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Trump’s Weaker Dollar Dream at Odds With Strong Economy Promise

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  • Trump’s Weaker Dollar Dream at Odds With Strong Economy Promise

President Donald Trump has signaled his preference for a weaker dollar and low interest rates. He may end up with neither if the U.S. economy continues to recover and he delivers on his ambitious agenda of tax cuts and infrastructure spending.

Trump indicated in an interview Wednesday that the U.S. currency is getting so strong that it’s harmful to the economy. “I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me,” he told the Wall Street Journal. “But that’s hurting — that will hurt ultimately.”

The president also left open the possibility of renominating Janet Yellen as Federal Reserve chair for another term, adding he likes “a low interest-rate policy.” U.S. 10-year bond yields slumped and the dollar fell after his remarks were published. Her current term as chair expires in February.

Trump might want to be careful with all that he wishes for. Evidence of a strengthening job market has prompted the Fed to raise rates twice since he was elected president in November.

U.S. stocks have since rallied almost 10 percent and the dollar has held up on optimism that he’ll carry out a plan to cut taxes and boost spending on infrastructure. The bullish sentiment has recently faded on doubts about whether the administration can follow through.

“If you take Janet Yellen at her word, rates are rising because of increased confidence in the durability of the labor market and the economy,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman in New York. “I can only think of only one major central bank on the face of the planet that’s looking for reasons to raise interest rates, and that’s the Fed. The path of least resistance should be a stronger dollar.”

Trump’s blunt remarks about the greenback mark a departure from the recent practice of presidents, who have generally steered clear of commenting on the value of a currency that markets are supposed to set. Those observations are usually left to the Treasury secretary, and the standard line is that a strong dollar is good for America.

“The true meaning of the policy was that the U.S. wouldn’t try to talk the currency up or down,” said Brad Setser, a senior fellow at the Council on Foreign Relations who previously worked on currency policy at the Treasury Department. “This is a significant shift.”

The bigger question is how Trump can coax the dollar lower and still promise to inject fiscal stimulus, Setser said. “Historically, a bigger fiscal deficit has put upward pressure on the dollar.”

A weaker dollar that makes U.S. exports more competitive might help Trump fulfill his campaign promise to reduce a gaping trade deficit and stem the loss of America manufacturing jobs. While the president backed down from his pledge to label China a foreign-exchange manipulator in Wednesday’s interview, he insisted that other nations continue to devalue their currencies.

“I don’t see why the president shouldn’t be allowed to talk about this,” said Joseph Gagnon, a former Fed official who is now a senior fellow at the Peterson Institute for International Economics. “The strong-dollar policy has outlived its usefulness.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market.

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Investment

Barclays Tell High Net Worth Investors to Shun Africa and Other Emerging Economies

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Barclays to High Net Worth Clients, Stay Off Africa and Other Emerging Economies

Barclays, one of the world’s largest investment banks, has started advising high net worth clients to stay off Africa and other emerging economies.

According to Barclays, despite the recent recovery noticed in emerging-market stocks, investors are better off avoiding the risks that still abound in emerging nations. Barclays Plc, however, advised high net worth clients to focus on U.S equities despite the S&P’s breakneck rally.

The investment bank said emerging economies do not have enough fiscal buffers to spend their way out of the COVID-19 pandemic and will likely continue to struggle in the near-time compared to the US with 12 percent of gross domestic product fiscal-support.

It said the huge US stimulus may halt rebound in emerging-markets stocks as more money is expected to flow into the world’s largest economy and its European counterparts.

“Compared to the U.S., emerging-market economies appear more vulnerable,” said Haider, the London-based managing director and head of global growth markets. “Their central banks have less room to maneuver, their governments may not be able to provide unlimited support and equity markets, given their sector mix, can be more challenged by an economic slowdown.”

Barclays added that even after 33 percent rebound in stocks of emerging markets since the panic selloff subsided in March, stocks are still down by 9 percent from year-to-date while the US S&P 500 stocks are up by 45 percent. Presently, their stocks trading at a 36 percent discount to US stocks, up from 25 percent three months ago.

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Economy

Crude Oil Rises to $43.1 Per Barrel on Production Cuts Extension

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  • Crude Oil Hits $43.1 Per Barrel Following OPEC’s Production Cuts Extension

Brent crude oil, against which Nigerian oil price is measured, rose by 1.25 percent on Monday during the Asian trading session following OPEC and allies’ agreement to extend crude oil cuts to the end of July.

OPEC and allies, known as OPEC plus, agreed to extend production cuts of 9.7 million barrels per day reached in April to July on Saturday.

In the virtual conference, delegates agreed that members, including Nigeria and Iraq presently struggling to attain a 100 percent compliance level must keep to the agreement or be forced to do so in subsequent months.

Nigeria, Iraq and others failed to keep to the cartel’s agreement in May after reports show that Nigeria only managed to attain a 19 percent compliance level during the month while Iraq struggled to attain just 38 percent in the same month.

Russia and Saudi Arabia, the two largest producers of the group, warned members to stick to the agreed quota if they want to rebalance the global oil market.

While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.

Earlier on Monday, Brent crude oil hits $43.1 per barrel, more than a month record-high, before pulling back slightly to $42.83 per barrel.

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Economy

Gold Dips by 2 Percent on Better Than Expected Job Report

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  • Gold Dips by 2 Percent on Better Than Expected Job Report

Gold prices declined by 2 percent on Friday following a better than expected US non-farm payroll report.

The report showed an increase of 2.5 million payroll numbers against a decline of 7.5 million predicted by many experts.

The surprise number boosted investors’ confidence in US recovery as many dumped their haven investment (gold) for the stock market.

“We had significantly stronger-than-expected U.S. payroll numbers – an increase of 2.5 million versus an expectation of a decline of 7.5 million – that 10-million swing has brought forward expectations of the economic recovery in the United States,” said Bart Melek, head of commodity strategies at TD Securities.

Spot gold immediately declined by 1.9 percent per ounce to $1,678.81 while the U.S. gold futures slid 2.6 percent to settle at $1,683.

Gold was also being pressured by stronger yields and a slightly firmer dollar, “meaning the opportunity cost to hold gold in the portfolio has gone up,” Melek added.

The surprise didn’t stop there, US Dow Jones was up 614 points despite the protest going on the US and US-China tension.

Also, NASDAQ rose by 29 points while the S&P index added 50 points increase.

Note: Investors generally increase their investments in gold and other haven assets during a crisis to avert risk exposure and do the opposite once they sense a better economy.

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