Trumponomics' Impact Rattles International Financial Sectors
In a stark shift, investors are bailing out on the US market, as the once-mighty dollar loses its sheen and Wall Street struggles to keep pace with European stock exchanges. Let's delve into this financial seesaw ride.
US Stocks on Tenuous Ground
After a long reign as the global heavyweight, US stocks are facing a bitter heatwave, with Europe reaping the benefits. The S&P 500 index has only managed a meager two percent growth since the start of the year, compared to Frankfurt's index which soared by an impressive 16 percent. Growth in London (eight percent) and Paris (three percent) is also outpacing Wall Street.
Kevin Thozet, an analyst at Carmignac, attributed this to the rollercoaster ride of U.S. politics, particularly President Trump's flip-flopping on tariffs creating a "high level of uncertainty" over their potential impact on growth.
Dollar's Slide
The dollar has taken a mouthful, shedding ten percent of its value against the euro in just the past six months - its worst performance in 30 years, according to Robert Farago, an analyst at Hargreaves Lansdown. Trump's tariffs and worries about the colossal U.S. debt - exacerbated by the president's budget proposal, viewed by many as expensive – are the main culprits behind the dollar's plunge.
While some suggest the Chinese yuan could challenge the dollar, ECB chief Christine Lagarde has endorsed the euro, discussimg its potential to claim a greater "international role." However, any currency aiming to dethrone the dollar faces numerous hurdles, as Jean Lemierre, chairman of BNP Paribas, pointed out: "The yuan is not convertible, and the euro is too fragmented."
Debt Dilemma
American debt is the cornerstone of the global financial system, as nations lend to the U.S. to find a secure investment. But Jamie Dimon, head of JPMorgan Chase, stated in early June that the level of U.S. debt is a "real problem" and that bond markets are facing a "tough time." In a sign of dwindling confidence, interest rates on 30-year U.S. Treasury bonds broke the symbolic five percent mark at the end of May - a worrying development that has raised eyebrows among strategists.
Steve Sosnick, chief strategist at Interactive Brokers, explained this as "a sign there's money moving out of the US."
Winners: Gold, Crypto
Investors have long favored gold as the ultimate safe haven during crises, and the current situation is no exception. Gold's value has skyrocketed by nearly 30 percent since the year's start, driven by both private investors and central banks treating gold as a safer bet than dollars.
Meanwhile, Trump has shown a keen interest in cryptocurrencies, backing both personal investments and official measures to bring digital assets into the mainstream. Bitcoin surged above $100,000 for the first time just after the US election, gaining almost 60 percent in a year.
Oil Uncertainties
Trump aimed to bring down oil prices to tame inflation, but his tariffs sowed fears of weaker global demand, which led to a dramatic drop in crude oil prices. In April, the price plummeted below $60 per barrel, its lowest level since 2021. However, the military escalation between Israel and Iran caused the oil prices to surge again, rising to around $75 a barrel.
- The shift in investing trends has seen a decrease in US market participation, with investors moving towards European stock exchanges, as the S&P 500 index struggles to keep up is indicative of shifting personal-finance priorities and a response to the unpredictability of US politics.
- Key factors contributing to the decline of the US dollar are political instability, particularly regarding tariffs, and concerns about the accumulating US debt, which has prompted a movement of capital towards safer investments like gold and crypto, such as Bitcoin.
- The weakness of the US dollar, exacerbated by high levels of debt and political uncertainty, has opened up opportunities for other currencies, like the euro, to potentially claim a greater role in international business and finance.
