"Climate Crisis" paid by Global Currency Devaluation?

Macro Perspectives: Mon 1 Nov 2021

We closed the week, and month, with stocks trading to new record highs.

But it's not the risk-on, feel good market that a record high in the S&P 500 might suggest, especially ten months into a year, where stocks are up over 20%.

For perspective, six of the eleven S&P 500 sector tracking ETFs (chart below) finished down on the day alongside the small cap index (Russell 2000).

Yields were unchanged on the day.  Moreover, for a stock market that was up 6.9% for October and closed on new record highs, the 10-year yield traded, at one point on Friday, unchanged for the month!

These are market interest rates, and should be rising with a recovering economy, especially given that the Fed is due to begin reversing emergency policies this week. The intermarket behavior seems out of sync with the economic and geopolitical picture.

With the above in mind, we have a lot of events over the next few days that will influence markets. The G20 meeting was over the weekend, which will blend into a global climate summit. I would expect this to be an opportunity for the top countries in the world, which have already committed to the climate action cause, to make the "climate crisis" case to the world.

The U.S. is positioned to lead the way with a big fiscal spend in the name of energy transformation. In the face of record global sovereign indebtedness, I wouldn't be surprised to see the top countries in the world vow to follow the U.S., with massive deficit spending plans to fund the climate agenda.

The big question is, how will it all be paid for? Will it ultimately (and maybe soon) come in some form of a global currency devaluation?