“Domestic political upheavals of historic proportions, a further extremely critical U.S. Corona situation, tendency disappointing U.S. labor market data next to recently historically critical foreign trade data as well as latent precarious debt data of the public sector of the U.S. are obviously good for the valuation of the USD!” states Ben Schaack not without the reference to irrationality and resulting questions.
The euro opens today against the USD at 1.2174 (06:26), having marked the low of the last 24 trading hours at 1.2167 in the Far East session. The USD is setting against the JPY at 104.20. As a result, EUR-JPY is trading at 126.86. EUR-CHF is oscillating at 1.0818.
The USD is gaining!
The last 80 trading hours brought new insights whether the valuation of the USD. Domestic political upheavals of historic proportions (division of society, role of the IT giants, Trump’s removal from power), a further extremely critical U.S. Corona situation, trend disappointing U.S. labor market data (see data potpourri) in addition to recently historically critical foreign trade data (-68 billion USD in the last reporting month) as well as latently precarious public debt data of the U.S. (deficit 2020 circa 21.5% of GDP) are obviously good for the valuation of the USD!
The precious metals (gold circa -110 USD since January 6), Bitcoin (circa -13% this morning) collapsed against the USD. The euro and JPY also lost measurable but manageable ground. We note these developments with extreme interest. Market movements of this magnitude against any rationality raise questions. Did the decline of the USD force those responsible to act in unusual ways because of the systemic risk involved?
After the strong start to the year, the stock markets have remained largely stable with manageable losses. The price of Brent crude oil, which is basically suitable as a barometer of economic activity provided there are no unexpected supply wars, is also implying stability at more than USD 55 per barrel. This is in line with our perspective economic expectations as of 2021/2022.
Trump faces impeachment
Democrats are calling on U.S. Vice President Pence to impeach President Trump under the 25th Amendment (ineligibility for office). Nancy Pelosi, in her capacity as Speaker of the House of Representatives, said that a vote should first be taken on a resolution to that effect. This process should come before another impeachment process.
We take note of this news from the United States. We also take note of the fact that U.S. IT media giants are assuming a political role that is not theirs to play. One may ask whether current developments are exacerbating or relaxing the divisions in U.S. society. The fact is that democracy demands pluralism. It is also a fact that criminal behavior is intolerable. Are IT giants allowed to make judgments, or is that up to state authorities? Some may want to recognize abysses, or will the end justify the means in the future (turning away from the rule of law, the basis of democracy).
Germany: According to ZEW Study, Location Loses Attractiveness
The normative power of the factual is incorruptible. The ZEW Institute has delivered facts. According to the ZEW study, Germany is becoming massively less attractive as a business location in an international comparison. Of 21 industrialized nations surveyed, Germany has slipped three places to 17th place compared to 2018. The USA is in the lead, followed by the UK and the Netherlands. In the view of the researchers, the tax system for business is particularly poor. Here, Germany is ranked second to last at number 20.
IMF shares our optimism for China’s economy
The IMF predicts strong economic growth of 7.9% for China this year. In the years thereafter until 2025, growth rates are expected to level off at around 5.5%, the IMF announced.
We are very pleased that the IMF shares our optimism about China. We are curious to see if the optimism extends to other Far Eastern countries that we are positive about (including Vietnam, see SOLVECON Global Opportunities Fund).
Brexit: Rude awakening
British business is demanding renegotiations from London because the conglomeration of tariffs and regulations is too extensive. Some trade has been halted (including export of fish). First Boris celebrates the deal and days later it falls on the feet of the British economy. It’s a rude awakening for broad sections of the British economy. It’s not getting any better for the foreseeable future. Populists do countries no good!
Data of the last 24 trading hours:
Eurozone: Unemployment rate with positive accent.
The unemployment rate fell as of the reporting month of November from 8.4% previously to 8.3% (forecast 8.5%).
USA: Labor market report as of December disappoints in parts
The U-1 unemployment rate remained at 6.7% (forecast 6.8%). The U-6 unemployment rate (broadly comparable to the eurozone rate) fell from 12.0% to 11.7%. Nonfarm Payrolls unexpectedly fell by 140,000 (forecast +71,000) from +336,000 (revised from 245,000) previously. The participation rate turned to 61.5% from 61.5% previously. The average workweek was 34.7 (forecast 34.8), up from 34.8 hours previously. Average wages increased 0.8% month-on-month (forecast 0.2%), up from 0.3% previously. On a year-over-year basis, there was a 5.1% increase (forecast 4.4%), up from 4.4% previously.
Wholesale inventories were unchanged month-on-month as of November (forecast -0.1%). Sales rose 0.2%, up from 1.7% previously (revised from 1.8%). U.S. consumer credit increased $15.27 billion as of November (forecast $9.00 billion). The previous month’s figure was revised from +7.23 to +4.54 billion USD.
China: Negative price pressure eases
Consumer prices increased 0.2% year-on-year (forecast 0.1%) as of December, down from -0.5% previously (month-on-month +0.7%, down from -0.6% previously). Producer prices fell 0.4% y/y as of December (forecast -0.8%), down from -1.5% previously). The M-2 money supply increased 10.5% y/y as of December, up from 10.7% previously. Credit growth stood at 12.8% year-on-year as of December, up from 12.8% previously.
DepthTrade Outlook
In summary, the scenario favors the euro against the USD. A break below the support level at 1.2020 – 1.2050 negates the positive bias.
Hello Mr. Schaack,
thank you very much for the excellent analysis and the dazzlingly written article overall.
Can you please give access to the ZEW study mentioned in your article, I could not find the study on the ZEW website as there are quite a few other search criteria required to get to the individual articles.
Thank you very much,
Laura Bittenburgh