“It is worth noting that the track record makes it clear that it pays to stand up to the Donald,” said Wood in his latest ‘Greed & Fear’ report.
Wood said the Trump administration’s decision to impose an additional 25% tariff, taking the total levy to 50%, on Indian goods is “somewhat unusual” given India’s relatively small trade surplus with the US and its “very important geopolitical relationship” with Washington.
The second tranche of 25% tariffs appeared linked to New Delhi’s purchase of Russian oil.
“China has been buying much more oil from Russia but has not been sanctioned in the same way,” he said. “The singling out of India in this fashion is not what most people would have predicted.”
According to Wood, Donald Trump has succeeded in bringing China, Russia, India, and Brazil together like never before. “Indeed, BRICS as a grouping has been regalvanised.”Wood said India’s equities had recorded the biggest underperformance relative to other markets in 15 years in the 12 months to July. He attributed the weakness to “very high valuations” and “a heavy schedule of equity issuance.”According to him, it is too late to cut India with valuations now back near the 10-year average 63% Price to Earnings (PE) ratio premium over emerging market peers.
US interest rates
Wood said the slightly better-than-anticipated July inflation data has marginally lifted expectations of the US Federal Reserve easing. The base case remains for a rate cut by the American central bank in September and for the US dollar to remain in a downtrend.
“Still, for a data-dependent Fed not willing to project forward, which is more or less where the Powell-led Fed has been of late, there is still an argument to stay on hold since the reality is that reported inflation is still well above the 2% YoY target,” he said.
Wood said the prime driver of the Trump administration’s criticism of Jerome Powell is not concerns about the state of the economy, but rather to get the cost of debt servicing down.