London Calling, Stocks Crawling Higher

Making Sense of the Forces Driving Global Markets

By Jamie McGeever, Markets Columnist

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Trade tensions, policy uncertainty and shaky economic data continue to cloud the near-term outlook for world growth, but they remain on the back burner for now as inviters kick off the possess of Global Stock Markets Higher.

In my column today I look at whose dollar has depreciated significantly this year Regardless of how us us stocks and bonds have performed. The main reason? Hedging. More on that below, but first, a roundup of the main market movies.

If you have more time to read, here are a less articles I recommend to help you make sense of what happy in markets today.

1. Defying Debt Warnings, Republicans push forward on Trump Tax Agenda

2. ‘Blue’ Euro Bonds to Rival Treasuries?: Mike Dolan

3. Japan to Consider Buying Back Some-Long Government Bonds, Sources Say

4. Wall Street, Main Street Push for Foreign Tax Rethank in Us Budget Bill

5. Auto companies ‘in full panic’ over rare-etleneck

* World Stocks Set a New Record High. The MSci World Index Rices 0.3% to 895.60 points.

* Wall street closes in the green despite a flurry of late seling, and the s & p 500 nudges further about 6000 points. The Russell 2000 Small Caps Index Rices Most, Up 0.6%.

* The Dollar Index Slips 0.25%. But the biggest declineer in global fx on monday is the colombian peso, down 0.7% after the assassination attempt on Senator miguel uribe, a potential presiderative contender.

* The us yield curve bull steepens, snapping four sessions of flatting, with the 2- and 3-yaar yields down 4 bps. Next Up, A $ 58 billion auction of 3-year notes on tuesday.

* Oil Rices for a third day, with breast Crude Climbing 1% Above $ 67/BBL, Its Highest Level Since Late APRIL.

London Calling, Stocks Crawling Higher

It was a fairly quint start to the week across global markets on Monday, with strong rights in asia following by a grind higher on wall street which lifted the msci world High. The main area of ​​focus for investors were China’s economy data dump ‘for may, then the high-level us-china trade talks in London.

The two are connected – The us is a less important market for china than it used to be, underscored in may’s trade figures from from beijing and reflected in the lacked in the lacquet of concrete evils from the negotia. London.

China’s Total Exports Rose 4.8% in May from a year from a year from a year from a year from a huge split between the US and the rest of the world. Exports to the US plunged 34.4% year-on-yar in value terms, the sharpest drop since February 2020 just before the Pandemic, While Exports to the ROSE ROSE 11.4%.

Monthly Data are Volatile, of Course, and May’s Figures were also distorted by tariffs. Still, US-Bound Shipments Worth $ 28.8 Billion Last Month Were Just 9% of the Total $ 316 Billion. Economist Phil Suttle Notes That is Less Than Half The Average Share in the Decade Leading Up to President Donald Trump’s First Trade War.

The London Talks are expected to continue on tuesday. But as was the case following trump’s telephone call with chinese leader xi jinping on Thursday, there is a little indication of a significant breakthrough, Far Lesses China Bending to Us demands.

“Us treasury secretaries who live in unbalanced economies might not want to throw barbs Monday.

“The choice to fight an opponent should be conditioned on a clear-handed view of its strengths and weaknesses. The us has done a marvelous job of (Once Again) Delhi

Still, Divisions Between the Two Countries and the Threat to Global Supply Chains are Proving No Barrier to Rising Stock Markets. Japan’s Nikkei and the MSci Emerging and Asia EX-Japan Indexes Rose Around 1%, Hong Kong-Listed Tech Stocks Rose Nearly 3%, and Wall Street Closed in the Green.

Meanwhile, the dollar’s trend this year of declining despite us stocks and bonds rising was on full display on Monday. Wall Street Closed Slightly Higher and Treasury Yields Fell as much as 5 Basis points at the short end of the curve, yet the dollar slipped. Many analysts say one of the main reasons for this is non -in -investor Hedging – More on that below.

Dollar Flored as Investors Seek That Extra Hedge

All Three Major Us Asset Classes – Stocks, Bonds and The Currency – Have Had a Turbulent 2025 Thus Far, but only one has failed to weather the story: The dollar. Hedging may be a major reason why.

