Midway through August 2017, the US economy is on song. The Dow Jones Industrial Average is trading at 22,024.87 points, up 18.5% over 1 year, the S&P 500 index is trading at 2,468.11, up 13.10% over 1 year, and the NASDAQ composite index is trading at 6345.11, up 21.35% over 1 year. These statistics point to a new dawn in the US economy – an area of increased optimism in stocks, owing to the residual bullishness over Trump Trade.
While president Trump’s popularity continues to wane, big business continues to back many of his policies. These include calls for reduced corporate taxes (15% – 20%), reduced regulation and bureaucracy, and streamlining of approvals for permits, licenses, contracts etc. Trump was elected on an ambitious agenda which was bound to fail. The very swamp that Trump promised to drain is engulfing him.
USD on the Back Foot
President Trump is no wordsmith. He is blunt, crass and offensive at the best of times. He is considered unfit for the highest office, but the electorate overwhelmingly chose him over Hillary Clinton. Now, Trump will remain in office – Russia scandals notwithstanding – until 2020. His re-election campaign has already started in earnest, with millions of dollars raised for his ‘war chest’. The performance of the US economy since Trump took office has been spectacular at times, unflattering at others. The USD has taken a particularly big hit in recent months, owing to decreased expectations of Trump fulfilling his election mandate.
President Trump has been lambasted by the media, the GOP, and Democrats. He faces an uphill battle pushing through any legislation, whether it be immigration-related concerns, budgets, taxation, healthcare, or any other major policy change. That Trump failed spectacularly to win GOP support for a repeal and replace of Obamacare was his biggest failure to date. However, markets will remember Trump’s many successes including a conservative Supreme Court justice in the form of Neil Gorsich. That appointment alone will reshape, redefine and solidify a conservative agenda in the highest court. Several additional appointments are likely to be made during Trump’s presidency, and conservative justices will likely receive the nod from Senators.
Experts Cautiously Optimistic on Trump Trade
As far as the USD is concerned, uncertainty remains. ECN Capital trading expert, Renaldo Gemini believes that caution is the order of the day. ‘The US dollar is trading precariously in 2017. We see evidence of this across the board. The GBP/USD pair has whipsawed, but the EUR/USD pair is on the ascendancy. The US dollar index – a broad measure of the greenback’s performance against major currencies is down significantly for the year to date. The Fed’s FOMC is unlikely to raise rates anytime soon. According to the CME Group FedWatch tool, the likelihood of a rate hike on 20 September is zero, on 1 November is 3.9%, and on 13 December is 46.2%’
On Thursday, August 17, 2017, the US dollar index was trading at 93.78, up 0.33%, or 0.30 points. It remains close to its 52-week a low of 92.55. On the high-end, the US dollar index traded at 103.82. Over the past 5 days, we have seen a slight depreciation of the DXY, but the year to date performance is languishing – 8.4% lower. The DXY is a trade-weighted index that measures the USD against the JPY, EUR, GBP, SEK, CHF, and CAD.
Regardless, not everybody is pessimistic about Trump Trade. Eddie Perkin of Eaton Vance – a $400 billion asset funds manager, believes that tax cuts could significantly boost equities markets. With 2018 elections approaching, both Dems and Reps will want to make good on election campaign promises. Major legislative items such as tax cuts could propel US stocks into record territory. This is definitely something to bear in mind when betting on the US economy.