Risk-on trade is back, USD stronger

Outlook:

Analysts differ widely on what is risk-on and risk-off these days. Late Tuesday it looked like risk-off would trigger a rise in the Swiss franc and yen as traditional safe-havens, i.e., risk-off. But those moves fizzled and many analysts now say we are back to risk-on, hence the stronger dollar. What happened to the euro as a short-lived safe haven? It seems to have vanished in a puff of smoke.

By financial measures, the dollar deserves the safe-haven label. Biggest and most varied markets, best financial laws and regs protecting investors, etc. The only flies in the ointment are a really awful president and a gridlocked Congress, and market players shy away from trading decisions based on political judgments. Besides, there are some interesting and favorable outcomes from that awful presidency, including a bullish equity market tone that is seemingly tireless and endless.

Well, nothing is endless in markets. A comeuppance is sure to be in the cards, but as long as equities accept what is going on, to hell with soybean prices and other distortions in the allocation of resources that arise from messing with international trade. The fallout is barely visible yet and indeed most of the long-term effects of this mismanagement won’t be seen for a long time. In fact, if we get inflation from oil or other developments, that only encourages the Fed, whose tone is now being described as “bullish” rather than dovish/hawkish. Oh, dear.

Tidbit: Trump caved on his policy of taking children away from border-crossing parents seeking refuge from awful conditions in Central America (but is doing nothing to re-unite those already separated). The public protest against the policy was impressive. One do-gooder organization sought to raise $1500 for bail for the jailed parents of one child—and ended up raising $15 million. What a splendid outcome! The donors are not necessarily in favor of these particular refugees. They are in favor of proper treatment of refugees according to US values and norms. The bully got a bloody nose.

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