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Fireside Charts: The Dollar Rises Higher, a Trade War With Europe Looms, Tension Heightens Between the U.S. and Mexico

By:BCM Investment Team | Date:May31, 2019 | Category: Equity, Economics, Market Highlights, Fireside Charts

Before we dive into the latest global trade and international relations developments, we take a look at the U.S. dollar, which continues to rise. New fronts have arisen in the U.S. trade war. Trump is imposing 5% tariffs on Mexico in an attempt to slow the migration of illegal immigrants across U.S. borders. How will Mexico retaliate? 67% of U.S. imports from Mexico are intra-company trade. In other frightening scenarios, if the U.S. launches a trade war with the EU, Germany's job market could deteriorate rapidly. If this possibility does come to fruition, it could trigger a global recession.

 

1. A rising USD will tend to grow our trade deficit...

 

 Source: Bloomberg, as of 5/31/19

 

 

2. So far, two positive surprises , two negative surprises and this is basically neutral.

 

 Source: WSJ Daily Shot, as of 5/29/19

    

  

3. Just what the world does not need: a new (or renewed) trade war with Mexico. Less than a month after removing the steel and aluminum tariffs, we get this: Until illegal immigration is “stopped” (note this is undefined), all Mexican goods will have a 5% tariff to start.  If is does not “stop”, the tariffs will increase until it does. If the U.S. can’t stop the inflow of immigrants, how can we expect Mexico to do the same, including their own citizens?

 

 

Source: Deutsche Bank, as of 5/31/19

 

 

4. It might be a welcome sounding headline, but U.S. companies and citizens will pay the trade war "price". Just ask the U.S. farmers...

 

 

Source: Wilson Center Mexico Institute, as of 5/31/19

   

 

5. Tariffs don't create or save jobs...they ultimately destroy them. Free trade is supposed to be...free.

 

 

Source: Moody's Analytics, as of 5/30/19

   

 

6. If manufacturing and jobs follow suit, will China be the big loser?

 

 Source: CEIC, as of 5/31/19

 

 

7. Most unwelcome news...

 

 

Source: WSJ Daily Shot, as of 5/31/19

   

 

8. Trade wars can expand. China is threatening to cut us of from their Rare Earth Elements. Can you do without the list of items below?

 

 

 Source: Scotiabank Economics, as of 5/30/19

 

 

  

9. Have the "green shoots" died?

 

 

Source: WSJ Daily Shot, as of 5/30/19

 

   

10. At least Japan had a good print...

 

 

 Source: WSJ Daily Shot, as of 5/21/19

 

   

11. We've been saying this for over a year. Our original paper is here.

 

Source: Moody's Analytics, as of 5/31/2019

 

 

12. The yield curve inversion is getting deeper...and the longer it last the higher the probability of a recession.  The question is "when?"

 

 

 

Source: Gavekal Data, as of 5/29/19

 

 

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Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.