Catching a falling knife is never a good idea. A strong dollar (USD), moderation of GDP and earnings growth estimates are happening at the same time as global economies continue to increase fiscal and trade imbalances.
The collapse of emerging market currencies from a modest reduction in Fed balance sheet and small rate rise shows the extent of the imbalances built by many economies in the QE years. As USD strengthens and capital flows turn to the US, emerging market debt refinancing becomes more challenging.
US dollar strength and gold divergence is interesting. It seems that the market is pricing a disinflationary outcome of the global slowdown - as gold is usually an inflation hedge - and a flight to safety.
A strong dollar is a positive sign for America because:
US growth improved in June, particularly strong vs weakening China, Eurozone and Emerging markets.
June ISM Manufacturing Index rose to 60.2 vs China and Eurozone.
PMIs show the evidence of global slowdown. Manufacturing PMI in June 2018:
USD strength has a lesser impact on profits:
Daniel Lacalle is one the most influential economists in the world. He is Chief Economist at Tressis SV, Fund Manager at Adriza International Opportunities, Member of the advisory board of the Rafael del Pino foundation, Commissioner of the Community of Madrid in London, President of Instituto Mises Hispano and Professor at IE Business School, London School of Economics, IEB and UNED. Mr. Lacalle has presented and given keynote speeches at the most prestigious forums globally including the Federal Reserve in Houston, the Heritage Foundation in Washington, London School of Economics, Funds Society Forum in Miami, World Economic Forum, Forecast Summit in Peru, Mining Show in Dubai, Our Crowd in Jerusalem, Nordea Investor Summit in Oslo, and many others. Mr Lacalle has more than 24 years of experience in the energy and finance sectors, including experience in North Africa, Latin America and the Middle East. He is currently a fund manager overseeing equities, bonds and commodities. He was voted Top 3 Generalist and Number 1 Pan-European Buyside Individual in Oil & Gas in Thomson Reuters’ Extel Survey in 2011, the leading survey among companies and financial institutions. He is also author of the best-selling books: “Life In The Financial Markets” (Wiley, 2014), translated to Portuguese and Spanish ; “The Energy World Is Flat” (Wiley, 2014, with Diego Parrilla), translated to Portuguese and Chinese ; “Escape from the Central Bank Trap” (2017, BEP), translated to Spanish. Mr Lacalle also contributes at CNBC, World Economic Forum, Epoch Times, Mises Institute, Hedgeye, Zero Hedge, Focus Economics, Seeking Alpha, El Español, The Commentator, and The Wall Street Journal. He holds a PhD in Economics, CIIA financial analyst title, with a post graduate degree in IESE and a master’s degree in economic investigation (UCV).