Not surprisingly haven assets such as gold and the Japanese yen are up today. So are volatility measures such as the CBOE S&P 500 Volatility Index (VIX.) Surprisingly, the rush to safety hasn’t been as strong as you might expect after a day when U.S.President Donald Trump threatened North Korea with fire and fury and that country responded by threatening to nuke Guam.
Tens of thousands of demonstrators demanding the impeachment or resignation of President Michel Temer fought with police in Brasilia today. Protestors set fire to the Ministry of Agriculture. Remarkably the Brazilian real fell just 0.16% against the U.S. dollar. And the iShares MSCI Brazil Capped ETF (EWZ) actually gained 1.09% in the official session. I’m not quite sure what the degree of calm argues.
Now it’s Brazil’s president who has been swept into a political scandal by a secret recording. Brazil’s O Globo, one of the country’s largest newspapers, reported Wednesday evening that the Supreme Court has a secret tape of a President Michel Temer endorsing a bribe payment. As of noon New York time the iShares MSCI Brazil ETF (EWZ) were down 15.97%. The iShares MSCI Emerging Markets ETF (EEM) was down 1.98%
This morning it looks like the combination of turmoil in Washington and some weak economic data have led traders and investors to take money out of risk assets and put money into safe havens. The Standard & Poor’s 500 was off 1.11% and the NASDAQ Composite, which has led this market higher, was down 1.6%. The German DAX Index was off 1.3% and the French CAC 40 Index fell 1.69%.
After last week’s defeat of the American Health Care Act, the looming battle over funding the U.S. government past the April 28 deadline is critical. If the package that finally passes doesn’t include anything from the Trump administration’s wish list, then I think a financial market that has climbed on a belief in a big corporate tax cut and some kind of infrastructure plan, will start to lose some of the “animal spirits” that have driven U.S. stocks higher.
