Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

U.S. and world stocks leaped on Monday as hopes that the U.S. government shutdown could soon end sparked a tech-fueled relief rally, while the yen slumped after Japan's Prime Minister Sanae Takaichi indicated her preference for looser fiscal and less hawkish monetary policy.  

More on that below. In my column today I look at the role currency hedging played in delivering a surprise 'win-win' for the Trump administration this year - a weaker dollar, and a Wall Street boom. Could the same stars align next year? 

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* Shutting down the shutdown

The end of the longest U.S. government shutdown in history is close at hand, it seems, and financial markets are breathing a big sigh of relief. At least stocks are - the dollar is flat and Treasury yields rose no more than four basis points.  

Beyond the immediate 'relief rally', is there much else markets can take from this? Other than the resumption of data collection and releases, perhaps not. Most of the lost economic output this quarter will be recouped the next. Maybe this just goes to show that investors are still inclined to 'buy the dip' than 'sell the rip'.

* Trump's $2,000 dividend checks

U.S. President Donald Trump has floated the idea of sending most American households $2,000 'tariff dividend' checks. Now, with an end to the government shutdown potentially in sight, and following a bruising bout of gubernatorial and mayoral elections, could he actually deliver? 

There are plenty hurdles, presumably including Congressional approval. And many analysts say it's not a credible policy while inflation is sticky, growth is solid and the deficit is so wide. But it is an insight into how the administration views the economy - run it hot and ignore the deficits.    

* US-China detente

US-China relations appear to be thawing. Two Reuters exclusives in recent days reveal that Beijing is designing a new rare earth licensing regime that could speed up exports, and FBI Director Kash Patel was in China last week to discuss fentanyl and law enforcement issues. 

It will be a long process, but it does look like both sides are putting the foundations of the trade deal framework agreed by Presidents Trump and Xi last month in place. And Washington will no doubt be pleased that Beijing's daily dollar/yuan fixing rate continues to grind lower. Another reason to 'buy the dip'?  

The Trump administration scored a surprise win-win this year, as Wall Street boomed while the dollar fizzled. But a repeat next year is unlikely as the root of that sweet spot, dollar hedging, may be missing.

A weaker exchange rate is central to President Donald Trump and Treasury Secretary Scott Bessent's vision of restoring the might of U.S. manufacturing, increasing U.S. exports, and narrowing the country's huge trade deficit. 

The administration got its wish this year, with the dollar index clocking its worst January-June period in more than half a century, plunging as much as 12% at one point, while the S&P 500 shrugged off the 'Liberation Day' tariff chaos in April and soared to new highs. 

The key ingredient in this unusual mix was dollar hedging. Overseas investors baulked at Trump's economic and foreign policy agendas early into his second term in office, but they still wanted exposure to the artificial intelligence-fueled equity boom. So they hoovered up U.S. stocks, but hedged the currency risk by selling the dollar via derivatives contracts.