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Markets have normalised Trump and ignored the risks

11 7 1

Financial markets’ perception of US President Donald Trump is becoming more perplexing by the day. Over the past few weeks, Trump has ignited a trade dispute with long-standing allies of the United States in Europe and Japan, lashed out at the prime minister of Canada and, according to most foreign policy experts, made dangerous concessions to North Korean leader Kim Jong-un at Tuesday’s US-North Korea summit in return for a vague commitment to dismantle Pyongyang’s nuclear programme. Yet markets’ reaction to these worrying developments has been one of indifference.

On Tuesday, the benchmark S&P 500 equity index even rose modestly, taking its gains since the end of May to more than 3 per cent. Perhaps more surprisingly, the Kospi, its South Korean equivalent, barely budged and is up nearly 2.5 per cent since the end of last month. Meanwhile, the VIX Index, frequently referred to as Wall Street’s “fear gauge”, which rose sharply during the recent sell-off in Italy’s bond market, currently stands just above its lowest level on record.

How is it possible that markets can shrug off events as momentous as the crumbling of the rules-based system of international trade and a US-North Korea summit outcome that is being portrayed as a victory for one of the world’s most notorious despots?

The simplest explanation........

© South China Morning Post