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FX MACROECONOMICS US CHALLENGES


The fiscal stimulus gave the US an adrenaline rush, lifting growth to an average annualized pace of 3.8% in Q2 and Q3, but many models, based on market prices, warn of increased risk


of a


recession. Other economies have already faltered. Germany, Japan, Italy, Sweden, and Switzerland contracted in Q3, and France's December flash composite PMI fell below the 50 boom/bust level. China's e c on om y appears to be slowing, but because of the dubious quality of some of the economic data, it is difficult to know the extent.


mortgages. US Treasury Secretary Mnuchin recently attributed the increase equity market volatility on the Volcker Rule and high- frequency trading. After the WWII, US policymakers were also fearful of a return to depression-


are arguably even more daunting. Since 2016, the US has emerged as a revisionist power, insisting on reversing the country's globalist strategy. Could one even imagine another US President in the modern era that would proudly call himself the "Tariff Man?" In the following thirteen days, the S&P 500 dropped nearly 13.5%. Three things


the


US is doing are


sources of


instability: its trade policy, the unilateral w it hdr a w a l from the treaty with Iran, and the oil boom.


It is not only the business cycle that makes this period so difficult. The political challenges are arguably even more daunting


The still fresh scar tissue from the Great Financial Crisis means that the end of the business cycle would trigger high anxiety over the possibility of another credit crisis. The leveraged loan market,


the


growth of passive investment, and student loans have been touted as new equivalents of the subprime


8 FX TRADER MAGAZINE January - March 2019


It is not only the business cycle that makes this period so difficult. Indeed, the political challenges


like conditions and policies were pursued at home and abroad to avoid it. Growth and rising living standards were also understood as the best bulwark against the spread of Communism.


in 2019.


The US trade policy itself has


three


dimensions, and they will each likely intensify The US-Chinese


trade talks are set to reach some conclusion by March 1. It is difficult to see a meaningful agreement in such a short period. Lighthizer who is leading the US negotiations recognizes this, but what it means for the threat to increase the 10% tariff on $200 bln of imports from China to 25% and/or imposing


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