“What if I’m wrong?”

There are no extra points for stubbornly holding a view so it always pays to be skeptical and question any assumptions we have about why market moves are taking place. The long gold in the Premium Insights was stopped out, raising questions as to the next key support. 

There is no doubt that the implications to the US Elections is a key driver in the latest market moves. One-directional moves in virtually all global assets since the vote is evidence and the idea that Republicans will increase spending, cut taxes and trim regulation is compelling.

But it might not be the whole story. Even if all those things take place, there is no sure thing. Beyond that, everything they plan to try has been done in Japan for a generation without creating the kind of inflation that would justify the 65-bps rise in 10-year yields since election night.

In the broader view, the appetite for safety has collapsed despite the chance that global trade deals will be torn up. On Wednesday it was gold that came crashing $30 lower as it broke the May lows.

The alternative is that someone else is selling bonds. Aside from Mexico, the nation with the most to lose after the US election is China and they are also the second-largest holder of Treasuries. If not for the election, the market would be transfixed on the recent fall in the yuan. On Wednesday, the drop was the largest since the Brexit vote and the cumulative decline since the start of October is 4.2%.

Recent spells of aggressive yuan weakness have coincided with stock market drops. So the question here isn't “what if I'm wrong?” In this case it's “what if everyone is wrong?” Normally, that's an incredulous question but in light of how wrong the consensus was on the market reaction to Trump's election, it's a question worth pondering. We'll take a closer look in the days ahead with markets likely to stay quiet due to the US holiday.