Trump, Mnuchin Slam the U.S. Dollar

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Wall St. spent the last sixty days piling investors into Trump “reflation” trades, now the new administration is making the crowd look like they are way ahead of themselves.    There are a number of secular forces the street has misjudged as we head into 2017, the road to their beloved “reflation” trade is filled with pot holes.

Crowded reflation trades revolve around a strong U.S. dollar, higher bond yields and inflation.  It’s been unanimous, Wall St. is convinced of swift legislation coming out of Washington which will support U.S. economic growth.  The equity market has been priced for perfection relative to the high execution risk.  We have no doubt this reflation trade is coming, just not on the fantasy time line Wall St. has promised.

sales outside ua

 

With nearly 50% of S&P 500 sales outside of the USA, the Trump administration wants to stop the bleeding.

Late Monday, the U.S. dollar fell to the lowest level since December 8th after Treasury Secretary to be, Steve Mnuchin’s remarks were published.

“From time to time, an excessively strong dollar may have negative short-term implications on the economy.”

U.S. Treasury Secretary nominee, Steve Mnuchin, January 23, 2017

Trump Walking the Dollar Lower

The Bloomberg Dollar Spot Index fell to a six-week low after Mnuchin said an “excessively strong dollar” could have a negative short-term effect on the economy. Futures on the Nikkei 225 Stock Average dropped after the yen rose by the most since July. Energy and industrial shares led the S&P 500 Index lower, though equities finished above their session lows. European shares fell to the lowest level of 2017. McDonald’s Corp. and Halliburton Co. declined after results disappointed. Gold rose to the highest since November. Ten-year Treasury yields fell a second day, Bloomberg reported.

DXY Dollar Index, Heading South for the Winter

Dollar and Trade

The U.S. dollar extended declines after Treasury Secretary nominee Steven Mnuchin raised concerns about the currency’s strength. That came as stocks slid and Treasuries gained after President Donald Trump targeted reworking America’s trade relationships.  Trump and Mnuchin know a strong dollar will punish America’s middle class, something they’ve pledged NOT to do.  Nearly 50% of sales within the S&P 500 (America’s largest companies) coming from outside the USA.  A strong greenback makes U.S. products overseas much more expensive, this hurts job creation in the USA.

There are three dollar trades our team is focused on for 2017, get them here:

Don’t miss our next trade idea. Get on the Bear Traps Report Today, click here

Where are bond yields going with risk of a euro breakup on the rise?  Click here (above) for our latest report.

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