USD 'should' continue to slide as long as the markets buy into the Trump cat-and-mouse game

Outlook:

Never mind the US data coming out this week, although the housing stats will be of some interest (if you think housing can lead the economy down and influence the Fed’s tightening pace). See the calendar.

The market mistakenly accepted Trump’s comment last week that he doesn’t want to “put China in a bad position.” That’s precisely what he does want. He is pretending to be the cat playing with the mouse, but in the end, he fully intends to eat the mouse. We are going to get more of this toying, but it’s hard to believe Trump will retreat and let the mouse go, not when he perceives his base as approving of his bully-boy tactics. Besides, we haven’t seen results yet. Trump doesn’t really have a long game but we do know he intends to run for president again in 2020, by which time the trade statistics should show a drop in the deficit with China.

At APEC in Papua New Guinea, VP Pence said the US will “not change course until China changes its ways” and that phrase is out of the Trump playbook. This is not to say Trump wants China on its knees, where it might decide to sell all its Treasuries. But Trump wants to force China into a declaration of defeat in some way. The Chinese are, of course, smarter than Trump, and may find a strategic retreat serves self-interest.

The Nov 30-Dec 1 meeting at G20 is likely not going to be the end of it, though. It’s silly to imagine Trump won’t try to keep capturing headlines for as long as possible, or at least until the January deadline when tariffs are supposed to go from 10% to 25%. If China capitulates in some way before then, Trump will be able to start the new year with an important victory under his belt. Then we will have to hear about it for the whole damn year, until he starts running for the 2020 election.

Weirdly, this is dollar-unfavorable, as we saw on Friday. Ah, but that’s something Trump wants, too—a weaker dollar. Somebody probably told him that anxiety and jitters over the US-China trade war only offers the dollar support.

Meanwhile, Trump also said we may never know what happened to the US journalist in Istanbul. Well, yes, we do. The CIA accepts the Turkish version—the Saudi Crown Prince ordered the murder, and murder it was. The odd thing is what Turkey wants to get out of this. At a guess, it’s not disturbing the US-Saudi relationship. Turkey has no skin in that game. But Turkey is vulnerable to Russian interference, especially in the Kurdish region. Trying to get the US beholden to it over the murder seems not to be working. We never know what things are going on in the background, but there will be some influence on oil prices, probably. Watch for the Saudis to retreat on cutting supply at the next OPEC meeting. Russia will be annoyed.

The dollar “should” continue to slide some more as long as the markets buy into the Trump cat-and-mouse game.

Tidbit: Right after the midterm election, we wrote that the outcome was a slap on the wrist rather than a punch in the face of Trump and his craven sycophants in the Republican party, and not the beheading the Dems had sought. Now it’s more like a hard slap in the face, as Trump’s sullen behavior all last week shows. (He’s also worried about the Mueller investigation seemingly about to blow.)

It’s tricky to comment on the still-counting midterm elections because every time you turn around, another count is released. On Friday a long-stranding Orange County CA seat (26 years) went to the Dems, making it the 39th seat the Dems flipped.

Here’s one way to look at it: Dems got nearly 8 million more votes than Republicans. You’d think such as overwhelming number would have resulted in more than 39 seats, but voter suppression and gerrymandering accounts for the discrepancy. Recall that in the 2016 presidential election ,the Dems got 3 million more votes in the popular count than the Republicans. Therefore the midterm vote more than doubled and nearly tripled the Dem majority.

In 20 districts that voted for Obama in 2012 that flipped to Trump in 2016, the Dems recovered 13, or about 70%. Of 13 seats that voted for Romney in 2012 that flipped to Clinton in 2016, the Dems got back 10 and the Republicans saved only three.

Comedian Bill Maher made the most salient point before the election—“How are the Dems going to screw it up?” But so far, so good. Efforts to unseat Nancy Pelosi as Speaker are being resisted. She is a little creepy, but also rearranged Obamacare to get it passed, and healthcare was the driving force behind many of the Dem takeovers in this midterm election. The cable talk shows are re-energized with ideas for investigations, including getting Trump’s tax returns. We say never mind—his base already knows he is a fraud and a tax-cheat (and doesn’t care because halting the brown immigrant horde takes priority).

 

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