ORLANDO, Florida, Nov 10 (Reuters) - U.S. and world

stocks leaped on Monday as hopes that the U.S. government

shutdown could soon end sparked a tech-fueled relief rally,

while the yen slumped after Japan's Prime Minister Sanae

Takaichi indicated her preference for looser fiscal and less

hawkish monetary policy.

More on that below. In my column today I look at the role

currency hedging played in delivering a surprise 'win-win' for

the Trump administration this year - a weaker dollar, and a Wall

Street boom. Could the same stars align next year?

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.

1. US Senate compromise sets stage for end to

government

shutdown

2. Stock market hits speed bump but investors stay

on

bullish path

3. AI clouds up the economic dashboard: Mike Dolan

4. EXCLUSIVE-China starts work on easing rare earth

export

rules but short of Trump hopes, sources say

5. Takaichi flags looser fiscal goal, urges BOJ rate

hike

caution

Today's Key Market Moves

* STOCKS: Wall Street up between 0.8% and 2.3%.

South

Korea up more than 3%, Italy more than 2% to new 18-year high.

* SHARES/SECTORS: U.S. tech +2.7%, consumer

discretionaries +1.5%, consumer staples -0.3%. Palantir +8.8%,

Nvidia +5.8%. Roundhill 'Mag 7' ETF has biggest gain since May.

* FX: Dollar index flat, but dollar/yen spikes above

154.00. Yen is the big G10 FX decliner, Aussie the big gainer.

* BONDS: U.S. yields up 4 bps at the short end as

Dec Fed

rate cut probability slips closer to 60%. Curve bear flattens.

* COMMODITIES/METALS: Gold spikes 3%, oil up nearly

1%.

Today's Talking Points

* Shutting down the shutdown

The end of the longest U.S. government shutdown in

history is close at hand, it seems, and financial markets are

breathing a big sigh of relief. At least stocks are - the dollar

is flat and Treasury yields rose no more than four basis points.

Beyond the immediate 'relief rally,' is there much else

markets can take from this? Other than the resumption of data

collection and releases, perhaps not. Most of the lost economic

output this quarter will be recouped the next. Maybe this just

goes to show that investors are still more inclined to 'buy the

dip' than 'sell the rip.'

* Trump's $2,000 dividend checks

U.S. President Donald Trump has floated the idea of

sending most American households $2,000 'tariff dividend'

checks. Now, with an end to the government shutdown potentially

in sight, and following a bruising bout of gubernatorial and

mayoral elections, could he actually deliver?

There are plenty of hurdles, presumably including

Congressional approval. And many analysts say it's not a

credible policy while inflation is sticky, growth is solid and

the deficit is so wide. But it is an insight into how the

administration views the economy - run it hot and ignore the

deficits.

* US-China detente

U.S.-China relations appear to be thawing. Two Reuters

exclusives in recent days reveal that Beijing is designing a new

rare earth licensing regime that could speed up exports, and FBI

Director Kash Patel was in China last week to discuss fentanyl

and law enforcement issues.

It will be a long process, but it does look like both sides

are putting the foundations of the trade deal framework agreed

by Presidents Trump and Xi last month in place. And Washington

will no doubt be pleased that Beijing's daily dollar/yuan fixing

rate continues to grind lower. Another reason to 'buy the dip'?

Trump's dollar balancing act may hinge on hedging

The Trump administration scored a surprise win-win this

year, as Wall Street boomed while the dollar fizzled. But a

repeat next year is unlikely as the root of that sweet spot,

dollar hedging, may be missing.

A weaker exchange rate is central to President Trump and

Treasury Secretary Scott Bessent's vision of restoring the might

of U.S. manufacturing, increasing U.S. exports, and narrowing

the country's huge trade deficit.

The administration got its wish this year, with the dollar

index clocking its worst January-June period in more than half a

century, plunging as much as 12% at one point, while the S&P 500

shrugged off the 'Liberation Day' tariff chaos in April and

soared to new highs.

The key ingredient in this unusual mix was dollar hedging.

Overseas investors baulked at Trump's economic and foreign

policy agendas early into his second term in office, but they

still wanted exposure to the artificial intelligence-fueled

equity boom. So they hoovered up U.S. stocks, but hedged the

currency risk by selling the dollar via derivatives contracts.

PEAK HEDGING?

The dollar has been broadly steady since June, while Wall

Street has moved ever higher, suggesting there may still be

sufficient hedging activity capping the dollar's upside.

In fact, more than 80% of U.S. equity inflow from abroad is

now hedged, according to Deutsche Bank. If true, that suggests

there's not much scope to increase.

Of course, no official hedging data exists, nor any singular

method to measure it, resulting in a wide range of estimates,

with Deutsche Bank's approximation at the top end.

Strategists at JPMorgan reckon hedging demand has cooled in

recent months as the apocalyptic trade war fears of earlier this

year have faded and the dollar has stabilized.

They analyze net inflows into U.S. equity exchange-traded

funds domiciled abroad, assessing what percentage of this

capital goes to currency-hedged versus unhedged ETFs.

There has been steady demand for both from foreign investors

since July, but the flow in dollar terms has been significantly

skewed to the much-larger pool of unhedged ETFs.

ON THE WANE

How will hedging demand shape up next year? If the world's

view of the dollar and the U.S. darkens as it did early this

year, investors are likely to maintain high hedge ratios,

limiting the dollar's upside even if foreign buyers retain their

appetite for Big Tech-related equities.

On the other hand, the AI-driven 'U.S. exceptionalism'

narrative has re-emerged since mid-year. Just look at Nvidia's

recent $5 trillion valuation. If the U.S. economy outperforms

next year, foreign investors may have little reason to hedge at

all.

A Bank for International Settlements study in June concluded

that "the relative importance of hedging may wane as a driver"

for the dollar, and that the U.S. economic outlook is likely to

weigh more heavily in investors' minds moving forward.

POLICY PARADOX

How does this tie in with Trump's economic agenda? This is

where things get complicated.

While a softer greenback is at the core of Trump's policy,

it is also at odds with another administration goal for the

coming year - attracting a tidal wave of record investment from

overseas governments and corporations into the U.S. that Bessent

claims will lift Main Street and Wall Street in tandem.

"Trillions and trillions of dollars (are) being poured back

into our country by other countries and other places and

people," Trump told a business forum in Miami last week,

claiming that he has already secured $18 trillion in pledged

investment from abroad, which will allegedly rise to $21

trillion.

Even if these figures are heavily embellished, there remains

a fundamental inconsistency, for Main Street at least. Huge

capital inflows should, all else being equal, cause the dollar

to appreciate.

Hedging is a key reason why the dollar has weakened so much

this year even as investors ploughed cash into the U.S. stock

market. If this drag on the dollar is removed, but significant

capital inflows keep coming, the administration's 'America

First' industrial policy has a big problem.

What could move markets tomorrow?

* Japan trade, current account (September)

* Bank of England's Megan Greene speaks

* UK employment, earnings (September)

* Germany ZEW sentiment index (November)

* Brazil inflation (October)

* U.S. Federal Reserve Governor Michael Barr speaks

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Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

(By Jamie McGeever;)