Blog: AI and Tariffs and War. Oh my!
The bond market is expecting to find something worse than a cowardly lion.
The markets retreated last week. But action was relatively benign given the market was hit by:
- Resumption of Middle East hostilities and Brent Crude rising to $100/barrel,
- Increasing skepticism on the value of AI spending, and
- New tariffs by the US on 60 countries under new criteria.
Market risk indicators began a more earnest rise, however. The US VIX is now close to reversing its downward trend. Oil and Emerging Markets continued to signal higher risk while Europe still has a ways to go. So hedgers are starting to pay a slightly higher price for insurance. Yet, given the convergence of these risks, the market reaction remains muted.
In the movie version of the Wizard of Oz, Dorothy, the Tin Man and Scarecrow are frightened of lions and tigers and bears (Oh my!) while walking through an enchanted forest. But they only find a cowardly lion. It appears that the markets faced with the trifeca of risks I listed above are expecting that something equally benign awaits them.