The Dog Ate My Eurozone Recovery

European dysfunction is making Trump’s economic ‘strategery’ look prescient. We all know that Trade Wars are bad for all economies, yet the US economy accelerated in 2018 while all others have slowed to a crawl as US tariff threats across multiple continents became reality. Perpetually fractured European leadership sat on its hands in recent years deferring to full on monetary policy and negative interest rates (0 to 8+ year maturity yields remain negative today). Dumbfounded Euro politicians just watch their currency tumble and cross their fingers and toes that the US and China will raise the tide to lift their boat. Until the US saves the day, the Euro sinks and the Dollar shines. Although the strength or weakness of an economy has little to do with the value of its currency, the comparative GDP rate of change versus another country or basket of countries is critical. It’s not how fast I run, but how much faster I run than you when being chased by the economy Bear. If analysts were told that the US economy would slow and interest rates would fall for the past 4 months, many would guess our US Dollar would have depreciated. The slowing US growth rate isn’t decelerating as fast as Europe and is sending the Dollar close to 18-month highs, deflating commodity markets. As the certainty of a new Trade Deal with China becomes more apparent the markets should pencil in a top for the Dollar in anticipation of a global rebound benefiting Europe.

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The Euro fell sharply against the Dollar last October when their more export-oriented economy fell victim to the global slowing more than the faster-growing import based economy of the US. This week the Euro fell under its key support near 114, but quickly rebounded upon the news of strongly improved odds of a trade agreement with China in March or soon afterwards. We have been expecting a 1st quarter top in the US Dollar (low in the Euro) as the prospects of a Eurozone economic recovery accelerating faster than the US begins to be discounted.

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Gary Anderson 1 year ago Contributor's comment

The US is navigating the dangerous waters of a global trade war with aplomb? Seriously? Only if a deal that is half way meaningful comes out soon, with no other tariffs on Europe, etc. Otherwise, the stock market will not feel aplomb.