Dollar Upgrade September 2017

In light of recent economic and political developments, TWP is upgrading its stance on the US dollar. While we remain somewhat cautious with respect to global growth, we see a number of positive catalysts within the currency complex for the dollar. Given that currencies are the largest and most liquid market in the world, this upgrade will have tactical ramifications for our equity allocations. We have been tactically bullish on emerging markets since February, but we will now seek attractive entries for US small cap stocks, assuming our bullishness on risk assets remains constant.

To be sure, we live in uncertain times with geopolitical tensions rising in the Pacific and elections in Europe and China on the horizon. It is in part due to these geopolitical uncertainties that we are upgrading our view of the dollar but it is also a function of recent developments in Washington, suggesting progress toward pro-growth policies, including taxes and infrastructure. Layer on economic stability in the US, despite a raucous year on Capitol Hill, and what appears to be a fully priced Euro, and that leads us to our neutral posture with respect to the US dollar on a trade-weighted basis.      

Market Outlook: Neutral USD, Neutral Rates, Bullish Equities