Many markets and their practitioners seemed to have been under the illusion once Mr Trump's hand had been withdrawn from the Bible on Capitol Hill clarity would be revealed in whatever tariff path the US might now travel. But, along with many others, we have held a view that his first days of office will be a pathfinder for the next four years, with all mouthed intentions only becoming reality when that extravagant Presidential signature writes across the bottom of actual legislation. It would be a disservice to dismiss the new President as shooting from the hip, much as he did in his first term, his tone and manner would suggest otherwise. The verbal toying with tariffs such as 25% on Mexico, Canada and 10% on China is almost certainly a negotiating starting point and is meant to drag a deal from all these situations, something Mr Trump prides himself on. Such veiled tactics and open-ended narrative cannot ensure conclusion in study or trading decisions and investors need remain guarded until such times as clarity, or something like it, appears.

An easy pick for such hunting comes in the form of another positive step in the road for AI. The bosses of OpenAI, SoftBank and Oracle, while attending a press conference with President Trump, announced a new joint $500b company 'Stargate' that will promote AI infrastructure and by doing so attract further investment. Mr Trump hailed the "largest AI infrastructure project in history", which is in keeping with his embracing of new technologies and indeed, comes hotfoot after Monday's reversal of Joe Biden's 2023 order that aimed to monitor and regulate the risks posed by artificial intelligence. The tech-reliant stock markets of Japan, South Korea and Taiwan have vaulted this morning with Nasdaq putting in a 1% rally.

Not so much the joy for oil prices. Despite the incredibly cold weather in the US, which saw snowfall as far south as Houston and threatens Gas facilities, and the global hunting of alternative crudes to replace Russian flow, oil participants are priming for tariff disappointment. The oil market at present seems more sensitive to trade restriction threats and when large oil producers and users such as Canada and China are involved, those financial tourists that have populated the oil space due to the now ignored bullish catalysts look as if they are being charmed elsewhere. Russia and weather considerations are not done with oil prices, they just do not at present outweigh the uncertainty revolving around tariffs.

Lest we forget about the Dollar

President Tump’s storming of the Washington ramparts, literally four years ago, but verbally on Monday, has left all market observers, including us, never really having to wake up and worry what to write about. Talk about target-rich verbosity, it is almost too delicious to contemplate. Still, there are just some issues that will never be ephemeral, lose their sheen of importance and will outlast what good or damage the mercurial Mr Trump leaves when the White House revolving door spits him out onto a golf course or the after-dinner scene in four years’ time. It is ridiculous not to believe that the current host of executive powers will not affect the US Dollar, but the world’s currency marker has a way of finding economic truth and whatever bluster or actual sanction ruction expected to rock the world, the truth will often lie in how the greenback fares.

Its remarkable rise in 2024 may not be comparable to the highfliers that are Gold or the constituents of the AI rally, but they never had to endure anything comparable to the rate cuts of the Federal Reserve that should have halted or at least slowed the currency’s rise. Frankly it is gravity-defying and as is the case for all markets in contemporary times, reasons are multi-faceted. In terms of performance and on a year-to-year basis, it has climbed 7c against the Euro, 6c against the Swiss Franc, 5c against the CAD Dollar, 5c against the GB Pound, 5c against the Swedish Krona while losing 4c against the JP Yen which has been the subject of the Bank of Japan’s intervention without which the currency pair would have registered a very different ride. These then make up the basket of the US Dollar Index (DXY) which unsurprisingly shows an upward track from 103.33 at the end of January 2024 to its current level of 108.50.

The European Union’s GDP growth rate for 2024 is presumed to be 0.9%, Japan’s is 0.6% and while India is a gangbusting 6.4% and China’s respectable at 5%, the two Asia giants have seen a reduction when compared with preceding years. The US growth is predicted to have been 2.7% and while the reading does not inspire a jump off the page reaction, what is impressive is the consistency of performance and how, barring the pandemic, there has been a decade and a half of 2.5% improvement. Reliability breeds confidence and the US is brimming with exceptionalism when compared elsewhere as productivity and business investment increases, labour force issues are contained, and slightly stubborn inflation is being viewed more a marker for success in the economy rather than a worry. Given that, the FED in its prevarication on interest rates is handed a rather easier problem than that of the ECB which must cut rates at all costs to get a floundering economy going or the BoJ that cannot get itself away from stimulus and intervention and runs scared of raising rates.

The divergence in global expansion will continue to see increasingly different banking policies and none will do harm to King Dollar. One needs only look at the predicted rate cuts of the ECB and the FED. The former is likely to cut by over 100bps at current pricing with the latter well under 50bps. The props for the USD continue to build. For all the noise surrounding Dollar alternatives, none are viable and while, according to the IMF, US Dollar reserves globally will likely fall slightly in 2024 they will still make up over 58% in its currency composition of official exchange reserves (COFER), or is that coffer? Without having suitable Dollar assets countries will not be able to compete in the trading arena and or immunise themselves to any further increases in Uncle Sam’s moolah.
The US Dollar enters the Trump II regime already on a firm footing. If the playbook of tariffs, sanctions, isolationism, stubborn inflation and a bashful Federal Reserve indeed reads through, then a high flying and powerful US Dollar will be without peer. One can only assume that if the next tenure of President Trump is all about making America great again, then one of its byproducts will be an inflated home-grown currency. There is little chat in commodity huddles regarding the prophylactic power in how the US Dollar hinders investment, but it is getting to the point where it can no longer be ignored and while at present there will be a post-inauguration correction in Forex markets, meaning a downward adjustment for the Dollar, its high status start into a potentially Dollar inflationary administration is a warning for oil bulls.

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