Outlook: The calendar today includes Sept house prices and the Nov flash Conference Board consumer confidence, along with the Richmond Fed manufacturing survey. There’s not much here to inspire FX trading so everyone will be wondering what the hell happened yesterday. As noted above, the dollar rose sharply on the morning stock market drop that then reversed itself—but what caused the stock market drop? The Markit PMI was favorable, especially against the European version. The idea of Yellen at the Treasury should be equity-friendly since her specialty is labor economics, putting her in the same car as Fed chief Powell, who has increasingly leant that way. Powell, by the way, got a glowing report card the New York magazine last week as the only competent bureaucrat in the Trump administration.

Aside from Covid data, we can’t find any negative US stories that would have driven the stock market down temporarily yesterday morning and risk-off up, carrying the dollar with it. The PMI data was good. Trump capitulated on the transition. By the end of the day, Michigan had certified the vote, removing a giant roadblock but something that should have been thoroughly priced in. It’s conceivable the corporate international year-end had an effect, but probably only as a contributing factor, not the main event.

We imagined by the end of the day that an aberrant and short-lived freak-out in equities spooked the FX market and tricked it into seeing risk where none really exists. That’s assuming the risk-off/risk-on model is still valid. But here’s another idea: good outcomes that reduce risk allow traders to compare fundamentals and to choose the US and the dollar as the winner of the Covid 19 sweepstakes. Can it be that fundamentals are back? That would mean the Trump era is over. But the only fundamental in the PMI data that could have driven the dollar up is prices doing better, so the threat of inflation. And yet if anyone is really worried about inflation, gold should be up and it’s not. 

Not to be rude, but as we all know, when the stock market behaves one way, the analysts attribute the move as having been caused by this news event or another. When it behaves the opposite of what seems logical and sensible, the analysts say it moved despite the news event. We searched high and low for an explanation, however silly, for the stock market action yesterday that may have been the force behind the dollar. We didn’t find even the lamest of excuses. Sometimes the flock of birds changes course for no reason whatever. Reuters, for example, ignores it altogether and headlines “Biden transition and vaccine hopes drive up stocks, oil and bitcoin.”

What now? Well, there is no earthly reason to buy dollars with Trump exiting unless we imagine he is going to slash and burn on his way out the door. And that’s exactly what he is going to do, but the underlying system is relatively safe if only because we can see the end—inauguration day on Jan 20. A flurry of risk-off without rhyme nor reason just has to be accepted but we can’t let ourselves become agitated over it and see risk-off under every rock—or accept risk-off that has no known cause. Stay the course, but be aware traders are willing to be spooked.

Tidbit: The news yesterday that Trump is withdrawing from the Open Skies Treaty is getting a whole lot more attention today. It’s salting the fields after burning down the crops. First, Treaties require Congressional approval to get made or discarded. Second, Trump is having the aircraft used in Open Skies physically destroyed and it will take months to replace them, assuming Pres-Elect Biden chooses to restore the treaty. And he will, because these are the planes that surveil Russia (weirdly, a signatory to the treaty along with 33 other countries). These are the planes that gave us the photos of Russia invading Ukraine, for example. The US shares everything with the other members and they with us. For an incoming president with plentiful foreign affairs experience and a penchant for alliances, it’s a dead cert.

Finally, this explains why Trump fired the experienced Dept of Defense guys and installed his clowns. Now, what else is he going to burn down on his way out the door? An obvious candidate is the list of 89 Chinese companies he wants to forbid doing business with the US.

Can Biden sue Trump on behalf of the people for the cost of the destroyed airplanes? This reminds everyone that Trump is expected to pardon himself on his way out the door, something Nixon contemplated but judged a bridge too far. Trump can resign on Jan 19, get Pence sworn in, Pence pardons him, and then they both run for the exit. It would take Congress to agree but that’s no impediment, is it? Disgrace is too flimsy a word.

Typos: The inauguration date is Jan 20, not Jan 29. The 10-year yield yesterday was 0.850%, not 0.750%. At least in that case you had the mini-chart at the bottom of the page to check typos.

Message to Readers: We will not publish any reports on Thursday. Nov 26 or Friday, Nov 27.

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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