There is a important danger catching economist Stephen Roach’s consideration, and it has nothing to do with earnings season.
Roach, one of many world’s main authorities on Asia, is worried U.S.-China relations might erode additional within the coming weeks.
“There are a variety of balls within the air proper now which might be very worrisome,” the previous Morgan Stanley Asia chairman instructed CNBC’s “Buying and selling Nation” on Wednesday. “You have bought an actual downside right here, and it is one which worries me loads, and I feel the markets are utterly ignoring.”
Roach sees bipartisan assist within the Senate for the Strategic Competitors Act of 2021 as a troubling growth. His purpose: it displays a hard-line method towards China that would spark retaliation.
“My concern for the final a number of years is that what began out as commerce conflict would flip right into a tech conflict, after which finally morph into a chilly conflict,” Roach mentioned. “These fears have come to cross. Simply this week, there are important developments that lead me to underscore that danger.”
He additionally lists a brand new U.S. intelligence report as significantly worrisome.
‘The annual menace evaluation was launched yesterday [Tuesday] by the workplace of nationwide intelligence and it clearly labeled China as America’s No. 1 menace,” mentioned Roach, who’s monitoring constructing tensions between China and Japan, too.
In accordance with Roach, it seems President Joe Biden will proceed lots of the Trump administration’s insurance policies towards China.
Roach warns the elevated U.S.-China tensions exacerbate his greenback crash name. Late final spring, he predicted the dollar would drop 35% towards different main currencies over the following yr or two.
“The greenback moved down sharply within the second half of 2020. It reversed course within the first quarter of this yr and now it is beneath downward strain once more,” Roach mentioned. “It displays my issues over the present account deficit in america, unwillingness of the Fed to tighten rates of interest for the conceivable future, after which the chance that Europe could find yourself having a stronger dedication to fiscal coverage than any of us, myself included, thought.”
He is additionally involved the present backdrop with China might exacerbate the hazard.
“You add to that pressures on America’s position as a worldwide chief that could be introduced into play by frictions with China and there is nonetheless, for my part, appreciable draw back left for the U.S. greenback,” Roach mentioned.
The U.S. Greenback Forex Index is off virtually 1% over the previous week. It is down greater than 7% over the previous yr.