Dollar respite but Trump trade policy is still a worry - SocGen

Kit Juckes, Research Analyst at Societe Generale, notes that the US Treasury Secretary Steven Mnuchin’s response to a Senator’s question about the impact of a hypothetical 25% dollar appreciation – that it could have negative short-term implications for the economy – was the topic of the most-read article on the Bloomberg newswire yesterday.

Key Quotes

“That a 25% appreciation isn’t good for the economy in the short-run is hardly ‘news’ but it feeds the sentiment behind the dollar’s correction, as does President Trump’s commitment to leave TPP and re-negotiate NAFTA. It’s tempting to think that the reaction to Mr Mnuchin’s comments represents a final flurry, but we’ll be looking for is an upturn in US real yields first. 10year TIIPs yield 0.39, up from 10bp before the election but down from a 71bp peak in mid-December. They just seem too low at these levels.”

“The driver of a shift higher will be optimism that President Trump’s policies deliver more growth. Walking away from multilateral trade deals doesn’t do that, and he’s talked a lot more about these than about fiscal policy so far. What’s missing at the moment is any economic data to provide support. Today’s existing home sales will be ignored.”