The market is now focused on the China trade deal (we think it will not be resolved this year), and many are saying that the dollar could weaken if the trade war with China ends. This is a view that improved global growth would benefit other economies – and it does make sense. But if the US President puts tariffs in European cars, as some analysts now expect, the dollar could strengthen. The question is will the president conduct a trade war with China and Europe? They are not mutually exclusive. Our view is the economic slowdown in the US and China could have some impact on the intensity of tariffs.
The dollar has risen 8.4 percent over the past year, mainly boosted by trade wars and tariffs that will harm the global economy. The US is still on recession watch but the boost in payrolls in January has some second guessing the US economic strength. Strategists are now looking for a somewhat weaker US dollar if a trade deal is signed or tabled with conviction.
The US Commerce Department is soon expected to release the results of a study on the global automotive industry. This study could be viewed from the frame of a national security issue (this article is derived from a CNBC article on 14 Feb, 2018, Patti Domm) with the results on 17 February. The Trump Administration would then have three months to act – so this gives a lot of time to talk to China.
We at Classiarius feel that there are deep issues with China and the trade war is just beginning. There will likely be more tensions on an economic level and on military level between the US and China, especially in the ongoing challenges in the South China Sea. The US might back away somewhat if there is significant progress in the talks with Mr Kim of North Korea after the Hanoi Summit which starts in about 10 days.
US equity markets are trading to some interesting technical levels – a break higher might be in the cards. But in our view, short-lived as the China trade war heats up in Spring.