Karl Schamotta
@karl-schamotta
Chief Market Strategist, Corpay by day. Nerd by night. Opinions expressed are solely my own and do not express the views or opinions of my employer.
Not sure if markets are betting on a poutine-flavoured TACO, but the Canadian dollar’s selloff on tonight’s Trumpian tariff news has been remarkably mild thus far:
Speculators may already be unwinding long dollar/short foreign currency positions, but the adjustment has further to go:
The euro area economy is again outperforming (admittedly very low) expectations:
The pound has been enjoying a fairly substantial short squeeze, but demand for downside protection remains high:
A sustained unwind in tech-sector valuations could generate a meaningful tightening in US financial conditions:
Trump Media & Technology Group announced the launch of a new data feed that “would deliver Trump’s posts to customers “milliseconds” before those posts reach the public” www.ft.com/content/32db...
Nice to see a little volatility in FX markets, even if it lacks conviction:
Surprising no one, foreign demand for US assets remained undiminished in May:
Turns out "sternly staring at inflation until it melts before our withering gaze" works surprisingly well
Someone said "When the facts change, I change my mind. What do you do, sir?". Markets said "hold my beer".
And here are household balance sheets expressed in nominal terms - equity holdings among the top 10% dwarf the rest of society (2/2)
Apropos a nice response from @ncsinvesting.bsky.social, here is how asset holdings break down across the top four deciles in the US wealth distribution, with equity holdings making up a far larger share for the wealthiest households (1/2)
It’s. All. One. Big. Bet. Sobering stuff from @weisenthal.bsky.social on the other site:
The gap between Canadian and US unemployment rates—which has historically served as a reasonably strong predictor of long-run FX performance*—is now arguably pointing to oversold conditions in the loonie. *I'm greatly indebted to BMO's Doug Porter for highlighting this relationship years ago.
A breakdown in the US-Iran ceasefire has led to a big jump in monetary tightening expectations across the advanced economies this morning, but one suspects it won't last long: another helping of TACO is on its way.
It's increasingly difficult to escape the conclusion that fiscal worries* really are playing a role, with long-term investors hedging an eventual dissipation in JGB demand. *full disclosure: have been resisting the fiscal explanation for years, and am still not convinced
To wit, the US protectionism is not solving trade imbalances, just shifting them geographically. Merchandise imports from China, Japan, and the euro area fell in May relative to the same month two years prior, but went up everywhere else to a much larger degree:
By fuelling US consumer demand, starting wars, and jawboning the Canadian dollar down through trade threats, Trump is doing wonderful things for Canadian exports – they jumped 21.5% this May relative to the same month in 2024:
Course, if you wanted a single graphic image to sum up today’s US, you could do worse than this one:
Markets are pulling back on the number of Fed rate hikes expected by year end, but the reversal has been fairly modest thus far:
Perversely, if the US wanted to engineer a competitive devaluation in the Canadian dollar (boosting Canadian exporters), its policy approach wouldn't look much different from the one it is pursuing.