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Zawya
5 hours ago
- Business
- Zawya
'America First' agenda could leave US dollar behind: Pelosky
(The views expressed here are those of the author, the Founder and Global Strategist at TPW Advisory) NEW YORK - Europe and Asia could leverage U.S. President Donald Trump's "America First" strategy for their own benefit, eventually spurring the development of regional tripolar FX blocs that could erode the dominance of the U.S. dollar and reshape global markets. The dollar has struggled this year, especially since Trump's April 2 tariff announcement. While the currency is on pace for one of its strongest weeks this year after jumping around 1% on Monday following the announcement of U.S.-EU trade deal, this short-term move doesn't change the long-term trends that could undermine the greenback's position. MOVING IN REVERSE Economic dominance in the future could largely depend on access to affordable, efficient energy to power artificial intelligence technologies. And in the race to dominate the industries of the future, the U.S. is arguably going in reverse. It's retreating from the renewables space, as seen in the administration's recent move to eliminate many clean energy subsidies. The president appears to be making the bet that the U.S. can maintain energy dominance indefinitely by relying on its own fossil fuel resources. This could ultimately result in uncompetitive power costs in the future, especially given that China is already dominating in clean energy technologies like solar and electric vehicles. As historian Adam Tooze argues, "for the first time in two centuries the West is no longer the leader in future technologies but the follower." TWIN DEFICITS While Trump may be seeking to enhance American self-sufficiency, the administration's policies may actually be increasing the country's dependency on foreign capital. Trump's recently passed budget bill – which looks pretty ugly to fiscal watchdogs despite its name – could cement the U.S.'s position as the world's biggest capital importer by adding an expected $3.4 trillion to the U.S. deficit over the next decade, according to estimates by the nonpartisan Congressional Budget Office, potentially locking in 6% to 7% budget deficits for years. Importantly, the U.S. has also been running current account deficits of roughly 4% over the past several years, and this widened to 6% of GDP in Q1 2025, according to the U.S. Bureau of Economic Analysis. By spending beyond its means and running these twin deficits, the U.S. will continue to require large amounts of foreign capital inflows. But unfortunately for Washington, this capital may soon be harder to come by, if both Europe and Asia seek to keep more of it closer to home. Europe is pushing for increased defense spending, as seen in its new goal to spend 5% of GDP on defense in the coming decade. While the bloc has agreed to increase U.S. energy purchases through the recently announced U.S. trade deal, much of that agreement remains up in the air and the volumes suggested are pretty unrealistic. Meanwhile, Asia has begun to trade more internally, as China has been focusing on export diversification. TRI-POLAR FX BLOCS A growing regionalization of supply chains began during the pandemic and appears to be accelerating as Trump seeks to drive production back to the U.S. and all major global powers focus on securing regional raw material access (e.g., rare earths and other critical minerals) for national security purposes. This shift could eventually create the foundation for true regional FX blocs across Asia, Europe and the Americas. This development would have a major impact on the global economy, currency values and capital markets, arguably providing a more balanced global economy with three poles of supply and demand, each attuned to their own regional dynamics rather than the current set-up whereby the global economy responds primarily to the Federal Reserve and U.S. internal dynamics. Recently, European policymakers have discussed what ECB President Christine Lagarde has termed a 'Global Euro' moment, one built upon a European Savings and Investment Union designed to foster both a European safe-haven asset that could eventually compete with U.S. Treasuries and deeper, more liquid European capital markets to fund European infrastructure and innovation. Of course, this won't be an overnight shift. The dollar remains the world's dominant reserve currency, and the U.S. debt market is estimated to be more than three times the size of Europe's, according to the World Economic Forum. But simply having a larger percentage of European capital stay at home could make a huge difference. Europe's current account surplus has averaged roughly $400 billion over the past few years, and Europe invests roughly $300 billion per year in offshore financial assets, according to the New York Times. Within Asia, Pan Gongsheng, Governor of the People's Bank of China, has recently highlighted China's interest in having the yuan play a larger role in a multi-polar currency world. Other officials soon followed, discussing how China plans to improve home market access for foreign capital while expanding opportunities for the Chinese to invest abroad. While China's capital account remains closed, Asian currencies already primarily trade off the yuan rather than the U.S. dollar. Even though China faces challenges, such as its fight against deflation, its efforts on this front – namely, boosting consumption and reining in excess supply, especially in the renewable energy space across solar, wind and batteries – could ultimately help attract more foreign capital by boosting China's growth profile and corporate earnings. There is obviously no guarantee that these measures will be successful, but the government's intense focus on achieving these goals is evident. The recent decision to provide $12.4 billion in childcare subsidies suggests a potential policy Rubicon has been crossed, as China has typically resisted these types of direct fiscal stimulus measures in the past. In a world of currency blocs, both Europe and Asia could emerge as potential winners, as they erode the U.S.'s position as the world's financial powerhouse. So while many investors may get lost in the short-term currency noise, it might be wise to instead focus on the long-term signal. (The views expressed here are those of Jay Pelosky, the Founder and Global Strategist at TPW Advisory, a NYC-based investment advisory firm. You can follow Jay on Substack at The Tri Polar World). Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI, can help you keep up. Follow ROI on LinkedIn, and X. (Writing by Jay Pelosky; Editing by Anna Szymanski and Jamie Freed)
