Macro Observations

If investors are settled on their view of the trade war, it’s time for them to find the next catalyst. I’m looking at the Japanese yen, its relationship to the dollar and long-term Treasury yields. When yields rise, the dollar tends to strengthen as investors look to boost their returns. Recently, however, that’s turned into something much different. If history is any guide, that leaves one of two outcomes possible to bring this relationship back in line.

2025 has been a year filled with what one could charitably describe as “worry”. Even though the VIX has come down, volatility and uncertainty still reign. And when uncertainty abounds, strange things tend to happen in the markets that can serve as warning signs for the future. One of the biggest right now is the relationship between the dollar and long-term Treasury yields. Spoiler alert: the relationship has broken.

If the Trump tariffs were to be blocked indefinitely, it would mark a sharp reversal in his economic policy plans. There’s one potential path that doesn’t really involve trade or tariffs at all - deregulation. Trump already has this on his agenda and it’s likely that some form of it is coming sooner rather than later.