Equites declined and the dollar rose on a potentially volatile week as US trading partners attempt to finalize deals. Emerging market currencies slid as the President warned he will add additional tariffs on any country that align with “the anti-American policies of BRICS.”
The Administration did signal however that trading partners may have until August 1 before levies kick in.
As noted several times, an argument can be made that the Administration is attempting to use the currency markets to conduct trade policy, attempting to avoid the accusation of being a currency manipulator.
Tariffs however are easier to explain in a seven-word social media posting versus the nuances of trading currencies.
However as also voiced several times, financial crisis historically emanates in the debt and currency markets given the lack of transparency, understanding, liquidity and leverage of such markets.
The narrative is beginning to rise that some of Wall Stret’s tried and true currency strategies are not working any more, and it’s baffling even the most seasoned FOREX traders.
Many of the reliable indicators are misfiring very frequently. The models that are used are getting it wrong rather than right.
The question is why? Is it from the widespread adoption of similar strategies? Have the FOREX markets changed that dramatically? Is it the lack of liquidity and overuse of leverage?
One FOREX trader comments “we are running smaller and simpler trades to try to mitigate risk.” Another commented the “rules of thumb have gone out the window.”
The Treasury Secretary is a former FOREX trader who made billions with Soros Management in the early 1990s when the money manager crushed the British pound.
Commenting about the Treasury market, the curve steepened as shorter dated Treasuries were essentially unchanged while longer dated debt sold off, perhaps the result of the passage of the “Big Beautiful Bill.”
Earning season commences this week. As noted several times, companies have been absorbing the cost of the tariffs, not passing the increased expense onto the end user out of fear of losing market share. Such practice should impact margins, a dangerous environment given today’s lofty valuations and concentrated market.
How will this unfold?
Last night the foreign markets were up. London was up 0.15%, Paris down 0.15% and Frankfurt up 0.27%. China was up 0.70%, Japan up 0.26% and Hang Seng up 1.09%.
Futures are little changed. The 10-year is off 8/32 to yield 4.41%.
