20.09.201814:30 Forex Analysis & Reviews: A sign of a recession: US debt is transformed into an internal

The new tariffs, which the Trump administration introduced against imports from China for goods totaling $ 200 billion, will come into effect on 24 September. The increase in duties by 10% is a milder measure than previously announced 25%, however, the markets did not perceive the decline in the expected threshold as a readiness of the US to negotiate, but as an indication of the weakness of its position.

China did not appreciate Trump's "peaceableness" and intends to deliver a full answer. This step is just as inevitable as the tightening of US trade policy, which has no room for maneuver. Trump intends to force US companies "to carouse and stick" to transfer their capital and, if possible, production capacity in the US, and until this task is implemented, there is no change in the tariff policy.

According to the US Department of Commerce, in the second quarter, 169.5 billion corporate funds were repatriated against 34.9 billion a year earlier, almost 5-fold growth could be considered a success, if not for a slowdown in 1Q, when the return on capital was $ 294.9 billion.

At the same time, one can observe quite a significant dynamics in the movement of foreign capital to the US securities market. After Trump was elected president, the influx into Treasury and the stock market sharply increased, but after the introduction of the tax reform from January 2018, the reverse process began.

Foreign capital withdraws from the stock markets, but the indices do not decrease, the outflow is compensated by the buy-back operations, the US companies send the bulk of the repatriated capital to purchase their own shares and increase capitalization in order to improve financial reporting.

Similarly, in the debt market, the share of foreign creditors of the government decreases simultaneously with the termination of reinvestment in Treasury by the Fed, but there is no collapse of the public debt pyramid, someone buys government bonds with the same intensity.

These "someone", not only the primary dealers, the reduction of the remnants of commercial banks on the Fed's correspondent accounts indicates that they are partly bought by the state, and in part by large corporations. Thus, the US public debt market is becoming more and more internal. This is a sign of a decline in the global status of the dollar and a sign of the approaching recession, which, along with the approaching inversion of the yield curve, forces investors to reconsider the prospects for the dollar index in the direction of decline.

EUR / USD

The main news from the eurozone is expected from Vienna, where the leaders of the EU countries gathered for an informal summit to discuss issues related to Brexit. An attempt will be made to mitigate the conditions put forward not so long ago by the chief negotiator from the EU Barnier, if successful, European currencies will receive an incentive to grow. The publication on Friday of preliminary business activity data from Markit will have a limited impact on the euro.

The euro today can make another attempt to break through the downward trend line formed by the two highs of June and August, and go higher. If successful, the nearest target is 1.1733.

GBP / USD

Inflation in the UK increased by 2.7% in August against the 2.5% growth a month earlier, the result exceeded the forecast of experts. The base index instead of the expected decline increased from 1.9% to 2.1%, the direction to the more stringent position of the Bank of England is supported by statistics.

Today, there will be data on retail sales in August, possibly exceeding forecasts, the pound may receive additional support as a result. At the same time, one must proceed from the premise that, before the end of the talks at the EU summit, no external factors can bring the pound out of the horizontal range.

The attempt of the bulls to update the July high of 1.3213 was unsuccessful, however, a second attempt is quite likely, in case of success and the appearance of positive news from Vienna, the pound will try to rise to 1.3292.