Luongo: Trump’s Trade Deal Hijinx Betray His Weak Hand
Luongo: Trump’s Trade Deal Hijinx Betray His Weak Hand by Tom Luongo for Money and Markets
Last week U.S. President Donald Trump told us he didn’t look at the stock market — he only cares about jobs.
This shook markets for a couple of days ahead of this month’s jobs report in hopes to signal he’d stay strong in trade negotiations with China. Then the jobs report came out and rallied the equity markets into the weekend.
For once, Trump didn’t have to take to Twitter to goose markets higher on Friday. I’ve talked in the past about his tendency to do this, making it difficult to even begin writing about markets on a Thursday.
Going back to what I said back in August before the SOFR spike, which led to the Fed opening up the Repo Window to bring down short term rates …
The strong dollar he is so angry about isn’t a function of the Fed’s raising interest rates. It’s not about policy bifurcation between the Fed and the ECB and the Bank of Japan.
It’s come about because of the continued application of the same mis-education Trump received about the role of interest rates that the Fed consistently (and wrongly) applies.
The world is just short dollars, Don. And lowering borrowing costs won’t help the situation. It’s what created it in the first place.
So this week, with the U.K. elections giving us a bit of a reprieve from dollar hoarding as the pound rallies hard on Boris Johnson’s huge victory and the euro bounces in sympathy, Trump seizes the opportunity to jump the gun on trade talks with China to declare a deal done.
Getting VERY close to a BIG DEAL with China. They want it, and so do we!
— Donald J. Trump (@realDonaldTrump) December 12, 2019
The Wall St. Journal reported that Trump folded on new tariffs and will be rolling back existing tariffs by 50%.
The markets responded to that, as always, with glee. Risk trades exploded higher. Gold got whacked back into its box after a post-FOMC rally pushed it toward $1,490. Equity markets around the globe are following through today thanks to the U.K. elections.
Those suffering under a strong dollar get a reprieve — for now.
But there’s still a serious problem underneath all of this. If dollar funding in the interbank markets was strong, the Fed wouldn’t have announced that massive repo schedule for the next month, which was the reason gold exploded to the upside.