The most important thing on the calendar is not on the calendar

Outlook

The big events this week are central bank decisions in the UK—likely a rate cut to 4.25%--and in Sweden and Norway (hold). In the US, today we get the ISM services PMI and the final composite PMI.

The most important thing on the calendar is not on the calendar—it’s the Trump response to the Fed meeting this week at which the Committee will not cut rates, as he wishes, but will probably deliver some interesting minutes about impending inflation. Over the weekend, Trump said he will keep Powell but he’s a "a total stiff" and called for lower rates. Trump also said the US is close to deals with several countries, but Trump habitually lies, so it’s not really a factor until it is.

Then there are the trade talks with China, which have not yet even started. Markets are  blinded by a “good” thing (like China agreeing to talks) at the expense of missing a hard fact of life—stagflation and almost certainly outright recession. Not to mention the danger to the US as a sovereign, which the bond market recognizes even if the stock guys do not.

Another hard fact of life—Pres Xi can run circles around Trump, who is certainly not as smart or as good a negotiator. Xi is a true autocrat with the system to prove it. He cannot be impeached and can afford not to care if the citizens suffer. Trump doesn’t care if the citizens suffer, either, but his ability to keep the spineless Republicans in line depends on them not being overwhelmed by voter disapproval. Trump is the one with the most to lose.

We don’t know what it means, but it must mean something—the population of China is more than three times the population of the US.

Confusion still reigns about trade talks. It would seem that the prospect of talks can only be good, right? But not if Trump embarrasses himself and lashes out with even higher tariffs or some other stupid thing. 

So, it’s not necessarily good for the dollar that talks are getting hotter between the US and China and Japan. Still, before those announcements last Thursday night, the dollar was seeing a tectonic shift in its favor. This was weird because Europe was on holiday that day and the move was driven mostly by US traders.

We never did find out why, but landed on the idea that “the US is resilient” and can stomach the economic effects of the tariffs. Well, not the poor and not companies dependent on imports, but to a large if unknown extent.

This is the theory that the US economy is so good, not even Trump can kill it. The resilience thesis is a fair one, but only if you ignore the massive proven incompetence of the Trump administration. We literally cannot trust these guys to get good deals and fast. And of equal importance is the Bigger Picture of downgrading the other two arms of government, Congress and the judiciary, plus numerous violations of the Constitution, not to mention common decency. The purpose of three government arms is “checks and balances.” Not happening.

The economy can surely recover. The body politic, maybe not, or at least not quickly. It would seem a lot depends on who follows Trump, who is dead-serious about a third term, by the way. As for the US reputation and standing the world, it would take a personality on a par with Kennedy or maybe Clinton to get that back. An ordinary guy can’t do it.

Forecast

The dollar was staging a corrective bounce to the upside that seems to have stalled so far today—but remember, big markets closed today (Tokyo, London). Friday seemed to reverse it but breakouts hardly ever end after a single day. We do not yet have evidence it was a false breakout. A lot, maybe everything, depends on what the Fed says this week.

There is about a 35% chance of a rate cut but commentary may be hawkish instead of the promise for a June cut that is expected. Labor market data doesn’t show a hard reason to cut rates, yet.

That leaves us with the indicators, especially momentum. Momentum indicators are a colossal pain. They contradict one another, Readings from different timeframes contradict one another. Sometimes momentum indicators contradict other indicators, especially the stochastic oscillator (overbought/oversold). You can twist momentum indicators (especially relative strength) into a pretzel to show anything your preconceptions want to show.

In a nutshell, it’s a coin toss. We think the dollar bounce will persist, mostly on the resilient economy/recalcitrant Fed narrative, but stay tuned. Those who trade in the shortest timeframes will do okay. The longer-term investors and hedgers, still in a state of confusion.

Tidbit: Trump plans a huge, expensive military parade for the anniversary of the US Army, which conveniently happens to be his birthday, June 14. Never mind tanks wrecking the pavement and the cost—the last one, cancelled for cost, was estimated at $92 million.

Trump was mightily impressed by the Bastille Day parade in Paris in 1917. The Washington Post reports “Trump said that after watching the two-hour procession along the famed Champs-Elysees that he wanted an even grander one on Pennsylvania Avenue.” So much for efficiency and getting rid of waste.

Tidbit: We saw that Trump was purportedly banned from entering Canada. Oh, please. Well, earlier this year there was a petition in Canada for precisely that, but it apparently went nowhere. As a convicted felon, technically he is already barred from entering Canada, but that law doesn’t mention heads of state. It’s a little fun, anyway. Americans tend to like Canadians because they have Good Manners (unless you are staying in a Toronto hotel after a big hockey game and the players and fans keep you up all night fooling around loudly in the hallway). We are enjoying the gutsy push back now being celebrated on US TV news shows.

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.

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