The dollar will grow, the expert said the main condition
The debt markets remain in a state of increased demand for protective assets on the background of the official introduction of the additional 5% tariff on Chinese imports cost $ 300 billion
As a result, government bonds of major developed countries, updating the historical lows. The yield on Italian and German 10-year bonds and 30-year-old American reached historical lows. Japanese 10-year-olds have a minus yield of 0.285%, which is just steps away from historic lows to minus 0.300% achieved in 2016.
Stock and currency markets at the same time preserve the relative calm. However, the longer a unidirectional movement in the debt markets, the higher the chances that anxiety will spread to other sectors.
The fall in the yield of long-term 10 – and 30-year bonds is a signal of concern around long-term growth. This is the signal that the markets are not confident in the recovery to previous levels and adjust to the gradual weakening of the capacity of the economy.
If Europe and USA will experience the same processes that previously have been brought to Japan, it could turn out very badly for the economy. Paradoxically, this does not mean the weakening of national currencies in the coming months and quarters. Quite the contrary.
Cut rates to zero or negative levels, complemented by large-scale asset purchases on the balance sheet of the Central Bank, creates a huge money supply. The Central Bank does this in order to start the lending in the country, but the world economy has long been global, so in good times, investors are looking for profitable assets, not being tied to a certain geography. That is why the Japanese yen and the Swiss franc, and now the dollar, retreating in pairs with the currencies of developing countries.
However, States differ from Japan that spread their economic cycle on the entire global economy. If the United States will be as often as Japan, experience an economic downturn and stagnation, the world will always be in the mode of increased demand for the security mode switches between “risk on / risk off”.
It is obvious that debt assets are in the state risk off, and it may persist for the foreseeable future. For example, the Japanese yen strengthened from 2007 to 2011, while investors are not convinced in the final reversal of the economy to growth.
Having begun his ascent in 2018, the dollar could maintain the trend of growth in the next few years, barring a sharp improvement in the macroeconomic Outlook. This is possible, but becomes more theoretical as the U.S. and China introduced more stringent mutual import restrictions, despite a Declaration of success of the negotiations.
At the expense caused by the weakening of the United States and China flight to defensive assets, the dollar in the first quarter of next year may return to the peak levels reached in 2016. In the case of an even greater thrust to protective tools, can and do repeat the scenario of 2008, when the U.S. currency gained more than 20% within six months, despite aggressive rate cuts by the fed.
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