Inconsistent remarks by President Donald Trump and his Treasury secretary about the dollar this week sent the U.S. Currency on a roller coaster ride that was shadowed in reverse by crude oil prices.
The greenback had fallen to three-year lows earlier in the week after Treasury Secretary Steven Mnuchin’s comment that a “weaker dollar is good for trade,” buoying oil prices, only to have sentiment do an about face late Thursday after Mr. Trump said he wants to “see a strong dollar.” Comments by both Messrs. Trump and Mnuchin came during the World Economic Forum in Davos, Switzerland.
The U.S. currency tends to have an inverse relationship with dollar-denominated commodities like oil.
But by Friday morning, the dollar was losing traction, once again sending oil prices north.
Wall Street Journal Energy Report Friday January 26, 2018
Inconsistent remarks by President Donald Trump and his Treasury secretary about the dollar this week sent the U.S. Currency on a roller coaster ride that was shadowed in reverse by crude oil prices.
The greenback had fallen to three-year lows earlier in the week after Treasury Secretary Steven Mnuchin’s comment that a “weaker dollar is good for trade,” buoying oil prices, only to have sentiment do an about face late Thursday after Mr. Trump said he wants to “see a strong dollar.” Comments by both Messrs. Trump and Mnuchin came during the World Economic Forum in Davos, Switzerland.
The U.S. currency tends to have an inverse relationship with dollar-denominated commodities like oil.
But by Friday morning, the dollar was losing traction, once again sending oil prices north.
>> Wall Street Journal Energy Report Friday January 26, 2018
Chief of Staff John Kelly stayed home to deal with immigration issues. Left on their own, the world got directly conflicting messages from President Trump and his Treasury Secretary Mnuchin. Considering the Davos Switzerland meeting is the CEO event of the year, one would wish the two could have gotten their stories straight. But such is Life with Trump.
Chart wise the dollar has hit a new low. The Euro has hit a new high. But another event occurred which may well forecast the inevitable top in the stock market.
On Wednesday President Trump signed executive orders raising tariffs on solar panels and clothes washing machines. Does Whirlpool need Presidential intervention? Are Samsung and LG dumping washing machines at Home Depot?
Republican senators were quick to respond. They disagreed with the idea of a retaliatory tariff war. As Roy blunt R-Mo. put it, “I think we need to be more positive about our trade opportunities.”
Lawmakers also stressed caution regarding Trump’s dissatisfaction with NAFTA. This has also been the case with multiple Chambers of Commerce, governors, and both Mexico and Canada. Senator John Thune R-S.D. remarked that “withdrawing from NAFTA would be a disaster.”
This foolishness has a historical antecedent. By the spring of 1930, the stock market had recovered about half its losses from the fall of 1929. The Tariff Act of 1930 aka the Smoot-Hawley Tariff was signed June 17, 1930. These retaliatory tariffs cut both imports and exports by half during the Great Depression. In fact the Depression would not end until its repeal via GATT, the General Agreement on Trade and Tariffs signed in October, 1947.
The actual tariff on dutiable goods soared by 1932-33 to 59.1 percent in 1932. By 1933 imports decreased 66 percent and exports decreased 61 percent. Unemployment was 8 percent in 1930 but jumped to 25 percent. Roosevelt began lowering tariffs upon his election. But real reform waited until the Bretton Woods Agreement of 1944.
Oil prices were up about twenty cents Friday morning. But energy shares were looking toppy. The Energy ETF XLE reversed course over the last three days, stalled at $78. Energy Service XES is turning down at $19. Momentum is also rolling over. Brent is still about five dollars higher than West Texas Intermediate. But momentum indicators for both appear to be peaking.
A canary in the coal mine warning was issued by the reversal in price of Cliffs natural Resources CLF. Cliff announced decent earnings Thursday. The stock price had rallied from $5.75 to $8.75. The price jumped to $9.15 on the news. Then price immediately reversed closing at $7.89, just over the low at $7.60. Technicians refer to this as an outside reversal day. CLF is involved in production of iron ore. An expanding economy would need more of just that. But this reversal suggests otherwise.
So what is the bottom line? Energy prices have had a great run. We suggested last week that it was time for a pause. That pause may be much more profound than we had thought. Mixed messages from the President and his Treasury Secretary never help markets. Now we have the President feuding with his own party and the Democrats, always on the side of their unions, favoring protectionism. Both Canadian and Indian leaders criticized the tariff idea at Davos this week.
Look for energy prices to peak for the time being. All attempts at calling a top in the stock markets have failed thus far. But the actions this week could eventually put the brakes on stock market party.
