Daily Brief – Weaker US Dollar

Weaker US Dollar

As the dust settles and the tealeaves are sifted, the obvious early take is that POTUS has achieved an initial post tariff announcement reduction in the value of USD which he stated as his aim before he took office. An immediate jump in value of so called safe haven currencies Japanese Yen and Swiss Francs plus stronger EUR and GBP, but those are more USD weakness sprinkled with a bit of relief in the case of GBP that the UK is only hit with 10% tariffs. Thinking ahead the question of which currencies will be the winners from here on will be predicated by which countries can engage with the USA and more importantly which countries can engage successfully with the USA to agree trade deals. If one dares believe in the Sir Keir-POTUS dynamic continuing based on the mood music so far in this short Presidency, it may not be fanciful to think that GBP could be borne upwards on the back of a US-UK trade deal. Just don’t get carried away and think that GBP is a safe haven currency.

EUR/USD 1.1050.

EV Wars

More on China’s BYD versus Tesla: sales in Q1 for Tesla were expected to be 390,000 but they came in at 336,000. BYD managed 416,000. EV sales are of course predicated by the number of early adopters most of whom already own an EV; their appetite for change or upgrading is driven by the prevailing economic environment and confidence in the short and medium term economy; lastly the Elon Musk association should not be under-estimated. It is not only US Government employees who buy EVs but such are the sheer number of government employees that friends and relations, neighbours and acquaintances are likely to associate EM and therefore Tesla with government employee layoffs and consequent economic hardship. That last point is a powerful disincentive to further line the pocket of the richest man in the world.

GBP/USD 1.3110.

US Commercial Real Estate Lending

Before looking at the absolute levels of US banks to the CRE sector, it is worth understanding three of the main drivers affecting not only the US real estate market but all real estate markets: firstly there is the change in shopping patterns which means that Gen X and Gen Z becoming increasingly affluent are unused to in person shopping and prefer online which is reducing footfall in shopping malls; secondly there is the post Covid technology advance which allows increased remote from the office working, reducing the demand for offices; thirdly there is the drive towards efficiency-in the USA the Department of Government Efficiency-which not before time is reducing Big State and thereby the number of government employees and the need for workspace. In the USA, at one end of the spectrum is New York Community Bank that 57% of its USD 86 billion loan book in real estate loans. Of the largest US banks Citigroup has 4% or USD 37 billion of its USD 945 billion loan book in real estate loans while JP Morgan has 12.6% or USD 171 billion of its USD 1.4 trillion in real estate loans. Unsurprisingly Moody’s has downgraded New York Community Bank’s credit rating to junk status. So the exposures while mostly not disproportionate to the overall loan portfolios, in the event of an acceleration of the 3 drivers above and especially in the scenario of the economy entering a recession, would fast become a big problem-for everyone.

USD/JPY 146.12.

Land Dweller

This week has seen the launch of the latest Rolex watch, the Rolex Oyster Perpetual Land Dweller. Obviously lots of hype given that it takes Rolex between 5 and 7 years to launch a new watch, but this one contains some really advanced engineering which will doubtless appeal to watch nuts. For example the self winding movement is 5 hz versus the previous models’ 4 hz. 5 hz is no mean feat as it is code for the beat being 10 times a second or 36,000 beats an hour which in turn means that the watch is less susceptible to shock and will perform to even greater accuracy than previous models. It comes with a white rolador dial and a stainless steel and white gold bracelet for a relatively affordable USD15,250 or an ice blue dial with a platinum bracelet with a reassuringly expensive tag of USD64,000. Those looking to avoid the unrelenting news of US tariffs and land grabs can wear their Land Dweller to swim down to 100 meters beneath the waves to check the time.

GBP/EUR 1.1867.

Like a Prayer

This day in 1989 Pepsi Cola bowed to pressure from US religious groups and announced that the company would be withdrawing its then advertisement featuring Madonna’s song, Like a Prayer. However the ad would continue to run in Canada. A small one but nevertheless maybe an earlier sign of just one of the many differences in attitudes between Americans and Canadians that are surfacing in greater numbers 36 years later with the increasing word fare between POTUS and PM Carney.

Life is a mystery
Everyone must stand alone
I hear you call my name
And it feels like home

When you call my name, it’s like a little prayer
I’m down on my knees, I wanna take you there
In the midnight hour, I can feel your power
Just like a prayer, you know I’ll take you there

I hear your voice
It’s like an angel sighin’
I have no choice
I hear your voice
Feels like flying

I close my eyes
Oh God I think I’m fallin’
Out of the sky
I close my eyes
Heaven help me

Have a Great Weekend!

Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter