Written by Jimmy McGiv
Orlando, Florida (Reuters) – Trading Day
Understand the forces that lead global markets
Written by Jimmy McGiv, a column writer on the market
I am pleased to announce that I am now part of Reuters open interest (ROI), a new main source of expert comment on data on the market and economy. You can find ROI on Reuters, and you can follow us on LinkedIn and X.
Commercial tensions and uncertainty in politics and shaky economic data continue to overcome expectations in the short term of global growth, but they remain in the back at the present time with the start of investors the week by pushing global stock markets up.
In the column today, see why the dollar’s value has declined significantly this year, regardless of how American shares and bonds are performed. The main reason? Hedging. More about it below, but first, the main market round moves.
If you have more time to read, here are some of the articles I recommend to help you understand what happened in the market today.
1. Challenge warnings, Republicans are pushing forward on the TROMPTAX 2 business schedule.
Main market movements today
* Global stocks set a new record. MSCI World Indexrises 0.3 % to 895.60 points. * Wall Street closes in green despite a wave of laateselling and S&P 500 is more than 6000 points. Therussel 2000 Small Caps increases, an increase of 0.6 %. * The dollar index slip 0.25 %. But the largest Clinerinin Global FX on Monday is the Colombian bizo, a 0.7 % decrease after an assassination attempt to senator Miguel Orbi, a potential competitor. * The American curve curved bull, and captures four sessions of flattening, with returns for 2 and 3 years below 4 bits per second. Nextup, an auction of $ 58 billion of notes for 3 years on Tuesday. * The oil rises for the third day, with Brent crude climbing 1 % above $ 67/barrel, its highest level since late April.
London invitation, arrows crawl higher
It was a somewhat quiet start for the week across the global markets on Monday, with strong gains in Asia, followed by higher grinding in Wall Street, which raised the MSCI World index to a new record. The main areas of concentration for investors are the “unloading of data” in China for the month of May, then the commercial talks of the United States of China in London.
The two are linked – the United States is a less important market for China than before, as they have been emphasized in the trade numbers in May from Beijing and reflected in the lack of tangible progress of negotiations in London.
China’s total exports increased by 4.8 % in May of the previous year, but this hides a major division between the United States and the rest of the world. Exports to the United States decreased by 34.4 % on an annual basis by value, and more severely decreased since February 2020 immediately before the epidemic, while exports to the rest of the world increased by 11.4 %.
The monthly data is volatile, of course, and the May numbers were distorted through the customs tariff. However, the US -bound shipments worth $ 28.8 billion last month were only 9 % of a total of 316 billion dollars. Economist Phil Suttle’s economist notes that this is less than half of the average share in the contract that led to the first trade war of president Donald Trump.
London talks are expected to continue on Tuesday. But as was the case in the aftermath of Trump’s phone call with Chinese leader Xi Jinping on Thursday, there is no significant indicators of great outbreak, much less than China curve of American demands.
“The American Treasury secretaries who live in unbalanced economies may not want to throw criticism like” the most unbalanced in modern history “in China without looking at some data,” Sotel wrote on Monday.
“The option to fight the opponent should be conditional on a clear vision of the strengths and weaknesses. The United States has done a great job of (again) to deceive itself on this front,” Sottel added.
However, the divisions between the two countries and the threat of global supply chains do not prove any obstacle to the rise in stock markets. Japanese NIKKEI, emerging MSCI and former Asia indicators increased by about 1 %, the Hong Kong technology shares increased by approximately 3 %, and Wall Street closed in green.
Meanwhile, the dollar’s trend this year is to decline, although the increasing American stocks and narrations were full on Monday. Wall Street closed slightly higher and cabinet revenues decreased by 5 basis points at the end of the short curve, yet the dollar slipped. Many analysts say that one of the main reasons for this is the hedge from an investor – more about it below.
The land dollar as investors looking for this additional hedge
All three major American assets – stocks, bonds and currency – were turbulent in 2025 so far, but only one failed to overcome the storm: the dollar. Hedge may be a major cause.
The three main Wall Street indicators and the treasury index in the United States are slightly higher for the year, despite the post -birth post -birth fluctuations, while the dollar has decreased steadily, as it lost about 10 % of its value against a basket of major currencies and breaking long connections along the way.
Perhaps the dollar was ready to fall. It is easy to forget, but just a few months ago, the American “exceptional” novel was alive and healthy, and the heights of the scaling in dollars were rarely seen in the past two decades.
But this narration has evaporated, as it made the controversial economic policies of President Donald Trump and the isolation position on the global theater to reconsider their exposure to their American origins.
But why does the dollar feel more burned than shares or bonds?
Racing pensions boxes
Non -American investors often protect themselves from sharp currency fluctuations through front markets, futures or options. The difference now is that the risk premium that is built in American assets is to pay them – especially stock holders – to undermine their exposure to the dollar than in the past.
Foreign investors have long surrounded their exposure to bonds, traditionally hedging from the dollar, between 70 % to 100 %, according to Morgan Stanley, where currency movements can easily be given modest bond returns.
But non -US -US stock investors were more hated to pay protection costs, as the average dollar hedge rates reached between 10 % and 30 %. This is partly due to the fact that the dollar was traditionally seen as a “natural” hedge against the exposure of the stock market, as it usually rises in the “risk” periods in which the shares decrease. The dollar will also be estimated when the US economy and markets were prosperous-the so-called “dollar smile”-giving an additional boost to American stock revenues at good times.
A good measure from the point of view of global investors on real funds on the dollar is the extent of the willingness of pension funds and foreign insurance to hedge from their rooted assets in dollars. Modern data on hedging from the Danish funds currency reveals.
The survival rate of American Danish assets increased to about 75 % of about 65 % between February and April. According to Deutsche Bank analysts, the 10 -point rate is the largest increase for two months in more than a decade.
Stories indicates that similar transformations occur through the Scandinavian countries, the euro and Canada region, and the regions where exposure to the dollar is also high.
The pension plan for teachers in Ontario, which is $ 266 billion, has recorded $ 6.9 billion in last year, mainly due to the strongest dollar. Unless the fund exceeds the hedging rate this year, it will sit on huge losses of foreign currencies.
“The exceptional investors have adopted overweight in the United States. But now, investors increase their hedge,” says Sofia Drosos, an economist and strategists in the hedging fund 72.
There is a lot of exposure to the dollar to hedge. At the end of March, foreign investors received $ 33 trillion of US securities, at $ 18.4 trillion of stocks and $ 14.6 trillion of debt tools.
Ride
Feeling of annoying in dollars has increased its traditional relations with stocks and bonds. Its negative association in general is reflected with the stocks, as well as a positive association with links. The difference with the cabinet gained more attention, as diving in dollars rose with a rise in the return. But as George Saravilus notes from Deutsche Bank, the collapse of the connection with the stocks is “very unusual”.
When Wall Street decreased this year, the dollar also decreased, but at a much faster pace. When Wall Street rose, the dollar also bounced, but just a little. This has led to the strongest positive connection between the dollar and the S&P 500 years in years, although this is somewhat deceptive, as the dollar has decreased sharply in the year while the shares are stronger moderate.
Of course, what we can see is just a balance. Saravelos estimates that the global exposure to the fixed dollar and stock managers were close to the last period before the last trade war. This has been a “periodic” phenomenon over the past two years instead of a deep -rooted structural state dependent on the basics, which means that it can be reversed relatively quickly.
However, regardless of this, it appears that the opposite wind of the dollar is likely to continue.
“Given the size of foreign property for both stocks and bonds, even a modest rise in hedging rates can prove a significant flow of FX,” wrote the FX strategy team in Morgan Stanley last month. “As long as uncertainty and volatility persist, we believe that the hedge rates are likely to rise as investors leave the storm.”
What can the markets move tomorrow?
* South Korean current account (April) * UK BRC retail sales (May) * UK Employment Kingdom (April) * Brazilian inflation (May) * Treasury auction in the United States for 3 years
The views expressed are the views of the author. It does not reflect the opinions of Reuters news, which, according to the principles of confidence, is committed to integrity, independence and liberation from bias.
(Written by Jimmy McGiv; Edit Nia Williams)
