Juncker jilted as POTUS resumes the attack, and Argentina takes the lead in the race that nobody wants to win .....

ref :- The Bloomberg Open, Online (Europe Edition)

The frontrunner in the race to be proclaimed the most toe-curling image of the year (decade ? century ?) was that of EC President Jean-Claude Juncker and Donald Trump kissing and holding hands at the conclusion of their White House summit in July. The meeting had been called to stave the imposition of trade tariffs on the EU by Mr Trump, and at the ensuing love-in before the world's media, it was deemed to be a great success. Mr Juncker has been accused of misjudging a mood more than once in his career, and for a number of reasons, but we have to believe that relief at the postponement of US action prompted him to put on a show for the cameras even though he was fully aware of what a fickle partner Mr Tump could be.

Still, you can't help wondering if Mr Juncker is feeling a bit jilted this morning as the President dropped the pretence of mutual adoration and resumed the attacks on the EU and a range of other targets. Saying that the EU was "as bad as China, only smaller" cleverly managed to be belittling and threatening at the same time, and he made clear that the offers that the EU had made to scrap levies on cars were not sufficient. And speaking of China, in the Oval Office interview with Bloomberg Mr Trump intimated his desire to slap a further $200 billion of tariffs on China as soon as the "public comment" period ended .... in other words, at the end of next week.

He also lambasted the World Trade Organization (WTO), calling its creation "the worst trade deal ever made". By once again threatening to pull out of the WTO if they don't shape up in the way he wants them to, Mr Trump has taken the United States one step closer to dismantling the world order they themselves took the lead in building. Few would deny that the WTO could be improved, or that on occasions they've failed to apply their own rules either consistently or stringently enough. But flawed though it is, the prospect of operating without an effective WTO (which would be the inevitable result of the world's most powerful nation withdrawing) is one that jangles the nerves of markets. Cue : stocks on the defensive, safe-haven buying of Treasuries and even .... for the first time in quite a while .... some evidence of the Jap Yen attracting nervous investors.

Of course, putting the frighteners on is probably exactly what the President intended ..... a key part of his highly individual "negotiating" strategy. In fairness to the man, he's had some undeniable success with it. The trouble is that it automatically ups the stakes and deliberately pushing things right to the edge can have unintended and unpleasant consequences, even for those who are doing the pushing.

Another area to suffer due to any escalation of trade conflict is emerging markets, and God knows they've got enough to deal with already. Deserving of mention in any list of headline grabbing EM currencies in 2018 are :

Indian Rupee .... making record lows against the dollar and down nearly 10% this year

Indonesian Rupiah .... at it lowest since the Asian crisis of 1998 and down over 8% this year

For much of the year, Turkey  -- with its sharply climbing inflation, huge current account deficit and dictatorial president who refuses to follow conventional wisdom on addressing either issue  --  has been most in focus. As it happens, the Turkish Lira is enjoying a brief respite today after the authorities cut taxes on Lira deposits and raised them on foreign currency ones. They've introduced a number of these smaller measures that theoretically are supportive of the currency, but in the longer term it's unlikely that the rout can be reversed until substantial hikes in headline interest rates are introduced  --  and that is a move still vehemently opposed by President Erdogan. The Lira is off over 43% in 2018. (N.B. Turkey inflation data out on Monday, expected about 17%)

Overtaking Turkey at blistering pace is of course Argentina, where the currency crisis is now one of devastating proportions. Off over 50% this year, the Peso is down nearly 30% this week. Strangely, if one can feel detached enough to ponder the irony in the face of events likely to cause great privation to the population, the latest moves followed attempts to shore up the currency. Argentina has secured $45 billion of aid from the IMF, of which it has so far received $15 billion. President Macri announced this week that he had asked the IMF to speed up the transfer of the next tranche ..... a proposition that the IMF seem open to ..... but if it was meant to calm investors it had the opposite effect. Markets took the view that it smacked of panic. There is a suggestion that Mr Macri's curious decision to impart the news in a local YouTube interview was an amateurish mishandling of communication and exaggerated the negative response.

The authorities also hiked interest rates by another 15% to an eye-watering 60%, the highest in the world among developing and developed nations. Common wisdom would suggest that such a move must support the currency, but once again the market sensed panic in the move (though thankfully there is some evidence today that it may have put a stop to further selling, at least temporarily).

Poor Argentina ..... but in the broader, global scheme of things the buzzword now is "Contagion". What has been feared for some time now looks suspiciously like it's taking a proper hold. If so, it has the potential to affect all markets. Theoretically, that implies that it should also be a factor in things like monetary policy and trade matters in financial capitals beyond emerging markets. Mmm ..... perhaps, though we suspect that without mentioning any names some of the major players might be more open to adjusting their stated aims than others ....