Daily Fundamental Analysis: Global stocks under pressure following hot inflation reading from the US
just now
President Donald Trump's return to the White House in Yesterday has reignited discussions about the potential impacts of his economic policies on the USD and the nation's monetary framework. Drawing from his previous tenure (2017-2021), we can anticipate certain patterns, though the current economic landscape presents new challenges and variables.
Historical Context: Trump's First Term (2017-2021)
During his initial presidency, Trump implemented significant economic measures that influenced the USD and monetary policy:
- Tax Cuts and Jobs Act of 2017: This legislation reduced the corporate tax rate from 35% to 21%, aiming to stimulate domestic investment and economic growth. While it provided short-term economic boosts, it also contributed to increasing the federal deficit.
- Trade Policies and Tariffs: Trump adopted a protectionist stance, imposing tariffs on imports from countries like China, Canada, and Mexico. These actions led to trade tensions and retaliatory measures, affecting global supply chains and introducing volatility in currency markets.
- Pressure on the Federal Reserve: Throughout his term, Trump frequently criticized the Federal Reserve for its interest rate policies, advocating for lower rates to spur economic growth. This unprecedented pressure raised concerns about the Fed's independence.
Current Economic Policies and Potential Implications
In his current term, President Trump has signalled intentions to revisit and intensify several of his earlier economic strategies:
- Imposition of New Tariffs: Trump has announced plans to implement a 25% tariff on imports from Canada and Mexico by February 1, 2025, and has proposed additional tariffs on goods from other nations. He asserts that these measures will bolster domestic manufacturing and generate substantial revenue for the U.S. Treasury through the newly proposed External Revenue Service. However, economists caution that such tariffs could lead to increased consumer prices and heightened inflationary pressures.
- Energy Policies and Deregulation: Shortly after his inauguration, Trump signed executive orders aimed at expanding domestic energy production, including lifting restrictions on oil drilling in regions like Alaska and the Arctic Ocean. He argues that these steps will combat inflation and reduce living costs. Additionally, Trump has reversed policies promoting electric vehicle production and has withdrawn the U.S. from the Paris Climate Agreement, emphasizing a focus on traditional energy sources.
- Tax Policies: The administration plans to extend the tax cuts from Trump's first term, which are set to expire at the end of 2025, and introduce new tax reductions. While aimed at stimulating economic growth, these measures could exacerbate the federal deficit, potentially leading to long-term fiscal challenges.
Then and Now
While there are parallels between Trump's current policies and those from his first term, the economic context has evolved:
- Inflation Concerns: Unlike the low-inflation environment of his earlier presidency, the U.S. now faces higher inflation rates. Implementing substantial tariffs could further elevate consumer prices, complicating the Federal Reserve's efforts to manage inflation.
USA Inflation
Source: Finlogix Economic Calendar
- Global Economic Dynamics: The international response to U.S. trade policies may differ in the current geopolitical climate. For instance, China's potential countermeasures, such as devaluing its currency, could influence global trade dynamics and affect the USD's strength.
USDCNH H1
Source: Finlogix Charts
- Federal Reserve Relations: Given past tensions between Trump and the Federal Reserve, there is concern about potential challenges to the Fed's independence, especially if the administration seeks to influence monetary policy to align with its economic objectives.
Based on that I’m looking to short the Mexico pesos as the tariffs would be felt straight way on Mexico, not only Mexico but as well Canada, the biggest partners of USA, so I will be looking to trade long on USDCAD until 1.46 as well long on USDMXN, you can follow the USDMXN trade on this link where I’ve posted the whole idea with SL and entry point!
This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplies by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.
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