Global markets will be heavily driven by three major forces this week, says Syz Group’s Charles-Henry Monchau—the US’s tax and spending bill, the looming tariff deadline on July 9, and any signals that could shift the needle on interest rate cuts or liquidity conditions in the second half of 2025. The chief investment officer shares his views on how these macro events could impact market activity and liquidity across equities, bonds, and foreign exchange.
Monchau discusses how he sees a dichotomy of events unfolding—whereby retail investors are complacent while some hedge funds are underexposed to risk assets. Also, in this episode, the CIO talks expected volatility in H2, potential methods for protecting cross-asset portfolios, and likely factors that could trigger a significant shift in the dollar’s valuation.
Interview:
Jo Gallagher What are some of the major events that could shape market activity and directional flow this upcoming week?
Charles-Henry Monchau Yeah, I think that the market has been very much focusing on three major drivers, lower taxes ahead with the big beautiful bill, lower rates ahead with the Fed potentially cutting rates in the second half of the year, and also lower tariffs than announced on the second of April. Now the big, beautiful bill has been signed by Mr. Trump last week all eyes of the markets are going to shift towards tariffs, where we are getting very close to the 9th of July deadline. It is not going to be a binary event. Some countries will probably be able to sign a deal before the deadline. Think about Vietnam, that’s done. I think India is possible. Other countries, they might just be able to sign the framework, which will probably be good enough, but the pain is probably with Europe and Japan. It will be very difficult for them to agree on something before the deadline. In Europe, there is still a focus on digital goods tax, with Japan is very much with the auto tariffs. We think that this could create some volatility because markets, we realize that yes, indeed, tariffs will be lower than on 2nd of April, but they will be higher on aggregate than current level. Liquidity has been a big story in the first half of the year. Although the Fed didn’t cut rates. If you look at an indicator like global M2, so that’s the global money supply, it takes into account money supply coming from China. It is denominated in dollars. So when you have a declining dollar, that means that also money supply is moving up and this boost in liquidity has been pushing stocks upward. If we look forward in the next few months, the picture might be a little bit different. Why is that? Because one of the reasons liquidity was, for instance, ample in the US is that they had this debt ceiling, which forced the US Treasury to tap into the TGA, so the Treasury General Account. So when the Treasury General Account is drawing down, that means that there is Fed liquidity going up. Now that the big, beautiful bill has been signed, that means that the debt ceiling will be lifted once again by $5 trillion. That’s the amount permitted now. And when it happens, they’re going to issue more treasuries. They will have to rebuild the TGA, the Treasury General Accounts. And that means that liquidity might not be as favorable as was the case in the first half of the year. So we don’t think that the liquidity tailwind which has been in place in the first half will be as strong in the second half of year, even if the Fed cut rates.
Jo Gallagher Would you say there’s too much complacency in the market right now?
Charles-Henry Monchau Well, by some surveys, it seems that retail investors, for instance, are indeed too complacent and overexposed to U.S. Equities. But on the other hand, if you look at professional investors like hedge funds and CTAs (Commodities Trading Advisor), some of them have missed the rally in the second quarter. So they are underexposured. The net exposure is way too low, especially if the rally continues. They will be forced buyers. So that will be very interesting to see how this develops in the coming weeks and months.
Jo Gallagher Given the ongoing fiscal challenges and government debt issues, how might investors protect their portfolios?
Charles-Henry Monchau Long-duration bonds might not be as useful as they were in the past. There was again some big drama in the UK last week. And if you look at the Big Beautiful Bill in the US, we are talking about $2 trillion additional budget deficit every year, and the debts might hit $53 billion in the next 10 years. So that means that governments have no other choice than to monetize debts. When they monetize debt, that means there is a loss of purchasing power. So, as an investor, as a trader, you need to concentrate on store values like gold, but also on risk assets like stocks. The good thing is that volatility has been going down quite meaningfully on the back rising stock prices. The VIX is currently at a very low level, which means that optionality is quite cheap. So buying put options on the main indices, which are hitting all-time highs, is also something that traders can do.
Jo Gallagher What are the specific factors that could trigger a significant shift in dollar valuation, and what would be the broader implications of that?
Charles-Henry Monchau I think, indeed, the dollar was a key market driver in the first half of the year. The dollar was overvalued. Fundamentals were not good. So the fact that the dollar has seen a big drop has triggered some regional asset rotations. So from the US to international markets, from the growth style to value style, from US treasury to US debts. Going forward, we think that will be in terms of fundamentals or the willingness of President Trump to devalue the dollar, that there is still some room for more dollar depreciation. But we also believe that most of the drawdown of the dollar has been seen in the first half of the year. There could be some surprise in the second half of the year, like for instance, the Fed might not cut rates as much as expected. Currently, the market expects between two and three rate cuts. We think that maybe one rate cut is our core scenario. Also, the economy might be more resilient than the market currently expects. So that could, let’s say, help the dollar to stabilize. And if it happens, well, that means that some of the performance leadership we have seen the first half of the year could start to reverse in the second half of year. So I think it’s key to monitor the dollar in the coming weeks and months.
Jo Gallagher Thank you, Charles-Henry, for your insight, and of course, you for watching this has been Trader TV This Week.
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