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Welcome To The August Doldrums In Eastern Europe

Ivan Martchev profile picture
Ivan Martchev

Being a native-born European, I decided to pack my bags in August, European style, and go visit my friends and family in my homeland of Bulgaria. August is the month when all of Europe (not just me) pack their bags and head for the beaches, so European markets are (at best) illiquid as trading volumes decline and surprising headlines generate bigger moves than they would otherwise be able to cause.

With the Chinese yuan dangerously close to 7:1 against the U.S. dollar - last week, it reached 6.92 - I do not believe that the Chinese will make a trade deal before the majority of Trump's tariffs go into effect on September 5, as they would feel that their hand has been forced. I think President Trump needs to find an expert on Asian business dealings and get some consulting expertise on a way out of this situation so that the Chinese can "save face," which is the modus operandi of Asian diplomacy. So far it looks like the current trade friction - filled with acrimonious recrimination - will drag into September and October.

In this scenario, there is nowhere for the dollar to go but up, as the Fed has reaffirmed its tightening bias in a U.S. economy that is roaring near full employment. I see the Fed tightening in a real trade war, but since the fate of the trade standoff will be decided in September or October, the dollar has significant room to run to 100 or higher on the U.S. Dollar Index, which made a beeline from 90 to 95 early in 2Q. Now that those gains have been consolidated around 95, the next beeline is to 100 or higher, in my view, particularly if the "acrimonious recrimination" part of the Chinese trade negotiations reaches fever pitch.

This article was written by

Ivan Martchev profile picture
Ivan Martchev is an investment strategist with Navellier Private Client Group. Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser's Mutual Funds Newsletter and associate editor of Personal Finance Newsletter. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool and others. Currently Ivan is a weekly editor of Navellier’s Market Mail and a contributor to Marketwatch.

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