The Dollar (USD) at the heart of stock market and Trump’s near future

The S&P-500 index reached a new record high on August 21, 2018 at 2,862.96 points after equaling its longest historical uptrend.

While the bullish cycle of US stock markets – and more generally European markets, apart from the sovereign debt crisis in 2011 – is now as long as that observed from November 1990 to March 2000 with 3,452 days, the continuation of such a long-term trend will depend more than ever on the dollar (USD) and the policy of the US Federal Reserve (Fed).

Like President Donald Trump, some investors are worried about a further weakening of the dollar following the policy of interest rate hikes planned by the Fed. Confident in the economy and given the rising inflation in the United States as in most developed countries, the Fed should not significantly change its objectives.

In Washington DC, the Trump administration seems eager to avoid any bump, even minimal, on that long road of good figures for stock markets and economic growth before the mid-term elections scheduled for November.

Will BMW and China bury Tesla and Elon Musk?

The German car group BMW has been producing and selling cars in China since 1994. Since then, China has become the second largest economy in the world just years away from dethroning the United States while in purchasing power parity (PPP) the Chinese gross GDP exceeds its US counterpart since 2014 according to IMF data.

According to Chinese state media, BMW is now considering selling Chinese production overseas, which was previously reserved for the Chinese domestic market. As part of a redefinition of the general rules of the Chinese government’s industrial and automotive policy, the BMW X3 electric vehicle would not only be produced in China but also exported to third markets, explained Thomas Becker, vice president of governmental affairs with BMW Group, to Chinese news agency Xinhua.

Customer demand for our X vehicles continues to be very highJuly sales of BMW X3 increased 52.3% – and now we’ve increased production capacity by localizing the BMW X3 in China and South Africa,” said Pieter Nota, Member of the Board of Management of BMW AG responsible for Sales and Brand BMW. If such evolution remains to be confirmed, BMW believes that the Chinese government is supporting it, this way addressing logically a message to its American competitor Tesla (TSLA).

The latter, whose stock price fell from USD 379 to USD 300 over August 7-20, 2018, seems in great difficulty following the complicated statements of its CEO Elon Musk. Burning a lot of cash and lacking capital to ensure production capacity in line with its objectives, Tesla could well see these very compromised if BMW produces in China electric vehicles for export worldwide. In addition to a presumably easier access to the resources needed to produce the batteries, BMW has an experience, a reputation and a production capacity incomparable to that of Tesla.

“If BMW and China get along, other automakers will take the same path and when it happens, the future of Tesla will darken more,” said an analyst of the automotive sector. As evidence, in the first five months of the year 2018, sales of BMW i, BMW iPerformance and MINI Electric vehicles jumped 41.0% to total 46,849.