Interestingly David Roche of Independent Strategy believes that China is set to devalue its RMB to 8.50 to the dollar from 7.30 today in response to Trump tariffs. I concur that this would be China's response plan alongside its consumption stimulus which it had been keeping at bay.
Implication of a Yuan devaluation will be bad news for our Aussie dollar, a move set to cause our Aussie to dive below 60c.
Roche also thinks that the Fed's dot plot assumes that nothing else happens but we know that is not going to happen in Trump world. It is more likely that Trump jacking up tariffs would increase cost of business and result in higher inflation, the tariffs are needed to fund his tax cuts. So he sees prospect for stagflation in the 2H of next year, which would necessitate the Fed to raise rates, rather than cut rates.
He doesn't say it but that could be the trigger that would send the elevated equity market into a tailspin in the second half of the year.
