Catching a falling knife is never a good idea.

A strong USD, and moderation of GDP and earnings growth estimates are happening at the same time as global economies continue to increase fiscal and trade imbalances.

The collapse of emerging market currencies from a modest reduction in Fed balance sheet and small rate rise shows the extent of the imbalances built by many economies in the QE years. As USD strengthens and capital flows turn to the US, emerging market debt refinancing becomes more challenging.

US dollar strength and gold divergence is interesting. Seems market is pricing a disinflationary outcome of the global slowdown -as gold is usually an inflation hedge- and a flight to safety.

A strong USD is GOOD for the US.

• US exports 12% of GDP. High added-value doesn’t need devaluation.
• Higher purchasing power for savers and salaries, better consumption.
• Attracts capital, makes Treasuries and US investment more attractive and safe for world investors.

US growth improved in June, particularly strong vs weakening China, Eurozone and Emerging markets.

June ISM Manufacturing Index rose to 60.2 vs China and Eurozone.

PMIs show the evidence of global slowdown. Manufacturing PMI in June 2018

China 51.0 vs 51.5 in January
Eurozone 54.9 vs 59.6 in January
Japan 53.0 vs 54.8 in January.

USD strength is less and less an impact on profits.

• Technology, high-margin, high added-value firms are more than 27% of S&P 500.
• US exports are less than 30% of S&P revenues. Corporate profits correlation with the USD is not very strong at all. US profits mostly suffer when oil rises.
• Stronger dollar
  More inflows into US assets and Treasuries
  Rate hike path confirmed