US Dollar Gaining Strength

The record breaking moves in the S&P 500 have drawn investors into US assets and in turn the USD. The greenback extended its gains against all of the major currencies on Wednesday with EUR and AUD experiencing the steepest declines. 

Non-farm payrolls will be released on Friday and ADP is an important barometer of labor market health. According to the private payroll provider, US companies added 428,000 workers last month, about half the forecasted amount. When the number was initially released investors reacted by selling USD, but the rally resumed quickly as buyers returned.

Even if non-manufacturing ISM report shows service sector activity slowing and employment gains weakening, the general sentiment in the market is that the rally in stocks signal a more durable recovery that should lead to lower unemployment.  While there are a lot of problems with this theory including the possibility of a second wave as schools re-open, sheer optimism is the main reason why investors are buying US stocks and the greenback. According to Beige Book released by the Fed, economic gains were modest. Business contacts had mixed expectations for staffing in the months ahead with manufacturers expecting staff increases and the service sector anticipating the need for reductions.

The reversal in EUR gained traction with the single currency headed for a test of 1.18 versus the USD. Eurozone retail sales are scheduled for release, it could miss expectations. Signs of the Eurozone recovery losing momentum are worrying investors and with the single currency rising to heady levels, there’s a strong sense of profit taking especially after ECB Chief Economist Lane said EUR/USD rate would matters. 

Last but certainly not least, GBP followed EUR lower. As it was said at the start of the week, there’s very little on the UK calendar but the data that one has seen so far has been better with house prices following mortgage approvals higher. Still GBP is taking its cue from the market’s appetite for USD. 

Dollar bomb can burst any time

The scale of money being printed in the United States has become unprecedented; the government is spending more money than ever before. It is being said that more than 60 cents out of every dollar the government spends is printed. The US Federal Reserve is printing more money than the government is collecting in taxes.

Critics are challenging the myth that the US economy was strong before Covid-19. They say it wasn’t strong at all; it was the weakest it has ever been. It was the biggest bubble that has ever existed, that’s the reason economy imploded after Covid-19 pandemic. The air has started leaking in the fourth quarter of 2018 and the dollar is being wiped out now.

It is being said openly that everything the US government did in the aftermath of the 2008 financial crisis was imprudent. Its monetary as well as fiscal policies were faulty. As a consequence, the US economy never recovered from the crisis, which was caused by the Fed and the government.

The US is about to experience inflation on an unprecedented scale. The cost of living is going to skyrocket and it’s going to happen very quickly, but people are not going to see this.

More people will be blindsided by the dollar crisis than by the financial crisis. The dollar crisis will be much worse than the financial crisis. When the dollar crisis happens, printing dollars will not help because nobody wants them.

Analysts warn that there will be a sovereign debt crisis. The dollar will fall through the floor and inflation is going to ravish the US. If this happens the world will go off the dollar standard and go back to the gold standard, it has already started happening.

The entire US economy is built on the perception that the dollar is the world’s reserve currency. Once the dollar become just like any another currency, it will be the end of the game for US. The fear is growing that the dollar may collapse any day. That is the reason individuals, corporate and governments are buying gold to hedge the financial risk.

The world response to UAE - Israel agreement

The United Arab Emirates (UAE) has become the first Persian Gulf Arab country to reach a deal on normalizing relations with Israel. It is also the third Arab nation to reach such a deal with Israel, after Jordan and Egypt. The "Abraham Agreement", was made public by United States President Donald Trump on Thursday, securing an Israeli commitment to halt further annexation of Palestinian lands in the occupied West Bank.

However, addressing reporters later in Tel Aviv, Israeli Prime Minister Benjamin Netanyahu said he agreed to "delay" the annexation as part of the deal with the UAE, but the plans remain "on the table". It is necessary to see how other nations and the various stakeholders in the Israeli-Palestinian conflict reacted to the Israel-UAE deal. The UAE's minister of state for foreign affairs, Anwar Gargash, defended the deal. Abu Dhabi Crown Prince's Mohammed bin Zayed decision to normalize ties with Israel reflected badly needed realism.

"While the peace decision remains basically a Palestinian-Israeli one, the bold initiative of Sheikh Mohammed bin Zayed has allowed, by banishing the specter of annexing Palestinian lands, more time for peace opportunities through the two-state solution," Gargash said in a series of tweets. "Developing normal ties in return for this is a realistic approach forwarded by the Emirates," he said. "The successful decision is to take and give. This has been achieved."