Wall street’s three main indices and the ice bofa us treasury index are all slightly higher for the year to date, despite the post-‘Liberation Day’ Volatiy, While The Doller Has STADILY HAS STADILY HAS SC Around 10% of its value against a basket of major currency and breaking long-standing correlations along the way.

The dollar was perhaps primed for a fall. It’s easy to forget, but only a more months ago the ‘Us exceptionalism’ narrable was alive and well, and the dollar scalaning heights rarely seen in the past two decades.

But that narrative has evaporated, as us president donald trump’s controversial economic colices and isolationist posture on the global stage has investors reconsider Reconsider Reconsider their account to us as assets.

But why is the dollar feeling the burn more than stocks or bonds?

Non-as investors often protect themselves against sharp currency fluctuations via the forward, futures or options markets. The differentice now is that Risk Premium Being Built IS Assets is Pushing Them – Especially Equity Holders – to Hedge his dollar exposure more than the past.

Foreign Investors Have long

But non-as equity investors have been over loath to pay for protection, with dollar hedege ratios averaaging between 10% and 30%. This is partly trust the dollar was traded as a ‘natural’ hedege against stock market expenses, as it would typical Rise in ‘Risk off’ Periods when stocks fell. The dollar would also be also normally appreciate when the US economy and markets was thought-the so-called ‘dollar smile’-giving an additional boost to us equity return in good time.

A Good Barometer of Global ‘Real Money’ Investors’ View on the Dollar is how willing Foreign Pension and Insurance Funds are to hedege their dollar-denominated assets. Recent data on Danish Funds’ Currency Hedging is Revealing.

Danish Funds’ Us Asset Hedge Ratio surged to Around 75% From Around 65% Between February and April. According to deutsche bank analysts, that 10 percented points is the largest two-month increase in over a decade.

Anecdotal Evidence Suggessts Simlar Shifts are Taking Place Across Scandinavia, The Euro Zone and Canada, Regents where dollar exposure is also high.

The $ 266 Billion ontario Teachers’ Pension Plan Reported A $ 6.9 Billion Foreign Currency Gain Last Year, Mainly Due to the Stronger Dollar. Unless the fund has increased its hedging ratio this year, it will be sitting on huge foreign currency losses.

“Investors Had Embraced Us Exceptionalism and Were Overweight Us Assets. But Now, Investors are Increasing their Hedging,” Says Sophia Drossos, Economist and Strategist At the Heedge Fund Point72.

And there is a lot of dollar exposure to handge. At the end of March Foreign Investors Held $ 33 Trillion of US Securities, with $ 18.4 Trillion in equities and $ 14.6 Trillion in Debt Instruments.

The dollar’s malaise has said its traditional relationships with stocks and bonds. Its generally negative correlation with stocks have revered, as have the usually positive correlation with bonds. The divergence with treasuries have gained more attention, with the dollar diving as yields have risen. But as Deutsche Bank’s George Saravelos Notes, The Correlation Breakdown with Stocks is “very unusual”.

When wall street has fallen this year the dollar has fallen too, but at a much faster pace. And when wall street has risen the dollar has also bounced, but only slightly. This has been to the strong post positive correlation between the dollar and s & p 500 in years, though that!

Of course, what we could be seeing is simply a rebalancing. Saravelos Estimates that Global Fixed Income and Equity Manners’ Dollar Exposure was at Near Record-High Levels in the Run-up to the Recent Trade War. This was a “cyclic” phenomenon over the last Couple of Years Rather Than a Deep-Roted Structural One Based on Fundamentals, meaning it Could Be Relatively Quickly.

But, Regardless, The Dollar’s Hedging Headwind Seems Likely to Persist.

“Given the size of Foreign Holdings of Both Stocks and Bonds, even a modest uptick in Hedge Ratios Block Prove A Considerable FX Flow,” Morgan Stanley’s FX Strategy TEAM Wrote Last Last Month. “As long as uncertainty and valatily person, we think that hedege ratios are likely to risk as investors ride out the story.”

What Cold Move Markets Tomorrow?

* South Korea Current Account (April)

* UK BRC Retail Sales (May)

* US 3-Year Treasury Note Auction

Opinions expressed are there that of the author. They do not reflect the views of reuters news, which, under the Trust Principles, is committed to integrity, independence, independence, and freedom from bias.

(By Jamie McGeever; editing by nia williams)