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Tags: Dollar | Stock | Markets | Trump | Approval | Rating

Fate of Dollar, Markets May Hinge on Trump Approval Rating

Fate of Dollar, Markets May Hinge on Trump Approval Rating
(Getty/Christopher Gregory)

By    |   Tuesday, 23 May 2017 11:41 AM EDT

The explosion at a pop concert at the Manchester Arena in the U.K. last night that has caused at least 22 deaths, with many children among them, and is the deadliest attack since the 2005 London bombings.

Unfortunately, the devastating event underlines that terrorism has now definitively become part of the European reality.

In the past, we have seen markets react to such events, but those reactions have been muted and have been temporary. Therefore I don’t expect big moves in markets today and, at least so far, the British pound hasn’t practically moved at all since the events took place.

The conservative party of Prime Minister May has announced they suspend today campaigning in the general election and the government’s emergency committee has been convened.

Notwithstanding that, and rightly, the main focus will be on the human consequences of the tragedy, there is also no doubt that this event will strengthen the hand of those who basically say, “we have to secure our borders and we have to secure that we live in a safe environment” while the tragic events is also a very strong feed for national sentiment.

Besides that, in the United States, in the political sphere there are a few issues for markets/investors to keep an eye on:

Former national security adviser Flynn is reported to be pleading the fifth amendment against self-incrimination and refusing to testify or hand over documents to Congress. The Washington Post is reporting that President Trump urged to security officials to publicly deny links between his campaign and the Russian government.

President Trump’s administration has formally presented its budget proposals asking $3.6 trillion dollars of spending cuts over the next 10 years while assuming a 3 percent growth rate, which most economists are skeptical about.

The details of the “Russian question” and other political issues now matter less than the actual level of Trump’s approval rating for which there are three levels that could be considered, and which all three could impact markets as well as the dollar:

  • A really low approval rating, as a result of scandal or policy, could cause investors to start speculating about the President’s future.
  • A mediocre approval rating, which could tempt investors to start speculating about President Trump’s ability to get any legislation through Congress.
  • A higher approval rating, would restore confidence in President Trump’s agenda.

Over in Germany, German Chancellor Merkel told on Monday secondary-school students in Berlin, “The euro is too weak - that’s because of ECB policy - and so German products are cheap in relative terms. So, they're sold more."

There is no doubt that the situation of a constantly too weak euro is behind, albeit it, of course, only in part, Germany’s continuous to have trade and current account surpluses, which has been a point of contention with the Trump administration.

That sticking point was apparent when the head of the U.S. National Trade Council, Peter Navarro, told the Financial Times at the end of January that the euro was like an “implicit Deutsche Mark” whose low valuation gave Germany an advantage over its main trading partners, which in my opinion remains true until today.  

It might be that Chancellor Merkel has used the opportunity at that secondary-school in Berlin saying something that very few, if any of these children could really understand, but that she was in some way protecting herself to some degree from criticism that could come, at the G-7 meeting that will take place in Sicily, Italy where economic and security matters will be discussed and where President Trump will be present.

That said, investors could do well to take into account that “circumstances” could drive the euro up, which doesn’t mean that we’ll see a collapse of the dollar, but a somewhat weaker dollar would certainly help U.S. exports and put, to a limited degree, some kind of a levy on U.S. imports.

Anyway, the Dutch bank ING writes that they think that the euro versus the dollar is currently trading around 12 percent below its fair value, which has also held the euro back from falling below 1.05 dollar per euro this year.

As always, we’ll have to wait and see how the whole currencies situation evolves.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

© 2023 Newsmax Finance. All rights reserved.

As always, we’ll have to wait and see how the whole currencies situation evolves.
Dollar, Stock, Markets, Trump, Approval, Rating
Tuesday, 23 May 2017 11:41 AM
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