Undeclared Commercial War

The most recent accusations of the UK government that Russia was responsible for the poisoning of a former Russian spy form part of an orchestrated attempt to isolate Russia and justify the imposition of sanctions designed to cripple the Russian economy.

It was the USA that cleaned up and closed the factory in Uzbekistan where the Novichok chemicals were developed. The CIA is more likely to have chemical weapons stored away than the Russians, who have complied with the international chemical weapons authority (OPCW). The Americans have not. The fact that PM May has refused to furnish any evidence and has only alleged foul play on the part of Russia should make it clear that British diplomacy has reached new lows.

Russians who have put their money into UK banks would do well to move their funds elsewhere. It would not be surprising if the diplomatic onslaught had some effect on the exchange rate of the ruble. In fact recent US dollar weakness versus the ruble has been reversed though not a great deal. On a long term basis, however, the sanctions may have a negative effect on the Russian economy even if the oil and gas industry has so far escaped serious repercussions.

For investors the question remains of how the US dollar will fare in the near future and also long-term. The S&P index has in fact fared far worse than many EM stock exchanges. This is only to be expected of a developed economy in comparison with other markets that are expanding more rapidly. The turning point will be what happens after 26th March 2018 when the Shanghai oil futures market opens. It is clear that the Russians will turn to the Chinese and turn their backs to US exchanges. Forex traders would be well-advised to pay close attention to the ruble and yuan on the eve of this new development. Shorting the dollar may be a good move.

Given that Trump and Pompeo are eager to chastise Iran and renege on the nuclear deal, it is obvious that the Iranians will also focus their attention on Shanghai and seek to avoid being exposed to the US dollar. Continued dollar weakness may be the result.

The Russians and Chinese certainly realize that the US has no intention of developing positive relations with them. They accordingly have considerably strengthened their military structures, and it even seems that Russia has gained a technological advantage in missile delivery systems. At the same time the US risks higher inflation because of all the money spent on ABMs and maintaining over 800 overseas military bases. All this will have consequences in the Forex market.

 Walter Snyder – WWS Swiss Financial Consulting SA