It’s Tuesday And This Market “Sees No Demons”

Well here we are on Tuesday, frozen in time as a whole lot of markets sit precariously close to knee-jerk, French election levels ahead of what’s being billed as a “bigly” unveil on taxes from the Trump administration.

As you’ve undoubtedly heard, the President is basically going to come out and tell voters how “phenomenal” it’s going to be when he cuts taxes for individuals and lowers the corporate rate to 15%. Of course as Bloomberg writes this morning, “details will be left until later negotiations among congressional leaders and officials from Treasury.”

Right. Which kinda makes it seem like this isn’t any different from anything else Trump does. Bombast and promises followed immediately by a whole lot of nothing as his aides are left to work out the details with Congress. Of course that latter task shouldn’t really be something that’s Herculean given that the GOP controls the government, but hey, this is Washington and if there’s not gridlock, then someone isn’t doing a good job of not doing their job.

In G-10, the euro is hanging onto post-French-election gains amid falling volatility. As Morgan Stanley notes, “investors’ focus is now shifting to ECB’s meeting later this week, where the governing council might acknowledge the improved economic outlook of the eurozone.” The yen fell, as risk-on sentiment predominates and markets await the pre-detail details of Trump’s tax plan. USDJPY rose 0.5%, helping the Nikkei 225 to close higher by 1% give or take. More broadly, the dollar is mixed against G–10 peers.

Treasuries were under a bit of pressure. Yields retraced some of the (somewhat counterintuitive) decline we saw during the US session on Monday, as traders seem to be honing in on Trump’s apparent willingness to avert a government shutdown by delaying funding for his goddamn Quixote-esque border wall.

Here’s some good color from SocGen whose Kit Juckes says investors “see few demons” out there (do note the bit about the tariffs):

The euro has paused after the initial post-vote surge, but global markets are basking in riskon sunshine. With French political risk significantly reduced (even if there’s still a two-week second round campaign to negotiate), an improving global economy, steadier oil prices, and most of all, range-bound US yields and a lack of fear of rapid Fed tightening, investors see few demons and are off in search of yield. In FX the first twenty-four hours since the French vote have seen higher-yielding European currencies thrive most, with the TRY, HUF, PLN and CZK in the box seats, while the yen has maintained its position at the bottom of the pile. That speaks volumes for the mood. We like shorting USD/SEK here, and GBP/SEK too, for that matter.

There are some exceptions. USD/CAD is again threatening to break out higher after President Trump announced tariffs on US softwood lumber imports from Canada, and threatened them for dairy products too. The Canadian dollar is cheap, but the economy’s hardly charging forward and this latest move has a strong chance of seeing a break higher towards USD/CAD 1.40 before the CAD does, finally, become a really attractive long-term buy.

US/German real yield differentials are back at the same levels that accompanied the euro’s spike to close to 1.09 in late-March. I still think the onus is on the Bund market to lead the way if we are to see a break higher. And while that seems highly likely in due course, progress could be delayed by residual political uncertainty.

Gold fell for a second day and oil is steady after refusing to participate on Monday. “The main story for oil was that it didn’t really bite into the strong risk rally we saw in other markets yesterday,” Jens Pedersen, senior analyst at Danske Bank said this morning. “Although we have seen U.S. crude stocks fall a bit, they are still much higher than they were after the deal last year.” Here’s a look across markets: