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Chart of the Day - dollar
I wake up to the top stories of the day today and the top two stories are about the debt-ceiling talks. The first is that stocks are rallying on optimism around the talks. The second is that weekend staff discussions were constructive w/ more talks Tuesday

It is not entirely clear when the 'drop-dead date' quite is with Sec Yellen saying June 1 but others saying later. The Treasury General Account has $143bb according to Bbg but only $88bb according to some stories

The Treasury also gets an influx of cash from quarterly tax payments on June 15 so it isn't entirely clear where the deadline is. What is clear is that we will probably get pretty close to it before any agreement is hammered out

Neither side has an incentive to be seen to cave too early in these discussions so I think it is safe to think it gets worse before better. recall I have shown charts 2wks ago that showed the stress in short-term rates mkts & credit default swaps sees a lot more risk this time

However, there may be other trends going on that we should also beware of. We shouldn't just look at short-term dollar moves & think the debt ceiling is the only game

The dollar has a tendency to trend for long periods of time with some cyclical noise around those trends. When the dollar is trending weaker it is typically because investors see more oppty to invest outside the US on a relative basis. See the left side of the chart from 2000-2008

Since the Fincl Crisis, money has sought the safety of the US vis a vis the rest of world whether considering emerging mkts or other developed mkts. I show the performance of EEM or EFA relative to SPY. The dollar has trended stronger & US stocks have dusted rest of world stocks

Are we seeing a trend change here? Since last year the dollar has weakened a bit in a cyclical sense but this hasn't yet change the trend. Importantly, to me, we are not seeing a meaningful up tick in performance of rest of world stocks vs. the US

If we are seeing a trend change in the dollar, I would think this would be corroborated with a stronger narrative around the oppty in EM yet the stories of late are the fizzling of China growth or the risks still inherent in Taiwan

We have seen European stocks get off to a faster start than the US this year but the stories in the mkt taking us higher right now are more about AI & certain US names & less about the consumer, retail or travel names driving Europe higher

It feels like the next 2-4 weeks are going to be more about this US macro story and less about the inflation/Fed narrative or the better than expected earnings story. These can be frustrating times for equity investors

Best to ask if the trend is changing or if this is just noise in the bigger scheme of things. Best to ... Stay Vigilant
#markets #investing #dollar #stayvigilant

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