In a statement, Democratic United States presidential candidate Joe Biden said, "The UAE's offer to publicly recognize the State of Israel is a welcome, brave, and badly-needed act of statesmanship ...  A Biden-Harris Administration will seek to build on this progress, and will challenge all the nations of the region to keep pace." Biden also said, "Annexation would be a body blow to the cause of peace, which is why I oppose it now and would oppose it as president," he said.

United Kingdom Prime Minister Boris Johnson praised the agreement between Israel and the UAE. He said, "The UAE and Israel's decision to normalize relations is hugely good news."  "It was my profound hope that annexation did not go ahead in the West Bank and today's agreement to suspend those plans is a welcome step on the road to a more peaceful West of Asia."

The Persian Gulf state of Bahrain welcomed the accord between the UAE and Israel. The small island state of Bahrain is a close ally of Saudi Arabia, which has not yet commented on the agreement.

Egyptian President Abdel Fattah el-Sisi, a close ally of the UAE, welcomed the agreement. "I followed with interest and appreciation the joint statement between the United States, United Arab Emirates, and Israel to halt the Israeli annexation of Palestinian lands and taking steps to bring peace in the West of Asia," said Sisi.

Jordan said that the UAE-Israel deal could push forward stalled peace negotiations if it succeeds in prodding Israel to accept a Palestinian state on land that Israel had occupied in the 1967 Arab-Israeli War.

"If Israel dealt with it as an incentive to end occupation ... it will move the region towards a just peace," said Jordan's Foreign Minister Ayman Safadi. Israel's failure to do this would only deepen the decades-long Arab-Israeli conflict and threaten the security of the region as a whole. The agreement must be followed by Israel ending any unilateral moves to annex territory in the occupied West Bank that that obstruct peace prospects and violate Palestinian rights.

In a statement issued by his spokesman, Palestinian President Mahmoud Abbas denounced the accord, saying the Palestinian leadership rejects and denounces the UAE, Israeli and US trilateral, surprising announcement. He also termed the deal a "betrayal of Jerusalem, Al-Aqsa, and the Palestinian cause."

Hamas rejected the US-brokered deal establishing formal ties between Israel and the UAE saying it did not serve the cause of the Palestinians. This agreement encourages the occupation by Israel to continue its denial of the rights of Palestinian people, and even to continue its crimes against our people.

Oman said it backed the normalization of ties between the neighboring United Arab Emirates and Israel and hoped the move would help achieve a lasting West of Asia peace.  A foreign ministry spokesman expressed the sultanate's "support for the UAE's decision regarding relations with Israel", according to a statement on Oman's official news agency.

US Naval Ship getting too close to China

Reportedly, for the first time since 2017, the US Navy has positioned three of its aircraft carriers on the doorstep of the disputed South China Sea, as tensions between Washington and Beijing continue to soar. The dispatch to the Western Pacific of the three vessels was likely intended to send a message to China that, despite the ongoing coronavirus pandemic, the United States military would continue to maintain a strong presence in the region.

According to reports, two of US Navy’s ships, USS Theodore Roosevelt and USS Nimitz carrier strike groups had begun dual carrier flight operations in the Philippine Sea.

The two strike groups were scheduled to conduct air defense drills, sea surveillance, replenishments at sea, defensive air combat training, long-range strike drills, coordinated maneuvers and other exercises.

“This is a great opportunity for us to train together in a complex scenario,” said Rear Adm. Doug Verissimo, commander of Carrier Strike Group 9. “By working together in this environment, we’re improving our tactical skills and readiness in the face of an increasingly pressurized region and COVID-19.”

While it was not clear where in the Philippine Sea the US carriers were operating or where they would head to next — the Luzon Strait between Taiwan and the Philippines is the entryway into the flash point South China Sea.

Beijing claims much of the South China Sea, though the Philippines, Vietnam, Malaysia, Taiwan and Brunei have overlapping claims in the waters where the Chinese, US, Japanese and some Southeast Asian navies routinely operate.

The US Navy has angered Beijing by regularly conducting training and so-called freedom of navigation operations close to some of the islands China occupies in the waterway, including its man-made islets, asserting that freedom of access is crucial to international waterways.

Washington has lambasted Beijing for its moves in the waterway, including the construction of the man-made islands, some of which are home to military-grade airfields and advanced weaponry.

