Fasten seat belts, please
It is obvious that the irruption of Trump on the world stage, changes the rules of the game in which central banks and Eurobursts had lulled us. And their access to the presidency coincides in time with other turning points, which alone would deserve to focus our attention as investors. Thus, Trump accelerates processes such as the Brexit, the rise of USD rates and the consequent sale of American sovereign debt, with the consequences that this implies for the monetary reserves of the major world powers.
And if that were not enough, behind Trump is Steve Bannon. The position created ad hoc for Bannon, Strategist in Chief, confers a character of strong man, very strong in the surroundings of the President. It was not for nothing that he was to be named Chief of Staff, the White House’s most influential post, but under pressure from the Republican Party, Bannon was dismissed in favor of Priebus.
Well, Steve Bannon, contradicting the official version of Vice President Pence, commented with the German ambassador in Washington on the need to strengthen the bilateral relationship between Germany and the United States, avoiding European interlocution. Reuters sources have filtered the content of these talks and say that Bannon and the German ambassador spoke of the EU as a failed construction and with very little future. Needless to say, this vision fully matches that of German Finance Minister Wolfgang Schauble.
On the other hand, Trump and Bannon will boost the Brexit to points unthinkable until today. And taking advantage of the excellent relationship of the American President with the British royal family, is even considering the possibility of the US joining the Commonwealth. An accolade never seen in this union of states that for the most part were part of the British Empire in the past. And of course, a lace for the moribund EU, which is taking Brexit’s pre-negotiation into the realm of threat and hostility, perhaps in a non-strategic way.
And in the midst of this scenario, US dollar interest rate rises are already generating massive Treasury sales by central banks that have so far amassed huge amounts of them. A radical change of scenery with respect to the last decade. And unforeseeable consequences, especially if we consider that one of the largest holders of US sovereign debt is China. Yes, the same giant (among many others) whom Trump intends to declare a commercial war rather than reckless. Especially thinking that the Chinese have the power to open or close the tap of their massive Treasuries according to the strategic needs of USD / RMB exchange rates or the political threats that we will surely see in the coming months ..
In addition, if this were not enough, in May the nuclear political bomb can be detonated and Le Pen can come to power. A much greater likelihood than the most visible markets (stock market and bonds) seem to discount, at least this is predicted today from Bloomberg: “If tail risks are to be believed, the risk of Frexit is larger than what is currently assumed“ . And without forgetting that Germany will also have unpredictable elections in the coming months. Fasten your seat belts and take safety precautions. Especially those investors who believe that the Eurozone will remain the Eurozone, and those who trust that the euros of their current account will continue to have the same value as those of the Germans.