Trump tariffs cannot harm the resilient US economy

Euro

The potential euro bounce was foiled by the yield saga. It can easily reach the previous low at 1.1324, or go all the way to the channel bottom at 1.1178. Something can intervene to prevent the move continuing, but it will have to include relief in yields.

Outlook

The S&P PMI at the highest in years has one implication not being exploited—it shows that not even the Trump tariffs cannot harm the resilient US economy. That growth is led by one sector is a worry, but not fatal.

We also see that wishful thinking about oil prices is a snare and a delusion.

It’s interesting that the gold price has not moved down commensurably with the yield crisis.

Off on the side of the table, Norway  raised rates to 4.5% with a hawkish tone. Sweden kept rates on hold but hinted a hike this year is likely.  The Swiss National Bank maintained the zero rate but took away the threat of intervention. Its inflation forecast is rising.

The bond crisis is real, although it should back down a little. Reuters: “The  debt market mood was soured further on Wednesday by warnings about ​rising government debt levels from the OECD, while the Institute of International Finance said the global government debt servicing bill had risen to more than $3.5 trillion - bigger than spending on​defence, energy or AI.

“What's more, the bond angst flew in the face of the latest US Treasury buyback programme, which some market players reckoned was now becoming more of an irritant than a balm.”

The Atlanta Fed GDPNOW is 5.1% for Q3. Can you have too much growth? Sounds silly, but the answer is yes when other conditions are in paly—single sector concentration, too much debt both public and private (with some of it hidden), a war that won’t end, a reckless and stupid US president, and no end in sight for inflation.

Forecast

We may get some backing down in the near-term, but it’s going to get worse before it gets better. It’s hard to see how the dollar loses its allure under these circs.

We think the trading world would like to sell dollars as a signal of disapproval for Trump’s many horrendous words and deeds. Example—the judge just reversed the press ban and yet one news outlet was barred again this morning. And it just doesn’t work that way—disapproval of a really bad White House doesn’t affect the dollar. We saw it decades ago when Gingrich shut down the government and we have it now.