The Great De-Dollarization
US Final Days as World Super Power?
This week there was an interesting exchange between Elon Musk and Genevieve Roch-Decter, in which Elon replied to her thread and the two exchanged tweets back and forth.
Among the spheres of power and influence, there is concern over US domination of the global monetary system, and the exporting of debt, inflation, and banking problems abroad.
What else can we use to support the theory? There are plenty of reasons, but here’s a few:
- According to AFP, China struck a deal with Brazil to trade in their own country’s currencies. China has been Brazil’s largest trading partner since 2009.
- Central banks bought a record amount of gold in 2022, led by emerging nations like Turkey and China. That interest has carried over into 2023.
- Russian President Vladimir Putin recently said he will support using the Chinese yuan for trade settlements between Russia, Asia, Africa, and Latin America.
- Russia has deepened is cooperation with China in response to US sanctions following from the war in Ukraine. Ruble-Yuan trade has increased 80x in just 8 months.
- Russia and Iran are working toward a cryptocurrency backed by gold.
- Last week, China and Saudi Arabia signed major oil deals. Thy also agreed to construct an integrated refinery and petrochemical complex in northeast China.
- Beijing has become a major lender to debt-heavy nations, such as Turkey, Argentina, and Sri Lanka. It may soon surpass the IMF in terms of distressed loan distributions.
What does this all mean? Are we at the end of the era for US-dollar dominance globally? Well, some would argue otherwise since central banks still hold about 60% of their foreign exchange reserves in USD.
However, the longer America leans toward self-destructing policies of fiscal tightening that leads to record amounts of stimulus, inflation and currency devaluation, the more outside countries will diversify away from exposure to the currency. Don’t expect an overnight collapse, but note where the trend is heading.
Economic Calendar
Highlights
- ISM Manufacturing PMI – Monday
- JOLTs Job Openings – Tuesday
- ISM Non-Manufacturing PMI – Wednesday
- Non Farm Payrolls + Unemployment Rate
Breakdown
ISM Manufacturing PMI – Monday
The Manufacturing Purchasing Managers Index captures business conditions in the manufacturing sector. Manufacturing dominates a large part of total GDP and is used as an indicator of business conditions and overall economic strength in the US.
The ISM Manufacturing PMI clocked in at 47.7 for February, slightly ahead of 47.4 in January. It is expected to contract slightly in March.
Readings above 50 imply the economy is expanding, whereas sub-50 represents economic contraction which has negative impact on the US dollar.
JOLTs Job Openings – Tuesday
Job openings were estimated at 10.824 million for January 2023, following an upward revision of 11.234 million in December. They are expected to show a slight slowdown to 10.4 million in February.
This event is the precursor to NFP later in the week, and a big miss or beat can influence the dollar and risk assets. A large beat would boost the dollar, and vice versa.
ISM Non-Manufacturing PMI – Wednesday
Non-manufacturing or Services PMI makes up a large portion of overall GDP, and is looked at for key changes in the overall economic strength.
It is expected to stay in positive territory for March, as both January and February showed strong resilience despite Fed rate hikes.
Non Farm Payrolls + Unemployment Rate
The US economy created 311K jobs in February, which was well above market consensus of 205K, and well below 504K for January. These figures remain far above the 100K per month considered necessary to keep up with growth in the working-age population.
March consensus is +238k, while unemployment is expected to remain unchanged at 3.6%. The key thing to watch for here is a declining trend in NFP and unemployment beginning to rise over coming months. That’s your recession indicator.
Sponsors Corner
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Jay Charles
Editor in Chief, The Trading Tank.
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