One Thing That Hasn't Changed

The Pivot

The markets wrapped up another relatively volatile week, although one that was calmer than what we’ve seen throughout April. Buoying sentiment has been the release of a series of backwards-looking economic reports, covering periods prior to the launch of the Trump tariff cycle, that make the U.S. economy appear to be in good shape. Consumer and business sentiment and expectations surveys since then reveal deep concerns about how the Trump tariffs have already had a negative impact on the economy. I have a feeling that once the April data starts getting released, we’re going to see fear start to return and potentially usher in another downturn in risk assets.

Since China and Japan dumped Treasuries on to the market and forced a pause in U.S. tariff implementation, yields have stabilized somewhat and long bonds have demonstrated some evidence that they could soon become a safe haven asset again. In the meantime, gold seems to be garnering all of the flight to safety interest. One thing that hasn’t changed is the world cooling on the dollar. It remains below the key 100 level for the first time since July 2023 and demonstrates how investors and governments have sought to expand to non-dollar exposures.

One of the biggest beneficiaries of that pivot is still the Japanese yen. For reasons that I laid out yesterday, the yen is approaching a level that could soon trigger another wave of volatility and another sell-off in risk assets. As the yen strengthens and U.S. stock prices remain well into correction territory, short yen trades are going to continue looking less attractive and could force traders to further unwind their positions.