The US fears the outposts could be used to restrict free movement in the waterway, which includes vital sea lanes through which about $3 trillion in global trade passes each year.

Chinese state-run media lashed out last week as news emerged that the three carriers were simultaneously operating in the Pacific. In a report, the hawkish Global Times said that the deployment could put Chinese troops at risk.

“By massing these aircraft carriers, the US is attempting to demonstrate to the whole region and even the world that it remains the most powerful naval force, as they could enter the South China Sea and threaten Chinese troops on the Xisha and Nansha islands as well as vessels passing through nearby waters, so the US could carry out its hegemonic politics,” the report quoted Beijing-based naval expert Li Jie as saying.

The Xisha and Nansha Islands are the Chinese names for the Paracel and Spratly chains in the South China Sea. But the report also said that China could counter the US by holding its own naval drills in the waters at the same time, Li said.

It also highlighted the weapons at Beijing’s disposal, notably mentioning its “wide range of weapons designed to sink aircraft carriers,” including the DF-21D “carrier killer” and DF-26 “Guam killer” ballistic missiles.

The US military has in recent months grappled with the coronavirus as it battled to maintain its formidable presence in the Western Pacific, while both reassuring allies and preventing China from capitalizing on any perceived opening.

The Navy has rebounded after cases of COVID-19 were detected on some of its ships, including infections aboard all three carriers currently in the Philippine Sea, with many of the hard-hit vessels returning to action.

“Our operations demonstrate the resilience and readiness of our naval force and are a powerful message of our commitment to regional security and stability as we protect the critically important rights, freedoms, and lawful uses of the sea for the benefit all nations,” said Rear Adm. James Kirk, commander of Carrier Strike Group 11.

US carriers have conducted dual carrier strike group operations in the Western Pacific, including in the South and East China seas and Philippine Sea for several years, according to the navy. These operations typically occur when strike groups deployed to the 7th Fleet area of operations from the US West Coast link up with the forward-deployed carrier strike group from Yokosuka.

This month’s deployment to the Pacific is the largest since 2017, when the US sent three carriers to the region amid tensions with nuclear-armed North Korea.

Have Trump and Adelson cut a deal on annexation of West Bank?

As back as May 2019, I had written a blog and its title was “Sheldon Adelson: Jackpot for Israel”. Its opening paragraph was, “A bet on Donald Trump for president may have seemed risky two years ago, but for billionaire casino magnate Sheldon Adelson the payout has been spectacular. Adelson (85-year old) and his wife Miriam gave around US$82 million to Republicans and candidate Trump in 2016 and within two years his two major asks were met: moving the US embassy in Israel to Jerusalem, and withdrawing of US from Iran nuclear deal”. Today I have managed to gather some details, which are worth reading.

Sheldon Adelson, the Israel-loving, Iran-war-craving casino baron, talks to Donald Trump all the time, and for good reason, he and wife Miriam are the biggest Republican donors, poised to give as much as US$200 million this year. Now that the White House appears to be lying down for the Israeli government as it moves to annex portions of the West Bank despite a growing chorus of international condemnation, the focus should be on Adelson. He has always been a strong supporter of Israeli expansion, a man who says, “There’s no such thing as a Palestinian.”

Adelsons have gotten everything they wanted from US President: tearing up the Iran deal, moving the embassy to Jerusalem, defunding Palestinians, recognizing the Golan annexation, treating settlement expansion as legitimate, even a presidential medal of freedom for Miriam, etc. Right up to yesterday — a Trump attack on the ICC in the name of Israel. As Trump once said when a Republican rival was getting Adelson’s money, Adelson wanted a “perfect little puppet.”

Most important, the Adelsons got the Trump “peace plan,” which paves the way for annexation of the West Bank. When Trump announced his “vision,” there they were in the front row. Especially if Trump loses in November, as appears more and more likely — this is the Adelsons’ last chance to get annexation. They speak to Trump all the time.

Look at it from Trump’s point of view. He doesn’t care about peace in the Middle East or Palestinian human rights. He wants one thing, to win in November, and he needs money. Why would the Adelsons risk US$200 million on a loser? Well, because it’s not a losing cause; they get their payback now. They figure that Israeli annexation is permanent no matter what happens to Trump. “Facts on the ground” is the Israeli way of expansion. The embassy move will never be reversed by a Joe Biden. So let’s annex.

