Good morning

Trump talks down the dollar

In his latest policy U-turn President Donald Trump has told the Wall Street Journal that he will not brand China a ‘currency manipulator’ as well as commenting that the USD was too strong and “partially that’s my (Trump’s) fault because people have confidence in me. But that’s hurting – that will hurt ultimately.”

Dollar slipped in the aftermath of his comments which signals a departure on how administration officials typically talk about the US dollar. Treasury Secretaries are normally the spokespeople on currency matters and Secretary Mnuchin has said in the past that a stronger dollar is in the US’s best interest but in the shorter term could cause issues.

The next checkpoint for chatter on currency manipulation and trade will be the Treasury’s release of a paper on foreign currency in the next week or so that will detail whether any of the US’s trade partners are close to doing so. It is not the Chinese who should be worried by these moves however with both Korea and Taiwan seen as more earnestly interfering with their currencies.

North Korea testing the waters?

Trump’s decision to announce his Chinese climb down come as fears over the actions of North Korea have continued to increase. Satellite imagery of a test site where North Korea have previously tested nuclear weapons have shown an increase in activity according to the U.S.-Korea Institute at Johns Hopkins University’s School of Advanced International Studies. Allied with the fact that this weekend sees Pyongyang stop to celebrate the birthday of the first Supreme Leader of North Korea Kim Il-Sung on Saturday and markets are convinced that the candle on the cake is the kind that makes Geiger counters get excited.

North Korean missile and nuclear tests are almost always about aggression but some are used as a diplomatic plea as well. In the past tests have been used to coerce countries into sending supplies of fuel and food when stocks get low. This could be the case at the moment but US and Japanese warships are prepared for something a lot more provocative if the newspapers are to believed.

Most Asian currencies are higher on Trump’s USD comments with other emerging market currencies also benefiting.

Brits getting poorer

Sterling ran higher yesterday and has continued to gain overnight despite the inevitable happening in yesterday’s jobs report; inflation has finally overtaken wages and the man in the street is now finding his pay packet unable to keep up with price increases for the first time since August 2014.

Pay, including bonuses, increased at 2.2% on the month while inflation rose by 2.3% over the same time period. This may be a one-month occurrence; we need to see what impact the new living wage has on earnings in the coming releases but on the belief that yesterday’s inflation hold at 2.3% was a statistical blip thanks to this year’s late Easter and not the end of the near-term inflationary uptrend we have to think that any respite on the consumer will be temporary.

The triangle of Brexit impact on consumer spending – wages vs inflation vs consumer credit – is very uneven at the moment. Spending will give way should wages or consumer credit maintain their recent declines if price rises continue. Our findings from yesterday’s PPI report suggest that price pressures of 15-20% remain in many consumer facing industries courtesy of sterling’s decline.

Geopolitics the focus into the long weekend

In the last session before most Western markets take a few days off we expect the focus to remain on geopolitical matters with Korea, the French elections and that Trump is actually planning for China the main concerns.

Have a great day and a better Easter weekend. 

See you Tuesday.

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