"It's quite a whirlwind of things happening on the trade war front," says John J Hardy, Saxo's Head of Forex Strategy, after a weekend that saw president Trump castigate the EU as "possibly as bad as China, just smaller". This has exacerbated the already strained US/EU trade relationship and Europe will now, like China, seek to impose its own retaliatory tariffs.
In forex markets, the dominant theme is a sharply weaker Chinese yuan. "This deserves all the focus, against the USD we're getting to levels where the temperature is really turning up higher. Pay attention to this, of course at some point the Trump administration is going to respond," says Hardy.
Elsewhere, the Mexican election resulted in a strong parliamentary majority for the leftist popularly know as Amlo, and he might win control of the senate too, putting the left in a very powerful position in the US' southern neighbour. In Europe, German political chaos persists as Chancellor Merkel continues her efforts to save her coalition, which is on the point of collapse over immigration policy.
It's been a busy weekend in oil markets too, also triggered by a tweeting Trump who declared on Saturday that Saudi Arabia's King Salman had agreed to increase production of crude oil by up to two million barrels a day in order to reduce market prices and make up the shortfall from Iran and Venezuela, says Ole Hansen, Saxo's Head of Commodity Strategy. Trump's message was subsequently diluted in an additional statement by the White House press secretary.
"We have to stick to the facts now, and those facts are that we have high oil prices at the moment because of supply disruptions, including some which have been caused by Trump himself, especially against Iran," Hansen notes. But though oil prices are elevated for now, this may not last very much longer, he adds: "Weaker economic growth may trigger a halt to the rally. China, Japan and South Korea all reported a slowdown in export orders in June amid an escalating trade dispute with the US," Hansen concludes.
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.