Trump versus Powell Part 2 

It’s been a very busy time for financial markets since the 21^st of January, Trump’s inauguration day. And like all great plays, this is playing out in a series of three acts. Act One could have very easily been titled “The Tariff Tango.” This is where Trump has threatened virtually every country in the world with tariffs, then cut them, then lifted then, then paused them for three months.  

Initially the tariff talk was greeted with confusion by financial markets, with the last major trade war being in the 1930s, where the United Stated raised tariffs to protects American farmers from agricultural products imported from Europe. Europe followed the US lead and initiated its own tariffs and many believe this is what prompted the “Great Depression.”  

Regardless, this was a long time ago and when market players saw the headlines this time around, they went straight to “tariffs are inflationary” which supported the USD on expectations of fewer local rate cuts. This has also helped to extend the massive gold gains that started mid last year.  

But like any showman, when Trump saw that the tariff talk was started to be accepted and have little effect, he needed to turn to another target; An Act Two.  

Changing the Narrative 

Act Two occurred, Friday when Trump again attacked US Federal Reserve Chairman Powell.  His latest comments included that the US economy is heading for a slowdown “unless Mr. Too Late, a major loser, lowers interest rates NOW.”  

This act of deflection is breathtaking. The US S&P500 is down more than 15% since Trump came to office, with the tariffs being the major reason for the weakness. Now Trump is seeking to deflect the blame for economic weakness to the Fed.  

For some back story, this is actually Part Two to Trump versus Powell. In his first term as President, Trump was very open about his desire to try and “fire” Powell. Trump can’t fire Powell. There are only two routes for removing Powell from his position:  

• He could not be re-nominated when his current term is up, or  
• He could be impeached 

The latest comments by Trump against Powell has seen huge moves in Asia today, with Gold screaming towards $3,500 and the US Dollar near year lows against Sterling, the Euro, Yen and Aussie.  

Which leaves us where we are currently; in the midst of Part two of a three part play. Expect some extension to this Part Two, with Powell likely to come out and reaffirm the Fed’s Independence and further belittling comments from Trump in response.  

After Act Two comes Act Three, which is usually where all the lose ends are tied together. And we have some ideas about what this might be. Let’s call the draft of the impending Act Three “The Fall of the Dollar.”  

The Fall of the Dollar

Publicly, Trump has played both sides of the Dollar argument. He likes the idea of a strong Dollar and the status that comes with that. Conversely, he also understands that a weaker Dollar would boost domestic manufacturing and exports.  

Looking at this all in conjunction, it fits like pieces in a puzzle. While campaigning, Trump focused on two major themes, lowering illegal immigration and boosting domestic manufacturing.  

Its likely that the only major tariffs that will remain will be against China and any base metals that America also exports. This in conjunction with a weaker Dollar would give the domestic manufacturing industry a massive boost and allow it to be competitive again.  

Any pressure that Trump could use to force Powell and the Fed to cut rates would only help this cause, like icing on a cake.  

So, ultimately, for those who believe this scenario the focus would be on a weaker Dollar. Additionally, Gold has never NOT firmed when the Dollar has shown protracted weakness since World War Two.  

Disclaimer: The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our client. No representation or warranty is given as to the accuracy or completeness of this information and therefore it shouldn’t be relied upon as such. Any research provided does not have regard to specific financial situations, needs or investment objectives. Vantage accepts no responsibility for any use that may be made of these comments and for any consequences that result. Consequently, any person acting on it does so entirely at their own risk. We advise any readers of this material to seek professional advice where necessary. Without the approval of Vantage, reproduction or redistribution of this information isn’t permitted.  

Disclaimer: The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our client. No representation or warranty is given as to the accuracy or completeness of this information and therefore it shouldn’t be relied upon as such. Any research provided does not have regard to specific financial situations, needs or investment objectives. Vantage accepts no responsibility for any use that may be made of these comments and for any consequences that result. Consequently, any person acting on it does so entirely at their own risk. We advise any readers of this material to seek professional advice where necessary. Without the approval of Vantage, reproduction or redistribution of this information isn’t permitted.