Blog doce magia

A Reuters Open Interest newsletter

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

Oil prices rose again on Monday on the lack of any sign that the Strait of Hormuz will reopen soon, but that didn't prevent the S&P 500 and Nasdaq from eking out new highs, as investors awaited a raft of earnings and central bank meetings this week.

In my column today, I look at why repeated calls for fiscal discipline from the IMF and others will fall on deaf ears. In a balkanized world with countries spending heavily on energy, military and resource security, deficits and debt are here to stay. 

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

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* The $1 trillion club

Three IPOs, three $1 trillion-plus price tags? Elon Musk's SpaceX is targeting a $1.75 trillion valuation in what would be the largest IPO ever and OpenAI is reportedly seeking a $1 trillion valuation. Could Anthropic be joining them?  

Reportedly drawing offers from venture capital firms valuing it at $800 billion earlier this month, Google on Friday said it will invest up to $40 billion. That will lift the value even higher. Careful though - with IPOs approaching a combined $4 trillion, roughly 16% of the MSCI World IT index, could create a "significant overhang" for software valuations, warns Candriam. 

* Canada SWF

Canada is about to get its first sovereign wealth fund, prime minister Mark Carney said on Monday. The Canada Strong Fund will have an initial endowment of C$25 billion ($18.4 billion) to invest in major domestic projects, Carney said. 

Canada joins other resource-rich or surplus-heavy nations like Norway, China and many Gulf states to have an SWF. Donald Trump has said he wants a U.S. SWF, although that idea appears to have gone cold. Might Carney's announcement re-focus Trump's attention to this matter?

* Powell's last stand

The Fed's two-day policy meeting begins on Tuesday, and it will almost certainly be Jerome Powell's last as Fed chair. With the path now seemingly cleared for nominee Kevin Warsh to be confirmed by the Senate by May 15, Powell's tenure as chair is almost up. 

Will he stay on as a Fed governor until 2028, as his terms allow? Possibly. Powell may give more clarity on that at his post-decision press conference on Wednesday. Either way, let the debate begin over his legacy and standing in the pantheon of Fed chairs. Thoughts? 

With government debt levels sky high across the developed world, leaders are being warned to get their fiscal houses in order, but in an age of higher military spending, resource nationalism and a technological arms race, that call will almost certainly fall on deaf ears. Fiscal watchdogs should stop pretending otherwise.

Although economic growth has been resilient in recent years, the fiscal picture has deteriorated. Public debt in the U.S. and many developed economies is the highest in decades as a share of gross domestic product, excluding the pandemic distortions of 2020, in some cases the highest since World War Two.

The International Monetary Fund beat a familiar drum at its spring meetings this month, calling on governments to reduce their deficits and debt. The window for an "orderly" adjustment is closing fast, and the fiscal buffers needed to stabilize debt-to-GDP ratios have all but disappeared.  "Credible, well-sequenced fiscal adjustment is urgently needed across all country groups," the IMF said.   Good luck with that.