First question is with respect to Trump tax bill which has been passed by the senate and now requires upper houses approval. If at all that were to be passed, how do you read this development and what does this mean for global equity markets?
Steve Englander: Well, the market is still trying to read it and some of the volatility we saw in the New York session is because the market is trying out various reactions.
My guess is that it would push up bond yields a little bit because it does seem that where they need to compromise, they compromise on papering over issues, either kind of spending cuts do not get made or tax increases are delayed and likely never to come.
So, I think that the bond part is reasonably clear. Equities seemed to like it more or less. And the dollar really was not sure. Markets are concerned about the deficit in the US, but they also like higher yield. And what we have seen is that the usual correlation between rates differentials and the dollar has largely been restored over the last months or two months. So, it is very ambiguous right now.
I want to understand from you, now apart from the tax bill that we just spoke about, the tariff deadline of July 9th that is also looming and since the tariffs were announced in April, we have recovered from those lows. In fact, in the US market S&P 500 and Nasdaq they hit their records in the first half of 2025, but then a very interesting trend that we saw yesterday, tech stocks have taken a hit starting the second half of calendar year. So, where do you see the next leg of move coming in for the US markets and also if you could comment on what kind of global risk sentiment do you see shaping up because of the tariff deadline looming?
Steve Englander: Well, part of the reason US equity market performance has been so good and part of the reason the dollar has been so weak is that the market has become more optimistic, that the July 8th or 9th deadline is not going to be resolved in an aggressive way the way the April 2nd was, but it will end up being relatively benign.
And the market would love to see the status quo. I know it sounds crazy because everybody is tariffed up, but there is a sentiment that the world can live with the 10% baseline tariffs and they are hoping that the US does do a couple of deals, delays any sanctions, let negotiations continue, and that is pretty much what is priced in.
When you are looking at the second half of the year, the market is at certain point going to have to look past both the tariff debate and the fiscal bill and say what is the outlook for growth, what is the outlook for profits and again I would say that it is more ambiguous.
It is not clear that there is that much supply side incentive that is priced into this bill. So, we will have to see how markets react. But it is also possible that exogenous factors that we just see AI implemented and contributing to profits and productivity that, that gives a better tone completely independent of policy.
But also wanted your thoughts on the US dollar and especially dollar index which continues to trade at the lowest level that we have seen since 2022. How do you see the US dollar moving and what kind of impact will that have on other currencies as well?
Steve Englander: Well, the market is very negative dollars. Sentiment is very negative dollars. Positioning is negative dollars. And I do not think that global asset managers and investors have sold all the dollars or hedged all the dollar positions that they want. And again, I would say that there are different forces in play.
Longer term, it may well be that the dollar continues to fall. But if we end up having yields backing up, the market will have to decide whether to chase yields, which they have done so often, or treat that yield back up as a risk premium which would be negative dollars. So, overall, I would say the longer-term picture is probably not great, but there is balance of forces in the near term that could keep the dollar volatile.
