{"text":[[{"start":7.03,"text":"In the Trump 2.0 era in financial markets, the dollar is taking the strain."}],[{"start":13.010000000000002,"text":"Other bits of markets are performing surprisingly well, in the circumstances, much to many investors’ (and my) surprise. It’s incredible how far a president can chip away at institutional credibility and the invisible hand of capitalism without troubling ordinary Americans’ pension pots. "}],[{"start":36.7,"text":"Stocks, in particular, have shaken off the shock they received in early April with the release of the president’s global trade tariffs to reprise all-time highs, and it takes a special sort of nerd, one who cares about the different yields available on bonds with different maturities, to see the angst in supposedly disciplining debt markets. "}],[{"start":60.99,"text":"The dollar, however, is getting beaten up. It has dropped by more than 10 per cent so far this year. With still more than one quarter of 2025 to go, that would already make this the weakest year for the world’s dominant trade and reserve currency in more than two decades, carving out declines against every other major currency on the planet."}],[{"start":null,"text":"
"}],[{"start":86.07,"text":"Clearly, this is not the result of a mass rush out of US assets — the buoyant stock market kills that idea pretty comprehensively. Instead, it reflects a sharp switch in the way global investors buy into US markets. As Deutsche Bank’s George Saravelos put it in a striking note this week, “foreign investors are now removing dollar exposure at an unprecedented pace”."}],[{"start":114.61999999999999,"text":"What this means is that, sure, foreign investors still want to buy stocks in fast-growing companies, and those fast-growing companies tend to live in the US, especially in its dominant technology sector. On a near daily basis recently, at least one investor has brought up the adage by former Citi chief executive Chuck Prince from 2007 that “as long as the music is playing, you’ve got to get up and dance”. If that doesn’t give you pause, nothing will."}],[{"start":null,"text":""}],[{"start":148.06,"text":"But as they buy US assets, they sell US dollars, to neutralise the risk that they will get chewed up by a drop in the currency when they bring investment returns back home. Now, Saravelos said, hedged flows into US exchange traded funds are outweighing unhedged flows for the first time this decade. This switch is, he said, “exceptionally stark” in stocks, where more than 80 per cent of inflows are now hedged — an extraordinary run-up from the start of the year, when the hedged portion was close to zero. But in bonds, too, the hedged tally is running at about half of the total."}],[{"start":188.99,"text":"The relatively dull explanation for this is that the US has just restarted cutting interest rates while some other major central banks are signalling their cutting cycles are at or close to an end. When interest rates move in opposite directions to each other, currencies tend to follow suit, even when other factors would suggest a different outcome — witness for example the impressive stability in the euro despite the latest political doom loop in France."}],[{"start":null,"text":""}],[{"start":220.57,"text":"This week’s pronouncements from the US central bank itself underlined the extent to which, if Trump fully got his way, interest rates would continue to fall precipitously from here. The Federal Reserve lopped a quarter of a percentage point off interest rates on Wednesday but its so-called “dot plot” that shows where rate setters believe rates should be in the months ahead contained a conspicuous outlier, widely believed to be Trump’s latest appointee to the central bank, Stephen Miran. "}],[{"start":255.16,"text":"Miran was the sole voter this month for a larger half-point cut in rates, and his “dot” (it’s anonymous, but logic suggests it must be his) pencils in a whopping further 1.25 percentage points in cuts over the rest of this year. Given the Fed has just two scheduled rate-setting meetings left in 2025, that implies seriously chunky crisis-style rate cuts at each meeting, and maybe even an intra-meeting cut. Miran is unlikely to get his way here. But as a statement of intent for what a fully Trump-controlled Fed would do, it is powerful stuff."}],[{"start":298.76,"text":"Interest rates are only half of the story, however. Those dollar hedging rates kicked up way before rates started to fall again this week. Trump and his economic team might well be happy about this — on paper, a weaker dollar helps to boost domestic manufacturing. But it is a grim signal that investors fear institutional damage in the US, with all the volatility and long-term economic cost that entails. The same signal is coming from the soaring gold price, which blasted through to new record highs this week."}],[{"start":333.28999999999996,"text":"In its latest five-year outlook this week, Robeco assigned a decent probability — 35 per cent — to a total unravelling in the global financial order, a “self-inflicted, preventable” sidelining of multilateral bodies and national central banks, ushered in by the US. “Investors are still climbing a wall of worry,” said Peter van der Welle at the Dutch asset management house. This “exorbitant decay”, as he put it, is now widely seen as a serious possibility."}],[{"start":367.81999999999994,"text":"The lesson to take from this is that the impressive recovery in stocks is masking deep anxiety from investors about the path forward for the global economy and for the political paradigm shift now emphatically under way in the US. For now, the buck stops with the buck."}],[{"start":401.7499999999999,"text":""}]],"url":"https://audio.ftmailbox.cn/album/a_1758581103_5223.mp3"}