Sheldon’s Israeli newspaper Israel Hayom is promoting annexation. He believes, annexation is Israel’s right, and it poses no threat to the interests of either the United States or the Jewish state. The paper is an important rightwing voice in Israel, and the Adelsons have been big supporters of Benjamin Netanyahu. So they may also play a role in Netanyahu’s zeal to annex, when he had a lot of opportunities to dismiss that policy.

The Guardian said in February that insiders expect the Adelsons to donate between US$100 and US$200 million to Trump’s reelection hopes this year. If that seems like a big lift, look at their track record: The Adelsons gave more than US$100 million to Republican causes in 2016 and another US$123 million during the 2018 election.

McClatchy reported last year that the Adelsons were putting off their big donations in 2020 until as late as possible, so as not to excite negative publicity. Adelson is a funder and board member of the Republican Jewish Coalition that calls Trump the most pro-Israel president ever and, big coincidence, the RJC “is launching a lobbying effort on Capitol Hill to rally support for Israeli annexation.

The RJC is chaired by the ex-senator Norm Coleman. . . who is said to have strong ties to Adelson that benefit the RJC and other Super Pacs and dark money outfits where Coleman is a big player.

Coleman helps lead fundraising for a Super Pac, the Congressional Leadership Fund, and a dark money outfit, the American Action Network, that respectively back Republican House members and their policies and have received seven-figure checks from the Adelsons in recent elections.

The Adelsons have seemed to have their way on annexation so far. Annexation of large parts of the West Bank is green lighted in Trump’s deal of the century. Adelsons wanted the plan out well ahead of the election, Dan Raviv of i24 said, so that Israel would be freed to set its own border this year before November comes and possibly limits its autonomy. Adelsons may be the most important actors in this entire foreign policy discussion. Maybe the media should be telling us more about them now. . .

United States and China entangling in a new type of cold war

Over the last more than two months many countries were told by World Health Organization (WHO) to opt for lockdown to fight wide spreading coronavirus pandemic. In the mean time one of the equally fast developing narratives is that it is an ongoing biological war between United States and China.

If one can recall Saddam Hussein of Iraq was accused for the production of weapons of mass destruction. A few sites were identified and destroyed, but soon it became evident that the entire propaganda was very well concocted. However, some observers went to the extent of saying that these sites produced material which was used against Iran in a war spread over more than a decade.

Coming back to my topic, it may be suspected that United States was not happy, rather afraid of growing economic might of China. Initially to keep a close watch the US companies were allowed to make huge investment in China and Chinese were allowed to invest in United States. Growing deficit in balance of trade prompted United States to impose restrictions on the entry of Chinese good, but all in vain.

One of the conspiracy theories is that United States leaked a virus in Wuhan, to ultimately reach the industrial hub of Shanghai. The move backfired as China saved its industrial hub, but virus spread to almost all the countries on the plant, except a few.

Scanning the content printed one is inclined to arrive at a conclusion that this is not a pandemic but a biological war. After more than four decades of engagement, the two superpowers have been unable to bridge the ideological gulf that separates them. A global pandemic might have served as an occasion for more cooperation; instead it has only made the divide more obvious. The two countries now stand on the brink of a new type of cold war.

The level of trust between China and the United States is at its lowest point since diplomatic ties were established in 1979. The deterioration in US-China ties began long before the pandemic and even before the Trump presidency. A fundamental shift in the relationship has taken place. American interests now diverge more than they converge.

China’s return towards communist orthodoxies since Xi Jinping became president in 2013 has had a crucial impact. Tthe fundamental difference in ideology between the US and China can be summed as, “Between 1978 and 2012, the Communist party put aside its communist roots and focused on developing economic strength. Once China succeeded economically, the CCP went back to refocus on its original intentions of building socialism. For decades, this bargain delivered impressive commercial gains; making China the prime engine for global growth.

Tens of thousands of US companies set up business in China and bilateral trade last year amounted to US$541 billion.  China is often accused of showing less willingness to accept US global leadership and began carving out its geographical spheres of influence. One critical breach of trust was termed deployed huge military infrastructure on the islands by China.

 The insecurities of United States started mounting on rising military might of China. Images of sailors standing on the deck of a Chinese guided-missile destroyer were clear signs of defiance by China. As China’s economy grew, it showed progressively less willingness to accept US hegemony.

