The Administration is sending mixed messages on what new tariffs will be unveiled tomorrow. Bloomberg writes “what and how they will announce on Wednesday have traders flustered as they try to position around the biggest risk confronting the markets in years.”
It is widely believed [and perhaps already discounted] mega capitalized tech may be at considerable risk, especially with extremely high valuations and the perhaps wishful assumption that margins will remain intact. Perhaps companies with high facilities exposure and elevated cost of goods outside US face the greatest direct threats.
This pressure marks a key difference from other recent downturns when the Magnificent Seven were considered havens, powering returns and posting strong earnings gains regardless of what was going on around them. The Magnificent Seven is down over 17% from the start of the year and about 22% lower than their apex as per Bloomberg.
Changning topics, little attention has been focused on the volatility within the FX (foreign currency) markets. This giant global arena processes between $7.5 and $8 trillion in transactions per day, dwarfing the activity in every other market.
Bloomberg wrote an extensive article about a potential liquidity trap in this vital, but little understood or followed market. It is widely accepted that the vast majority of financial crises commence in the currency and/or debt markets as both markets are inexorably linked.
Bloomberg writes the proliferation of trading platforms and the widespread use of automation is creating the illusion of deep market depth, but in reality because large institutions have stepped away because of regulatory overreach, liquidity has “drained away.”
Throw in the current unpredictable Administration that has whipsawed all assets with fluctuating tariff pronouncements, fear is rising that the fragile currency liquidity could morph into something bigger.
Last week the background of the Treasury Secretary was discussed. As mentioned, Scott Bessent worked for Soros Funds Management when the Management Company made billions on speculation that the British Pound would collapse. There is some thought the Administration is attempting to use currency devaluing as method of economic policy…devalue the currency via potential tariff policy to make products more attractive.
Is this a dangerous possible policy given waning liquidity?
As also noted last week, the “soft data” is suggesting weakness. The “hard data” is suggesting strength. Today both the JOLTS Job Openings and ISM Manufacturing data are released, two top tier hard data points.
What will the statistics suggest?
Last night the foreign markets were up. London was up 0.54%, Paris up 0.88% and Frankfurt up 0.62%. China was up 0.38%, Japan up 0.02% and Hang Seng up 0.38%.
Futures are down about 0.5% on tariff angst. The 10-year is up 12/32 to yield 4.16%.
