- Deficit expected to be $45bn
- Germany getting “fed up” with “reverse control?”
- Yen strength following Trump’s tirade.
The trade report is released in the U.S. today, with the deficit expected to be $45bn. This is similar to last month's read but is continuing a slow grind higher for the deficit.
Given last week's two pronged assault from Trump and his senior trade advisor on currency manipulators, this is an area the administration is likely to focus on quite seriously.
The deficit has been gradually getting worse since its nadir at $26.3bn at the height of the financial crisis. Interestingly the deficit fell to that point from a high of around $64bn in January 2008.
The Japanese yen has fallen 4.5% against the dollar so far in 2017 and by a similar amount against the euro. Sterling and the commodity currencies (AUD, NZD and CAD) have also gained but inherent volatility has seen them fall back. Mr. Yen's comments yesterday stating that the dollar could fall back to 100 yen has had little real effect other that to add to the general JPY strength.
The campaigns for the forthcoming election in France are gathering pace with National Front Candidate, Marine Le Pen, attracting populist voters with an anti-globalization platform where she has also said that, if elected, she will take France out of the euro. She hasn’t mentioned the EU but, “in for a penny (or a centime if she has her way)”.
Her stance has been derided by joint front runner Emmanuel Macron, a centrist who speaks of a more inclusive Europe.
The other main candidate Francois Fillon is still battling a “jobs for the family” scandal. Whilst he still has a hard core of support for his reformist agenda, he is struggling to shake off the whiff of corruption.
Germany must be so unimpressed with what it is seeing going on all around it at the moment. They are taking risks with their economy overheating to ensure that the rest of Europe is able to export goods outside the single market by accepting a weak euro.
Their long hoped for alliance with the U.K. is in tatters, leaving them to take on more of the financial burden of the European Union. They are drowning under the weight of refugees but cannot persuade the other members to help primarily due to the parlous state of their economies and the high unemployment rates being seen. Average unemployment is almost 10% which is a contrast with the U.K., U.S. where it is around 5%. In germany itself, the unemployment rate has fallen below 6% which means they have capacity in the jobs market still but it is starting to tighten.
Politically, Germany will need to guard against a rise in populism and a lurch to the right in the elections to be held later in the year. Any major shift towards populism in the French and Dutch elections in the next few months will send a shiver throughout Europe.
JP Morgan in a note to investors on Friday warned of a fall below parity in the event of a Le Pen election victory. The fact that a major financial institution even countenances such a result is a cause for concern to those who value the continuation of the EU.