May 24, 5:00 pm EST
We have a lot of geopolitical noise surrounding markets.
Let’s step through them:
1) Yesterday, we discussed the Trump trade threats with China:
How is it playing out?
We have an economy that is leading the global economic recovery. China wants and needs to be part of it. Trump’s bark, with the credibility to bite, is creating movement. It’s creating compliance. That’s becoming a very positive catalyst for global economy and for geopolitical stability (the exact opposite of what the experts have predicted these tactics would produce).
2) We’ve talked about the shock-risk developing in Europe. A coalition government forming in Italy, with an “Italy first” approach to the social and economic agenda, has created some flight of Italian bond market capital toward safety. This has people skittish about another blowup threat of the euro zone.
How is it playing out?
The last time Italy was on default/blow up watch, the 10 year yields were 7% (unsustainable levels). At those levels, the ECB had to intervene.
This recent move in the Italian bond markets leaves yields at just 2.4% …
This looks like Grexit, Brexit and the Trump election. It creates leverage for the third largest economy in the European Union (excluding Britain). In this case, we may see it result in a loosening of fiscal constraints in the European Union – and an EU wide fiscal stimulus plan to follow the lead of the U.S.
3) The North Korean nuclear threat …
How is it playing out?
Eight months ago, North Korea launched a missile over Japan. Markets barely budged, and the world continued to turn. Now, we’ve quickly gone from an imminent threat to potential denuclearization. And now a meeting has been cancelled. With that, on the continuum of this relationship, I’d say it’s closer to its best point, rather than its worst.
Bottom line, these risks should do little to stop the momentum of the economy and the stock market.