End of US exceptionalism? Flight from the dollar and Treasuries
Reading time:15 MIN
Current market commentary
In the absence of any new bad news, the stock markets were able to recover somewhat, helped by a Q1 reporting season that was better than feared. The fact that Donald Trump has recently backtracked on some issues has also helped. A possible dismissal of Fed Chairman Powell is reportedly no longer an issue. He has also recently sent more friendly signals towards China. China itself appears to be looking to stimulate its domestic economy more in this uncertain environment. The capital markets have welcomed these signals. As a safe haven, gold has recently weakened slightly, but is still the best asset class by a wide margin since the beginning of the year. The US dollar has not depreciated any further, at least in recent days. Economic data in Europe and the USA, on the other hand, have started to disappoint. Accordingly, the market is keeping a keen eye on Donald Trump's next steps and how the Fed will react.
Short-term outlook
The Q1 reporting season is in full swing: of the S&P 500 companies that have reported so far (around 34%), almost 77% have beaten earnings expectations. Important monetary policy meetings are coming up. The meetings of the Bank of Japan, the US Fed and the Bank of England will take place on 1, 7 and 8 May.
The ESI economic confidence data (Apr.) for the eurozone and the consumer confidence data (Apr.) from the US Conference Board will be published tomorrow. Purchasing managers data (Apr.) for China, GDP figures (Q1) for Germany and the eurozone, and ADP employment figures (Apr.) for the US will follow on Wednesday. Thursday and Friday will see the purchasing managers' data (Apr.) for the USA and the Eurozone. Friday also sees the release of US labour market data on the unemployment rate (Apr.) and non-farm payrolls (Apr.). In the following week, data on the US trade balance (Mar.) and inflation data (Apr.) for some eurozone countries are due.
End of US exceptionalism? Flight from the dollar and Treasuries
- Trump's erratic trade policy is leaving further traces on the financial markets. While the dollar is generally seen as a safe haven, it has recently weakened significantly despite the market turmoil - particularly against the euro.
- This is remarkable given the growing interest rate differential between the USA and Germany, which should generally support the dollar.
- However, this development clearly illustrates the dwindling confidence of international investors in the USA and the flight to other currency areas.