The FX market is full of conflicting ideas and influences

The FX market is full of conflicting ideas and influences. The dollar gets a boost, maybe, from a good 3-year auction to be followed today by a 10-year. The presumed government re-opening is also dollar-friendly even if the ostensible subject, the hideous budget, is not fixed. Of more interest is that various sources, including the WSJ, say that in the absence of official data, the FOMC is not so sure about that December rate cut. We say it’s too late for second thoughts, lack of data notwithstanding. The shut-down must have eaten heavily into Q4 growth and a cut is consistent with existing labor market worries.

We suspect the 4% growth rate that the Atlanta Fed has been naming is too high. Or maybe it’s just the flood of discouraging news like delinquency rates. Remember, Bloomberg has 1.4% and the 40+ days of shutdown had to have cut growth by some amount. Various sources have various numbers so not guessing, but not zero, either.

A ball from left field is what’s going on in Japan about its rate hike. PM Takaichi said (again) the BoJ should not do anything hasty about interest rates, Trying to change the tide was FinMin Katayama, who warned about "one-sided and rapid movements" in the yen. Some commentators say there is little chance of outright intervention until we see the whites of 160’s eyes. It goes without saying that intervention that makes the dollar stronger would not be welcome in the White House and Japan would prefer to stay out of gun range.

Sterling is another currency going its own way and not a dollar event. The weak labor market data is coupled with high political uncertainty about that budget, PM Starmer’s lack of macho and possible party opposition, and a general sense of malaise.

Finally, there’s that stock market question—tech bubble or not? Developments in a single name can disrupt everything. The other day it was Softbank selling Nvidia and today we have this from Reuters: “SoftBank's shares slid as much as 10% on Wednesday after a $5.8 billion sale of its stake in Nvidia highlighted the growing funding demands it faces to bankroll an "all-in" bet on ChatGPT creator OpenAI and other investments. The conglomerate needs to fund a $22.5 billion follow-on investment in OpenAI, is acquiring chipmaker Ampere in a $6.5 billion deal and has agreed to buy the robotics business of Swiss group ABB for $5 billion. A total spending commitment of $41 billion compares with the group's $28 billion cash position as of September.”

Got that? We say it’s not a full-blown bubble when gains are across a wide swathe of non-tech companies, not to mention other countries without those tech names, but that doesn’t mean a surge in fear that brings a bursting in some names. As noted before, nobody really understands contamination and we have to fall back on the madness of crowds.

Then there’s gold, recovering nicely. Gold is no longer a safe have, an inflation hedge or anything else assumed, falsely, from days of yore. It’s a shiny new darling competing with crypto (neither has any yield). We imagine it reflects distrust of things Trumpian, but that is admittedly biassed. If the end of the government shutdown allows risk-on again, gold should be going the other way, right?

Forecast

We see a bias toward a weaker dollar but if all the incoming capital to stocks and bonds is hedged, we can’t measure it. That investors are hedging to protect against Trump is commentary in its own right. The high probability of a Dec rate cut should add to the dollar’s downward slant, as should the horrendous deficit and a dozen other factors. When the dollar prevails despite all these negatives, we are at a loss for explanations, aside from the standard high growth and extraordinary privilege.

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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