|What a mess. We are now not even to the 6-month mark and already we see what pundits call “unforced error,” aka self-destructive, chaotic recklessness. One consequence, identified by Jared Bernstein, is consumer spending at effectively zero. This is not caused by unemployment or any other of the big factors—just high anxiety. See the chart. The eurozone saw a drop in retail sales, also due to trade-driven consumer anxiety caused entirely by Trump.
To counter that, it’s possible the Europeans really are close to a trade deal, as they are saying. That would make two, with the UK. Or three or four, with India and some other Asians.
We don’t get CPI until next week on July 15, but again Bloomberg’s Authers rides to the rescue, citing Torsten Slok of Apollo Global Management. He uses something Bloomberg devised named a SHOK function, “which models the impact that changing different assumptions will have on the macroeconomy. Another 10% dollar depreciation in the second half should mean inflation 0.5 percentage points higher than expected, which would be disastrous.” The chart takes a few minutes to grasp. If we have it right, more depreciation means inflation a full 0.5% higher than what is now expected, or 0.5+2.4% (May) = 2.9%.
So, we have employment data crying a little but no cause to imagine recession and thus no cause for a rate cut. We have dollar depreciation offsetting the rise in yields, leaving everyone clueless. We have an out-of-control, emotional US president riding roughshod over norms, ethics, laws and economic sensibility.
Quick, find some reason for the dollar to be gaining except normal position-adjustment and profit-taking.
Forecast
The ongoing correction has some easy targets—the 20-day at 1.1608, for example. But 20 days is too long when Trump is capable of throwing everything under the bus on any single day. See the 480-minute chart. The last low was 6/23 at 1.1453 and that’s a bridge too far. The halfway point of the lowest low is about 1.1636, which is also the 25% retracement line. This may well be the worst-case scenario.
Tidbit: Musk says he is forming a third political party to be named the America Party. This is probably just bravado and the WSJ says Musk has not filed anything with the Federal Election Commission, which has already been gutted by Trump. Musk is not exactly popular and this is unlikely to go anywhere, but old-timers remember Ross Perot’s third party and even Ralph Nader’s presidential run. Bottom line: third parties harm the Dems.
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