In US-China commercial relationship accusations of violation of intellectual property rights became a big hurdle. This prompted Washington to impose tariffs on a range of Chinese goods, triggering a 20-month trade war that was put on hold in January this year with a truce deal that remains extremely fragile.

Reportedly, total Chinese investment in the US fell to US$5 billion last year, from a recent peak of US$45 billion in 2016, when Chinese companies were much more free to acquire US businesses. On top of that Trump administration and lawmakers on Capitol Hill have been considering other moves against China, including more stringent export controls, curbs on investment flows and limits on integrated supply chains between the two countries — all in the midst of a deep global recession.

Trump also threatened to terminate the January trade deal with China, which could lead to a new flare-up in tariffs, because of skepticism over China’s willingness to honour its pledge to buy billions of dollars of American goods. 

Apparently, both sides claim that good progress is being made and fully express willingness to meet their obligations under the agreement in a timely manner, but ongoing blame game becomes the biggest dampener. Some observers predict continued tension, with nationalist sentiment and recession supporting hardliners in both countries. It appears extremely difficult to contain deteriorating relationship. Strategic competition will remain the dominant factor.

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United States “an uninvited guest” in Persian Gulf

An International affairs expert, Sabah Zanganeh has termed the United States “an uninvited guest” in the Persian Gulf region. “The United States’ security and military forces have understood that Iran is serious about defending its interests. Iran is the owner, but the United States is an uninvited guest. If any incident occurs, it is this guest who will be harmed,” he told IRNA in an interview published on Tuesday.

Zanganeh added that the United States knows that it should not make a mistake and endanger regional security. “It was a time when Portugal and Britain were in the Persian Gulf region, but they left. The United States must learn a lesson and leave the region,” he noted.

President Hassan Rouhani said on 29^th April 29 that the US must know that the waterway in the West Asia region is the Persian Gulf and not the New York or Washington Gulf.

“They must understand the situation by the name of the place and the people who have protected it for thousands of years and stop hatching plots against the Iranian people,” Rouhani said in a cabinet meeting.

He said, “The United States has witnessed the Iranian people’s success in all areas and also in protecting the Persian Gulf waterway. Our soldiers in armed forces, the Guards [the Islamic Revolutionary Guard Corps], Basij, Army and police forces have always protected and will protect the Persian Gulf.”

Rouhani also described the Persian Gulf as very “important” and “sensitive” region.

“The Persian Gulf belongs to the Iranian nation and has always been and will be the Persian Gulf,” the president noted.

IRGC Navy chief Alireza Tangsiri also said on 27^th April that the United States is an “uninvited guest” in the Persian Gulf region.

The chief of the Iranian Army Command and General Staff College (DAFOOS) has said that the United States is an “uninvited guest” in the Persian Gulf region.

“The Persian Gulf is like a big old house which has eight doors and independent rooms and also a yard which is shared by these eight neighbors. If a guest comes, he has to leave after a while, because a guest should not stay permanently,” General Hossein Valivand told reporters on the sidelines of a ceremony held to mark the national day of the Persian Gulf.

Valivand noted that Iran wants the US and all other foreign forces to leave the Persian Gulf region.

“We guarantee security of the Persian Gulf by the Army’s Navy and the Guards [the IRGC] and also by cooperation with other neighbors and the countries we have formed a military coalition with,” he said.

Foreign Ministry spokesman Abbas Mousavi said on 20^th April that foreign forces’ presence in the region is the source of insecurity, instability, and tension.

“We consider presence of the foreign forces, especially forces of the United States, in the region a source of tension, instability, and insecurity. Their presence is illegal and illegitimate. This is our region and our armed forces must be able to patrol without hurdle,” Mousavi said in a press conference held through video conference.

He said, “This issue led to our forces’ response. It has been for thousands of years that Iran is in this region and the regional security must be provided by the regional countries, especially Oman which is in the Strait of Hormuz region.”

The spokesman urged foreign forces to leave the region and not make Iran give them warning.

Foreign Minister Mohammad Javad Zarif wrote on his Twitter page on April 23 that “US forces have no business 7,000 miles away from home, provoking our sailors off our OWN Persian Gulf shores.” 

It came after US President Donald Trump said he had ordered the US Navy to destroy Iranian boats “if they harass” US ships in the Persian Gulf.

“I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea,” Trump said in a tweet on 22^nd April 22.

The IRGC has rejected US description of the Iranian boats’ behavior in the Persian Gulf, saying such a depiction is like “Hollywood scenarios”.