Markets are willing to overlook geopolitical and even Oil—except for France

Outlook

The falling yield/falling dollar scenario has headwinds—tech/AI sector on two fronts (debt, earnings), the price of oil rising again, and a slew of geopolitical issues, of which French yields top the list but Trump abandoning Ukraine and the Iran war still a force driving money into US safe haven notes and dollars.

Markets are willing to overlook geopolitical and even oil—except for France.

For the euro to thrive, France has to convinces markets it has disorder coming under control and sensible remedies are being formed.  Reuters reports “The street unrest amplifies the sense of political​stasis and may even drag on already downbeat French economic soundings as well. There's no⁠money in the public purse to offer as a sop to the protests.

“French debt yields hit fresh 24-year highs ​on Monday and risk spreads versus Germany neared the peaks of the past month. French stocks underperformed, with banks at ​the sharp end, and they slipped again on Tuesday morning.

“There has been some minor contagion to other euro zone debt markets but the euro slipped only marginally on Monday and has firmed again since.”

Note that word “contagion.” Market observers and economists have never really defined how it works. We suspect that goods equity market earnings/tech sector respite and even some good economic data can overcome the tendency to sell the lot, but nobody knows. Example: Netflix earnings today are named as a possible defense against further losses in the tech sector. This is not logical, but there you are. For that matter, bonds tracking the stock market is not all that common, either.

Then there is Trump, whose approval ​rating fell to a record low 31% in the Reuters/Ipsos poll. What revenge will he seek when the election goes to the Dems? The world is watching. We suspect that Trump voters who now say they are abandoning him are not telling the truth. If they were dumb enough to vote for him three times, what make them smarter this time? It’s supposed to be broken promises, the price of diesel and corruption, but we don’t buy it. Dumb and enamored persists. 

Forecast

This is Turnaround Tuesday, so we feel a dollar recovery is okay as long as it doesn’t go too far. Shaken nerves over the tech sector has to abate in order for yields to keep falling, which is the touchstone of the dollar correction. Trump not resuming war in Iran is another.

In a nutshell, uncertainty abounds. We have some weird outcomes—the CAD firming while the AUD wobbles. Sterling maybe improving on some data even in the face of a rate change, while the yen is going the other way for some inadequate “reasons.” This only goes to show the dollar is not one thing. In the end, watch the 10-year.