The Currency Front

(Originally Posted August 12) The U.S.-China trade war took a nasty turn for the worse as the Treasury Department labeled China a currency manipulator in response to the yuan falling below critical levels.

Treasury’s designation, which was greeted with glee from China hawks, resulted in a broad equity selloff that saw markets plunge by as much as four percent in a single day. While some argue that the designation was merely symbolic, the outcome pushed yields on benchmark 10-year treasury bonds to as low as 1.6 percent.

At this point, there should be no doubt in anyone’s mind that a deal to resolve the trade war is within reach in the near term. In fact, we believe that it may take as long as 48-months – beyond the 2020 presidential election (regardless of who wins) plus one additional year thereafter – before substantial improvements in U.S.-China relations can be achieved.