Trump Administration Signals Foreign Investors to Exit US Assets
The Trump administration aims to reduce trade deficits, particularly in goods. The U.S. maintains a services surplus while importing cheaper manufactured goods. This dynamic supports an artificially strong U.S. dollar and contributes to the decline of the manufacturing sector.
Key points include:
- The balance of payments requires that the currency account deficit is offset by a capital account surplus.
- A structural capital account surplus has historically lowered Treasury yields and increased equity multiples for U.S. assets.
- The administration's goal to decrease the current account deficit could lead to a reduction in the capital account surplus.
- Foreign investors are selling U.S.-denominated assets primarily during European and Asian market sessions, potentially leading to higher bond yields and lower equity prices.
- The U.S. Treasury yield may need to be repriced with a risk premium due to these shifts.
- Current trends suggest a move away from U.S. assets as the administration signals this direction.
Overall, the situation indicates potential volatility in U.S. asset valuations and investor strategies should consider this development.