Significant investor flows from the U.S. to Europe are causing a surge in the Euro against the Dollar in the wake of U.S. tariff announcements.
Over the years investors have built up significant unhedged positions in U.S. equity markets and bonds as they look to take advantage of U.S. economic and market exceptionalism.
The assumption was that when stocks moved lower, the Dollar would move higher in a traditional safe-haven response. This provided a natural hedge against downturns.
However, during the ‘tariff trade’ era, the Dollar is tracking stocks lower, creating significant losses for international investors who invested heavily in the U.S. as the natural hedge has dissipated.
This is creating a cascading effect of flows as investors bail, leading Deutsche Bank analyst George Saravelos to warn it could destabilise the Dollar.
We are seeing Pound Sterling experience significant cross-flow pressures when it comes to the Euro.
Also - At the same time, the Eurozone’s single currency appears to be taking the announcement of a 20% U.S. import tariff in its stride amidst hopes that negotiations will result in a lower tariff rate.
Not sure where they went but its certainly not a dry state. They lived in NC which was where you could only buy alcohol in designated shops, certainly not supermarkets so they used to go over to SC where you can buy it everywhere. Now they are building up a nice collection of local whiskeys and bourbons for visitors.
Yes, my daughter and SIL got in just in time as their new house is $750k so the realtors held it at the pre-midnight increase in bank interest rates last week and still did pretty well out of it.
This attack on the UK and Europe needs a very strong response. Bullies only understand strength.
The USA was in the past considered our friend and ally. This is no more. While America can not be classed as our enemy I need to consider that I see Russia as an enemy of UK/Europe and any friend of my enemy is surely my enemy?
The YouTube video below gives another view which I suppose in Trump’s head may make sense:
However I think that Trump and his acolytes seem to have ignored the fact that trust between the USA and the rest of the world has been completely shattered.
I also read that in order to boost USA shipbuilding Trump intends to impose hefty fees on Chinese built ships using USA ports. BTW this proposal also includes cruise ships!
To summarise:
Up to $1.5 million for every port call by a Chinese built ship;
Chinese vessel operators would be charged up to $1 million per US port call;
Any ship operator that even has a single Chinese built ship could face a new US port fee of $500,000 for ALL of its vessels.
Of course, if this hairbrained scheme is ever implemented, ship operators will simply head to Canada and Mexico thereby decimating the US port and trucking sectors!!
Without putting too much effort into it, I have for a long time avoided if at all possible, anything originating in China. That is to say if I am looking for something in particular, the casting vote all other things considered has gone to buying the non Chinese choice.
Now my thoughts have shifted and I will redirect that preference away from the USA. But I can only think of one company which I find almost impossible to ignore, Amazon. But I can’t remember the last time I knew something I bought actually came from there, so much of what they sell comes from the east, not the west.
Well I have the opposite view, for the last couple of years, I’ve avoided buying anything made in the USA and Israel and as far as possible use Temu rather than Amazon.
Why not buy “nearly new”? With most makes there are bikes that people have bought, ridden for a few hundred miles and then changed their minds. Saves you some dosh, and modern bikes are pretty reliable that not having a 12 month warranty from the manufacturer should not be a big deal. In any case you can buy warranties.
Well, “new” covers a lot of possibilities with nothing ruled in or out. Madly, I have a bit of a hankering for something out of the mainstream where a manufacturer warranty will be essential.
Apart from the economic illiteracy about the consequences, if it’s being said like that it just sounds racist. Is racism acceptable now?
I sncerely hope China and all the rest of us in other countries all decide to let this one play out and let consequences unfold in America so that America herself can get the chance to rethink in due course which we all hope they will.
Much more peaceable than the oh so tempting alternative of imposing tit for tat sanctions and tariffs which will just accelerate the threat to the world economy.
Can we and all the little countries, wealthy as well as poor that are going to hugely suffer, last four years in hopes the US itself will recognise and deal with the results of what’s currently being perpetrated?
There is an interesting analogy in a Guardian article that suggests that the U.S could end up like the hole in a large donut, with a lot of international trade happening between the rest of the world (in the donut) and the U.S being isolated from international trade in the middle. This, if it happened, would be disastrous to the U.S.
I think this is very likely, if Trump persists with his tariffs for any length of time. It’s the obvious thing for the rest of the world to do - trade with each other and let the Americans stew in their own juice.
However I suspect that the powerful business and financial lobby will lean on Trump before long as the whole affair will seriously hurt them in the pocketbook.
ETA: Random thought - is it possible to corner the market in donuts?
I fear it’s too late for that as, no matter what happens next, there’s too much uncertainty in investing in the US. It’s no longer possible to see it as a reliable and predictable place to do business.
Absolutely. A lot of damage has already been done, and it’s the unpredictability that countries and the markets really hate. One of the really dangerous things for the US economy is the performance of US government bonds, which are the fuel for the US deficit. A lot of those bonds are bought in Europe and China. The current US madness will inevitably dampen enthusiasm for US bonds which will push up their cost to the US. Macron has already suggested that the EU should stop buying US bonds to put pressure on them, and if they did and China followed suit the US economy could run out of money.
They,'d just invade somewhete so their oligarchs could make money or grab resources, or at least create employment in the army in states neefing employment, whilst enriching oil snd defence oligarchs.
Expect the tech robber-barons to be less perturbed by all this, because their exports and income can cross borders much more easily than hard goods and DT is going to take a protectionist approach to attempts to tax them.
But I can’t remember the last time I knew something I bought actually came from there, so much of what they sell comes from the east, not the west.