Risk aversion is back, favoring USD gains

Outlook:

The stock market is unhappy about more than the faltering trade deal. It didn't like that some retailers are posting bad sales, like Home Depot and Kohls, even though online retailers are still going gangbusters.

Now that the China deal is failing or at least in limbo, everyone is back to looking for signs of the global slowdown. They don't have far to look. One analyst finds it in the form of price drops in the metals used for rechargeable batteries. This has immediate intuitive appeal. The WSJ reports "After more than doubling from 2016 to early in 2018, prices for two of the materials used in the batteries, that power smartphones and electric vehicles have extended a monthslong slide and are now down more than 50% from last year's peaks."

We are not getting much of a response to the global slowdown from the governments we all hired to take care of stuff like this. Today the ECB Financial Stability Report accepts the ECB forecast of 1.1% growth this year and 1.2% next year, as though everything is normal and there is nothing you can call a crisis going on. At least the report notes "signs of excessive financial risk-taking as well as slowdown in bank profitability are some of the biggest challenges in the euro area." ECB VP de Guindos told the press that the difference between the May and November reports is that :lower for longer" is still ongoing and "growth is more modest than what it was six months ago."

He said "This low interest rate environment also affects the investment strategy of the asset managers and in this respect this part of the financial system could give rise to bigger risks." And the property market is seeing higher risk-taking. No kidding.

Those who are supposed to be in charge are not taking charge. For example, tomorrow is the last day for a new federal funding bill in the US or we face a shutdown. Again. Is everyone paralyzed in the face of a rampaging Trump? They are all forgetting that a bully either lashes out or caves utterly when challenged. We are in dire need of a challenge. The global slowdown may not be as bad as it looks right now, or it may be worse. Either way, risk aversion took only a short hiatus and it's back, favoring the dollar.

Tidbit: According to the Treasury International Capital report (TIC), foreigners dumped holdings of US sovereign debt by 1.2% to 6.78% trillion, the biggest drop in two years. The WSJ also reports "Demand for the debt from foreign investors at September's auctions of new Treasurys was the lowest since before the financial crisis, according to separate data from the agency." Foreign central banks were the main sellers, while private buyers are still accumulating. Some foreign central banks may be spending dollars to intervene in favor of their currencies. Somebody will try to make noise about this (somebody always does). We say "ho hum."

Politics: Testimony in the impeachment inquiry yesterday failed to deliver the vindication of Trump that the Republican-called witnesses were expected to provide. Specifically, Special Envoy Volker suddenly remembered that the extortion plot had been discussed in his presence. Nobody believes he failed to connect Burisma with Biden, but he probably escaped a charge of perjury.

And Purple Heart Vindman also set fire to the barn, bringing tears and applause when he thanked his father for immigrating 40 years ago because here he can tell the truth while in the old Soviet Union he would be killed for telling the truth. "Here truth matters." Vindman also pushed back against Republican charges of bad judgment by reading his formal annual review praising him for good judgment. Again while a witness was testifying, the White House Twitter account blasted Vindman. Trump seems to think not doing ti directly in his own name somehow conveys he learned the lesson last time that this can be construed as witness intimidation. Sure enough, Vindman and family were moved to a secure Army base. Truth matters but not to unhinged Trumpies.

One point that came up repeatedly with all the witnesses yesterday was that the cockamamie conspiracy theory that it was Ukraine that meddled in the 2016 election is totally, thoroughly, permanently debunked by everyone who knows anything. The Republicans are not giving it up, despite evidence the story comes straight from Red Square trying to put the blame on someone else. Reagan is rolling over in his grave.

Today it's Sondland's turn. Now that Roger Stone was judged guilty of lying to Congress and faces serious jail time for it, Sondland is likely to spill the beans. The Republicans are deeply worried, and so they should be. All that remains is for Bolton to step up and confirm from the highest level that Trump was behind it all and when Bolton referred his underlings to "the lawyers," he knew perfectly well Trump's behavior was a crime.

History Tidbit: Alexander Hamilton, anxious about the election of a bad president, wrote: "When a man unprincipled in private life desperate in his fortune, bold in his temper and possessed of considerable talents, having the advantage of military habits--despotic in his ordinary demeanour, known to have scoffed in private at the principles of liberty, when such a man is seen to mount the hobby horse of popularity—to join in the cry of danger to liberty—to take every opportunity of embarrassing the General Government & bringing it under suspicion—to flatter and fall in with all the non sense of the zealots of the day—It may justly be suspected that his object is to throw things into confusion that he may 'ride the storm and direct the whirlwind."

Hamilton exercises the same carelessness about punctuation that gave us the current Supreme Court reading on guns. And he was clearly thinking about a general or other man of "military habits," and that sure doesn't describe the undisciplined Trump. Still, this paragraph has been forwarded numberless times because, golly, it sure sounds like we've got the guy Hamilton warned about.

Note to Readers: Next Thursday, Nov 28, is Thanksgiving. Again we have to note that the holiday celebrates the Indians that saved the early colonists from starvation, only to have the colonists massacre them and put them on barren reservations. With every new president we hope for something better, but even Obama let us down. Anyway, it's a holiday in the US and one of the big ones. We will not publish reports on Wednesday, Thursday or Friday of next week.

 

---

 

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a free trial, please write to [email protected] and you will be added to the mailing list..