9th May 2018 - America First or America Alone!

Walid Salah Eldin

Active member
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The markets have not seen initially major changes following Trump's decision to pull US out The Iran Nuclear deal.
But the oil prices which have been already trading at their highest level since 2014 are still looking vulnerable to the upside following that decision which has been nearly fully priced in.
While the turn now is on Iran to show its reaction to this withdrawal which was not accepted by the European side and surely by Russia and China.

Trump who has started revising up all of US pacts, after taking his office in the white house has not accepted any recommendations from EU and UK to keep the nuclear pact with Iran on till reaching a new deal.
Trump has placed back the previous US sanctions on Iran and now he is looking for halting of the oil supplies from Iran which supported its economy to build new nuclear facilities as he believes.
So, Trump has referred yesterday to the probability of imposing sanctions on other countries to threat who deals with Iran as what he has done previously with N. Korea basing on that leaded to the current peace processing showing in the same time that US will be ready to make a new deal with Iran.

But this situation is looking different to far extent as EU and its media are looking supporting the current nuclear deal which seems to EU very enough to cap Iran from having nuclear weapons and scrapping this deal can lead to miserable consequences in actually hot region.
In the same time, there are still lots of unsolved Trade issues on the table of negations between US and EU which has no benefits from scrapping this pact which paved the way for making trade deals with Iran which opened its markets to the EU companies to invest.
While the investments from the Arabian gulf area were flowing toward US, after Trump had taken his office not to EU which has not been excluded yet from his decision to impose the 25% tariff on the US imported steel and 10% tariff on imported aluminum products which has been taken on last Mar. 1 without negations with its countries or making political trade in exchange.
But Thanks to Trump for excluding Canada and Mexico for a while until revising NAFTA which has been named by him "a terrible deal and the markets will thank him, if he scraps it and negotiates a better one". Anyway It was kind of him to consider The negotiations first!

While The Trade issue with China is still one of the main market concerns and it is still expected to keep containing the market sentiment from time to time pressing down on the equities markets and the global recovery.
As China has about $1.2tr of US Treasuries and the Risk of re-diversification them or even the halting of reinvesting them into new US debt can send UST yield curve higher threatening the US recovery and also creditability which is always in check.
China was exporting to US on account a long time ago by financing its debt in the same time but Trump wants to get out of this cycle.
He wanted reflation to the US economy and after reaching internal agreement to execute it this year, he looked for the cost to be paid from the US trade contenders or even partners!
Trump is still looking in sake of more knowledge, before taking such decisions which can make US alone not first as he addressed before taking office.
He has even pulled US out from The TTP free-trade deal directly, after taking his office in the White House without negations and with no delay, even before appointing the resigned white house economic advisor Gary Cohn.
The TTP pact was mainly directed against the Chinese trade benefits and without US, it loses its importance as The Japanese PM Abe said previously following the US withdrawing from it.

Trump refused to take his turn reflating the economy by only lowering taxes as a republican and let the turn to the Dems to increase the spending.
He is insisting in breaking that pattern but he does not know that the pattern is characterized to mend itself.
Because at a certain point the dollar will go down and the US products will be much more attractive inside US and outside it, then the balance is to occur without looking for buffering outside US and The workspace would be created inside US to sustain its financial position.

When The Former Fed's Chief Governor Alan Greenspan when he was testifying about the trade gap with China, he was answering by sample word "that's in the benefit of the US prosperity" and he was the one to adopt the strong USD policy to go along with several US administrations.

Have a good day

Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din
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