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June 13, 2018 | New Trump Bump? Or Will Tariffs and Trade Wars Sink Markets?

Gerald Celente

Gerald Celente, who developed the Globalnomic® methodology to identify, track, forecast and manage trends, is a political atheist. Unencumbered by political dogma, rigid ideology or conventional wisdom, Celente, whose motto is “think for yourself,” observes and analyzes the current events forming future trends for what they are — not for the way he wants them to be. And while Celente holds a U.S. passport, he considers himself a citizen of the world.

KINGSTON, NY, 13 JUNE 2018—U.S. equities have bounced back from correction territory and the Nasdaq recently hit new highs.

While the White House attributes the positive numbers to a sound economy, as data proves, the Trump market bump is the direct result of his corporate tax cuts and tax initiatives, which are driving stock buybacks to record highs.

In May alone, there were $173.6 billion in buybacks, the highest monthly total ever. And, in just the first few days of June, corporations have already purchased $50 billion of their stocks.

However, while buybacks will continue to push stocks higher, a series of global economic indicators are challenging its longevity, especially the rout we see in Emerging Markets’ assets across the globe.

It’s a simple story. The more the dollar rises, the lower emerging market currencies fall. And the lower their currencies fall, the more difficult it becomes for those countries to pay back their tens of trillions in dollar-denominated debt.

Currencies ranging from Argentina’s peso, the Turkish lira, South Africa’s rand, the Mexican peso, Brazil’s real… to Russia, Pakistan, Philippines, India, Indonesia, Sri Lanka… mid-level and emerging market currencies have hit new lows and multi-year lows.

And, the deeper their currencies sink, the higher their interest rates will rise, thus slowing economic growth.

Also, with the U.S. Federal Reserve again raising interest rates, EM debt burdens will grow heavier as their currencies sink yet lower.

Also, should the European Central Bank announce an exit plan for its €2.55 trillion Quantitative Easing later this week, that too will slow the cheap money flow that has also juiced stock markets.

Following President Donald Trump’s snub at the G7 summit last week, International Monetary Fund chief Christine Lagarde attacked U.S. tariff and protectionist trade policies warned, “The clouds on the horizon that we signaled six months ago are getting darker by the day.”

TREND FORECAST: While a series of tit-for-tat tariffs have been threatened across the globe, we do not forecast that they will lead to a trade war. Rather, it is the beginning of trade readjustments.

Nations with ballooning merchandise trade surpluses with the United States, such as China, Germany, Japan, Mexico, Canada, etc., are not going to retaliate with measures that would destroy their highly profitable trade relationships. Rather, they will negotiate compromises.

And, should the Fed aggressively raise interest rates, not only will it put will put more downward pressure on Emerging Markets, it will push U.S. equities lower.

Also, aggressively rising interest rate hikes will push gold prices lower as the opportunity cost of holding gold increases.

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June 13th, 2018

Posted In: Trends Research Institute

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