The Dollar is still hopscotching back and forth between favored and shunned

Outlook

Today we get the US PMI’s, but they are not likely to have much influence. A negative reading will get parsed for good news by the right and for bad news and doom by the left. In reality, manufacturing is a small part of the US GDP. Services may deserve more attention, but the PMI’s are losing their luster, fast, at least in the US. Yesterday’s Philly Fed reading showed manufacturing fell in Feb by the most in nearly five years, but it was not top headline news—you had to go look for it.

Surprise! Basic economic thinking can trump Trump, at least sometimes. Yesterday we saw some newswire stories naming “stagflation” as on the minds of consumers. In financial markets, the absence of fresh tariff talk is blamed for the dollar’s lousy performance. This is short-termism at its worst. It’s also perverse. Tariffs are bad for the economy, but also raise risk, and risk-aversion is good for the dollar. Bah.

In the big picture, the US economy stands out as the leader in recovery from Covid. Some countries are only just now, nearly 5 years later, getting back to pre-pandemic levels of growth, the UK in particular. Because of the Russian invasion of Ukraine and subsequent energy supply and costs issues, Europe is still struggling. But now the Trump threat to gut the US economy could put a giant brick wall in front of US growth. We may be seeing it already.

Forecast

The dollar is still hopscotching back and forth between favored and shunned. This is a little surprising because risk is rising to wild levels. But that’s mostly political risk that has yet to morph into hard economic data. And it’s not just the US. In the UK, grievances abound about the impossible fiscal plan and in Germany, the upcoming election could throw a monkey wrench into the EU and its various treaties. France and Canada are without leadership and elections are far off. 

We continue to think the dollar will flail and fail until the yields stop dropping and fulfil their manifest destiny of reflectng actual and expected inflation. Nobody knows when that will be. It’s another week before we get the PCE readings, and even those are rearview-mirror.

Tidbit: Next week we will know the outcome of the German general election on Sunday. The mainstream press—FT, Bloomberg—is unhappy. Bloomberg: “Germany’s political system is under strain as a far-right nationalist party rises in the polls. Sunday’s election may be the last chance for mainstream parties to prove they can fix past mistakes and work together.”

While much of the far right agenda is despicable, it’s not wrong about deregulation and other means of boosting capital investment. It’s not clear the euro takes a hit on a win. But it’s also not clear that investment into the industrial powerhouse is the answer. The health of the Chinese economy, the top importer, means a lot, too. And China has become an industrial competitor as well as the top importer. 

You can go nuts reading endless combinations of the various parties that could make up a coalition. Failure of clarity on the coalition front is definitely a euro-negative. 

Tidbit: A slew of political polls on Wednesday and yesterday show public disapproval of Trump, his minions and policies in the first month is high and rising. (The top highest disapproval—Musk and the Gaza takeover.) It’s also historically unprecedented over the 70+ years of presidential approval polls. And it’s ALL the polls–Gallup, IPSOS, Quinnipiac, Reuters, CNN and probably a few more. Analyst Maddow thinks it’s the Trumpian attempt to kill democracy fast, as all good dictators do. The offset may be not only opposition by Dems, but by an increasing number of Republicans hearing from their constituents and worrying about their own re-election chances if they persist in spineless acquiescence.

Tidbit: In a NYT interview with the savvy Tom Friedman, here are some stunning comments. Trump is shaking up the global board and it needs shaking up. “Why are there still Palestinian refugees 75 years after the birth of Israel?” As for breaking up Europe as though each country has a retail shop in Trump Tower, an EU breakup would bring tremendous instability. “The E.U. is our wingman in the world.” [We’d say it’s the UK, but never mind.]

And why is Trump joining Putin? Among other reasons, it’s to lower the price of oil by lifting sanctions and pleasing the American voter. Never mind that Putin misjudged the Ukraine invasion at great cost to the Russian economy. Neither guy cares about the Russian people.

Trump’s tariff and other plans will wreck the US economy. “They say the market is a voting machine and then it’s a weighing machine. And when you weigh the weight of these things, they don’t add up. … Trump is driving, we’re all in the back seat, and I think he’s heading into a wall.”

The craven sycophancy of Congress is a disgrace. It’s awful to be rooting for our country to fail in order to be redeemed. “So the first time around he broke the laws, and this time around he’s destroying the norms, and when we get done, there will be nothing left.” Trump takes Greenland and Xi takes Taiwan, and then what?

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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