Continuing the Macro Headlines:
- Britain is leaving the EU’s trade and social umbrella, aka “Brexit”. France is next on the potential “Exit” train, with spring elections and a potential ultra-conservative leadership coalition elected. This is BIG news.
- International relationships between sovereign and nuclear-armed nations are being questioned and re-examined in both positive AND negative terms. This is HUGE news.
Picking up on the Pro-Trading angles of the various policy arguments created by the Trump phenomenon that are now enveloping the markets, we conclude our exposition on their “FX fundamentals” by examining today two additional avenues. First, we look at the “Trump Contagion” caught, evidently by the Eurozone which seemingly is in the process of moving off the very liberal, open-border globalism path to far more protective and proactive border/trade policies. Secondly, we look at the over-arching threat of terror and geopolitical strife in a nuclear armed world, certain to contain market-moving landmines lying just under every surface our planet’s citizens walk upon.
THREE: Trade. As countries exit the restrictive Eurozone, new trade deals will present themselves. As deals are, by nature, a self-fulfilling prophecy – all free-market economies will jump on board.
The first visitor to Pres. Trump’s White House was Britain’s Prime Minister. The second was Japan’s Abe. Both visits went well from the publicity standpoint. Yet another has just happened: the young and photogenic PM of Canada, Justin Trudeau had a state visitation – with both he and Mr. Trump singing from the same (trade cooperation – defense) songbook. The visit from P.M. Netanyahu, concluded last week, also represents an economic hand across the water, lending assurance that after a tumultuous 8 years, Israel once again has their relationship with the US set in proverbial stone.
From a growth standpoint, keeping such an important ally and sovereign business client satisfied is an important key on many fronts. Major overtures have also been made to China’s leader, smoothing a potentially rough rhetorical road with a major and controversial trade partner and US debt holder. Still on the docket are Australia, France, South America and, yes, Mexico – among others. Keep in mind that as of this writing, we are within the first FOUR WEEKS of this POTUS taking office.
This Trumpian (read: record) pace of fostering business between sovereign nations is proving to be unique in political science – and one of the main reasons he has garnered huge support among savvy traders. The Art of the Deal, boardroom-style, is now morphing into the Body Politic, and is very likely to become THE template for modern global governance as the world becomes increasingly capitalistic, and less socialist/globalist. Just as our American Democratic Party has lost credence and viability among our population, so has the influence of the open-border socialist’s control lessened within an increasing number of countries from Europe to Asia. Watch the upcoming elections throughout the EU in the next two years.
“Big Markets” IS the new “Big Government”. Conservative vs. Progressives in the classic, partisan template, is becoming the new playing field for 2017. Growth and prosperity is historically the outcome of these kinds of politico-economic changes.
The FX ANGLE: As BAD deals are reexamined, rewritten or discarded – and NEW Deals written – capital will move across borders, and among countries, requiring the constant buying and selling of currency pairs, and the reconfiguring of balance sheets for both export and import accounts. This is THE lifeblood of foreign exchange trading on every level.
FOUR: The single overriding, over-arching factor, both existential and in trading: Martialing the Peace.
There is not much to opine on this topic that you cannot hear simply by turning on any cable station or reading material online, about geopolitics and world affairs.
Just a partial list of scenarios: ISIS vs. the World. Islamic Jihad practiced in 50 countries, and rejected by far more. Russia vs. the Baltic States and others. Mideast borders constantly redefined, constantly at odds with one another. Nuclear powers threatening one another while smaller countries aspire to become one – simply to be mentioned in the same insane conversation. Factions of zealots trying to obtain the technology they have little understanding of other than that it can destroy human life on a grand scale – THE stated goal of Islamic Jihad.
War, and being on a war-footing, is still a dominant factor driving international relations. Figuratively, at the touch of a button – or the initiation of a single seemingly benign event in an unstable territory, can begin what most of the world seeks to avoid – nuclear confrontation. A select few “less” stable countries, along with those espousing the bastardization of a religious ideology without borders, seek to actually USE this existential threat to global life simply because they can if allowed obtain its power.
While the finality of nuclear confrontation is on any number of international tables, the less catastrophic outcomes of this level of geopolitical confrontation are Economic Sanctions – equally important if less warlike to those involved. The financial implications and the impressions it leaves on the population of countries involved – in spite of the fact that they are always targeting governmental policies specifically – are often quite punitive, and counter-productive to growth. This economic side of the politics of martial preparation, in-country, is but another factor to be reckoned with in this global calculus.
These are NOT the back-burner issues of our time – they are in reality, THE issues around which the future of the planet revolves. Peace must always be the desired outcome, and it will come about via negotiation, or by conflagration, with precious little in-between. These kinds of events drive markets of all kinds on a moment’s notice.
The FX ANGLE: What is MOST trader-relevant, are these Headlines. They drive movements of capital, and therefore currencies, to both risk-on and risk-off investments of all types in an ever-changing tapestry of change, all over the investment spectrum. Headlines almost always trump normal movement of capital, and therefore price action in and out of all instruments. Trends become meaningless, and the normal ebb and flow of price action is thrown out the proverbial window for traders.
We in the professional trading community all learn early how to either actively seek or completely avoid “headline trading” – but its existence always makes for opportunities to profit, or loss, as they present themselves. How to trade on headline news and the “marketplace” reactions is one of the oldest questions asked by every single trader – from the retail home hobbiest to the great institutional desks around the world.
In Conclusion: We hope you’ve enjoyed looking at the factors that we believe will drive a resurgent trading template in the coming years. Derived from a New Boss in the White House, a CEO by trade and therefore not bogged down by politics-as-usual, and who seemingly works 20 hours a day on the Country’s Business – we believe we are embarking on a venture of purely Intended Consequences. This is THE new resurgent potential for trading via every reason cited in this article.
In future pieces we will cover the how’s, where’s and why’s of this investment landscape, and what a savvy trader can do to build wealth and enjoy the fruits of their labors by what is one of the great freedoms enjoyed by all capitalists: the speculative use of your dough. Stay Tuned.
By Bill Hoerter