The dollar has declined to a four-month low and gold/silver are surging to record levels over fiscal and geopolitical fears. Earnings season accelerates this week as over 90 S & P 500 companies post results. META and MSFT announce on Wednesday and AAPL on Thursday. The handful of profits that have been released have topped expectations and have offered an optimistic outlook.
It is largely expected the FOMC will not change monetary policy at the conclusion of tomorrow’s meeting. After several meetings of considerable dissention, it is expected Wednesday’s decision will be unanimous.
Consensus is growing on Wall Street that monetary policy is near the infamous neutral zone, where interest rates neither restrain nor stimulate the economy. The market is suggesting perhaps an interest rate cut may occur in June and another later in the year.
Perhaps the only certainty that has occurred over the last five to seven years is the unexpected is consistently occurring. Economics and geopolitics are closely related. Geopolitics is about the way countries interact with each other with economic trends defining or constraining goals.
Economic nationalism and in many regards, patriotism are surging globally. Many still believe in the notion that economic interdependence will overshadow the necessity of conflict. Is this a realistic view? History suggests not.
The last thirty years was the first time in history that countries have exported their vital industries to their adversaries. The dangers of such were fully exhibited during COVID, the Ukrainian war, with some suggesting 2008’s Great Financial Crisis as a benchmark.
Is this repatriation of industry back to more friendly shores a major reason as to why economic growth has exceeded expectations? Global trade is in flux, amplified by the decline of the dollar [and the threat of punishing tariffs]
Trade and the funding of budget deficits are greatly impacted by geopolitics. Will the surge in Japanese yields be something of significance?
Japanese interest rates were stuck at rock bottom yields for most of the 21st century with very little volatility. It was viewed that Tokyo would be the source of both cheap funding and stability during times of global turmoil. Will there be a massive Japanese repatriation of funds as yields are now more attractive there than in the US and elsewhere?
Perhaps a larger question is a Minsky Moment occurring when stability brings complacency and the ignoring of obvious risks?
Some market luminaries such as Howard Marks, Bill Gross and Jeffrey Gundlach, as well as several former Federal Reserve Chairmen/governors believe the country/the world is on the precipice of huge reset given the country’s massive and growing deficit.
What will happen today?
Last night the foreign markets were up. London was up 0.36%, Paris up 0.39% and Frankfurt down 0.04%. China was up 0.18%, Japan up 0.85% and Hang Seng up 1.35%.
Futures are bifurcated with Dow futures down 05% and NASDAQ up 0.5%. The 10-year is off 2/32 to yield 4.23%.
