"We're going to drain the swamp." This was one of US President Donald Trump's battle cry when he was still campaigning for the top job in America.
It looks like he's on his way to fulfilling this promise but instead, Trump's draining the rising global tide that lifted all boats last year with his trade protectionist policy aimed at "making America great again!"
The latest J.P. Morgan Global Manufacturing PMI survey - the sector most susceptible to the war on trade - showed that while the index remains at expansion territory (above 50) and dipped marginally from a reading of 53.1 in May to 53 in June, this is the lowest reading since July last year and is down sharply from the peak (54.5) reached in December 2017.
According to the survey report: "The upturn in the global manufacturing sector lost further momentum in June, as output and new order growth slowed and the rate of increase in new export business slipped closer to stagnation. Concerns about international trade were also a factor underlying a drop-off in business optimism to a 19-month low."
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"Price pressures increased again in June, with both input costs and output charges rising at faster rates. Purchase price inflation was the joint-highest in the past seven years, while the increase in charges was the steepest since May 2011. For both measures, rates of inflation remained (on average) sharper in developed nations compared to emerging markets."
Weakening global growth momentum, rising inflation? Are we in the early stages of stagflation?
We may not be there yet, but if the current trade spat between the US and everybody else morphs into an all war then we can kiss our bottom dollar goodbye.
Speaking of which, the US dollar has already bottomed early this year. At the end of June, the US dollar index (against major currencies) has risen by 7.7% from its 2018 low and by 4.7% this year to date.
The US dollar will only get stronger given the still solid growth momentum in its economy - the Institute of Supply Management (ISM) Manufacturing PMI increased to a four-month high of 60.2 in June from 58.7 in May - and together with inflation now at target - the core PCE price index rose to 2.0% in May from 1.8% - are already inviting speculations of a more aggressive Fed.
With most other developed central banks' interest rates still on hold, rising US rates would raise the US dollar's yield premium, attracting more funds inflow into America.
The flipside, of course, is depreciation in the currencies of America's trading partners. The Chinese yuan has dropped by 5.9% from its 2018 high. Similarly, relative to their 2018 highs: the euro's down by 7.4%; the pound's down by 8.6%; the yen's down by 2.5%; and the Canadian dollar's down by 7.5%. Not to mention, the sharp drops in emerging market currencies like the Argentinian peso (down 39.9% from 2018 high) and the Turkish lira (down 19.3%).
The sharp and rapid depreciation in emerging market currencies are now causing problems in emerging economies but the more orderly and gentler ones in developed nations should provide cushion from the downward pull of trade tensions emanating from the US.
The higher US dollar goes, the more pressure on the US trade deficit, the more Trump tries to drain that swamp.
Ben Ong is the Director of Economics and Investments at Rainmaker Group. He previously worked as a fund manager, economist, asset allocation strategist, portfolio analyst and stock market analyst. Check out his economics analysis here.