Yahoo
18-05-2025
- Business
- Yahoo
'A little too enthusiastic': Wall Street warns against chasing stock rally despite trade breakthroughs
The stock market rally fueled by President Trump's tariff rollback on China is drawing caution from some strategists, who warn the rebound may be overextended. "I am concerned about the magnitude of the rally we've seen coming back," Charles Schwab chief global investment strategist Jeffrey Kleintop told Yahoo Finance on Friday. "The market might be a little too enthusiastic that the trade worries are behind us," he added. "The trade framework, so far, [is] far from completed agreements." The S&P 500 (^GSPC) has surged roughly 1,000 points from its April 9 lows, prompting some Wall Street firms to raise their year-end outlooks as trade tensions have eased. Earlier this week, the broad-based index finished erasing all of its 2025 losses after US-China talks resulted in a truce that paused and lowered tariffs on both sides. That followed a limited pact announced earlier this month between the US and the United Kingdom that lowered barriers on some goods, such as automobiles and agriculture. Meanwhile, Trump's 10% baseline tariffs — which apply to nearly all trading partners — took effect in April and remain in place. An additional set of reciprocal tariffs that could push rates even higher for some countries were temporarily paused last month for 90 days. Read more: What Trump's tariffs mean for the economy and your wallet Stock market optimism this week was also buoyed by a series of investment announcements made during Trump's recent Middle East visit, signaling the administration's openness to negotiate deals in that region. Still, strategists caution that without concrete trade resolutions, market volatility could return. 'The tariff cat is out of the bag,' Jay Pelosky, founder of TPW Advisory, said, adding that this signals a broader 'erosion of trust and confidence' in the US government and its policies. 'That trust has been severely bruised,' he added. 'Even with the reduction in tariffs on China, we're still looking at the highest US tariff levels since World War II or earlier — and that's going to have a negative effect" on the economy, he said. Despite the recent negotiations, tariff levels remain "significantly higher" than they were at the start of the year, according to UBS strategists in a note. They estimate the effective US tariff rate — the average duty on all imports — now stands at roughly 15%, six times higher than the 2.5% rate in January before Trump returned to the White House. That estimate assumes the tariff rollbacks announced in last month's 90-day pause will remain in place beyond the deadline. 'With the Trump administration signaling that the 10% baseline tariff is unlikely to be negotiated lower, these elevated tariffs could slow the U.S. economy and drive prices higher,' Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, said in a client note Thursday. While more trade deals may be announced in the coming weeks, Marcelli warned that 'ongoing uncertainty could trigger further bouts of market volatility.' 'We haven't seen anything permanent,' said Alex Morris, CEO of F/m Investments, in an interview with Yahoo Finance on Thursday. 'I think the market will want to see that before we really take off. There's a bit of a bounce right now, but I think we're going to see a lot more volatility ahead.' Read more: The latest news and updates on Trump's tariffs While many companies reported strong quarterly results this season, management teams expressed uncertainty over tariff-related impacts, with some firms even withdrawing their forecasts. On Thursday, retailer giant Walmart (WMT) warned it may be forced to raise prices. 'Low prices are what we stand for, and we're going to keep them as low as we can for as long as we can,' Walmart CFO John David Rainey said on Yahoo Finance's Catalysts. 'But when you look at the magnitude of some of the cost increases on certain imported categories, it's more than what retailers or suppliers can bear.' Some strategists are pointing investors toward defensive sectors like utilities and international equities. Unlike the Federal Reserve, which has held rates steady, several foreign central banks have cut rates, helping lift overseas markets. 'If you've been underweight international stocks, now is the time to at least get back to that strategic weight,' said Brian Nick, head of portfolio strategy at NewEdge Wealth. Portfolio managers also caution against trying to time the market or reacting to short-term volatility, especially given the swift rebound since April. 'Ultimately, we still think it's an environment where the S&P can tick higher, stocks can do well, but it's not going to be straight up and to the right,' Tim Urbanowicz, chief investment strategist at Innovator ETFs, said. Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre. Sign in to access your portfolio
Bloomberg
05-03-2025
- Business
- Bloomberg
Full Show: Balance of Power 03/04/25
"Balance of Power" focuses on the intersection of politics and global business. On today's show, TPW Advisory Principal and founder Jay Pelosky says global equity leadership is moving away from the US. Representative Jennifer McClellan (D) Virginia, shares her thoughts on President Trump's 25% tariffs on Mexico and Canada going into effect today and the proposed agriculture tariffs that will go into effect in April. Rep. Darin LaHood (R) Illinois, discusses how President Trump should talk about what he's been able to do so far for the American people during his address to Congress. (Source: Bloomberg)
Bloomberg
04-03-2025
- Business
- Bloomberg
US Equities Becoming Less Appealing, TPW's Pelosky Says
TPW Advisory Principal and founder Jay Pelosky says global equity leadership is moving away from the US. Speaking on "Balance of Power," Pelosky says he expects non-US equities to have double-digit returns this year. (Source: Bloomberg)
