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US futures markets were up this morning after Trump announced a temporary tariff reprieve on key technology imports. The three major indices all registered massive gains last week, with the Dow Jones climbing 4.95%, the S&P 500 gaining 5.7% and the Nasdaq Comp clocking in with an impressive 7.3% weekly candle. Of course, last week’s historic gains followed in the footsteps of historic losses the week prior. The back and forth with regards to tariffs has resulted in a similar back and forth in asset valuations, with no end to the volatility in sight. The uncertainty has resulted in huge flows into gold, which gained no less than $200 last week and hit a new all-time high of $3,245 an ounce. The precious metal was not the sole benefactor of safe-haven flows however, as evidenced by the Swiss Franc, which gained 5.6% against the Dollar last week to reach $1.22. The Greenback faced heavy headwinds all week, culminating in the DXY closing below 100 for the first time since July 2023. Asian stock markets awoke with cautious optimism this morning. The Hang Seng and Nikkei 225 indices opened higher and are now enjoying the calm before the storm that will no doubt descend upon markets later in the day. The economic calendar is looking relatively sparse this week, with the exception of a few noteworthy events. Fed Chair Powell is set to deliver a speech on Wednesday, providing some much-needed guidance on the state of the Dollar. Earlier in the day, the Bank of Canada is expected to keep rates on the Loonie steady at 2.75%, while on Thursday, markets are anticipating another 25-bps cut on the Euro interest rate. A reminder that markets in much of the western hemisphere will close for Good Friday and will remain shut until Easter Monday. The ongoing trade spat will likely continue to dominate market movements again this week and trading conditions are likely to remain perilous for a while longer.
The ongoing trade saga began a new chapter on Wednesday after president Trump announced a 90 day pause on the new tariff regime. The olive branch was extended to everyone but China, which is now facing effective duties of 145%. For all the hysteria on Wall Street, the current situation is by no means unpredictable. The developing negotiations are perfectly in-line with the president’s typical approach to such matters. For those in search of a more calming influence, it is perhaps worth paying attention to Treasury Secretary Scott Bessent – a former hedge fund manager. Bessent stated on Thursday that the United States would be in a place of “great certainty” after the pause and that many countries had already expressed their intent to fully cooperate in establishing new trade deals. Indeed, the EU has already rescinded its retaliatory tariffs following the US’ lead. Not for the first time, the continued focus on tariffs allowed an important macroeconomic development to slip under the radar. Thursday’s CPI print revealed a major slowdown in inflation in March, to the point where prices dropped compared to the previous month. Yearly inflation is now down to 2.4% and continues to approach the Fed’s 2% target rate. The latest data in theory paves the way for the Fed to cut rates on the Dollar, although the next decision is still a month away. Along with everything else, the development weighed on the Greenback, which is now looking weaker than ever against a number of currencies. The Swiss Franc has emerged as the currency of choice for safe-haven flows, climbing over 7% since Liberation Day to reach a multi-year high of $1.22 as of this morning. The Yen and Euro have also made significant gains versus the Dollar in recent sessions, enough to push the DXY below 100. Once again, gold was all too happy to seize the moment, blasting to a new record high of $3,176 an ounce yesterday. The precious metal wasted no time climbing further still this morning, pushing to $3,200 and beyond. The extreme volatility in stock markets around the world is enough to make gold look tame in comparison, further contributing to its appeal in these chaotic times.
Traders hoping for a swift return to normality will probably have to wait a little longer. Stock exchanges in particular are showing some of the most inhospitable trading conditions observed in years. Between the massive intra-day swings, huge gaps and violent reversals, current markets are no place for the fainthearted. US indices have closed lower over the past few sessions, or there about, but the sheer size of the daily candles almost makes the closes irrelevant. Asian stocks are once again on the back foot this morning, with the Nikkei 225 and Hang Seng indices struggling to find solid ground. The new tariff regime imposed by the Trump administration immediately forced many affected countries into adopting a more reconciliatory tone, with the notable exception of China. The spat between the Chinese and US governments is resulting in rapidly escalating trade tariffs, which are beginning to spill over to currency markets. The offshore Yuan fell to a new record low yesterday after the People’s Bank of China allowed USDCNH to climb above 7.40 for the first time. The onshore Yuan meanwhile is facing its lowest levels since before the 2008 peg. Gold made a valiant push to reclaim $3,000 this morning in Asia, no doubt helped by weakness in the Dollar. Bitcoin on the other hand captured no such momentum. It is not unfair to say that cryptocurrencies in general have failed to offer any alternative environment to traditional finance, instead behaving merely as a marker for general market sentiment. The so called “decoupling” will have to wait. The economic calendar is devoid of content this week, with the possible exception of the FOMC minutes later today. Given everything that has happened since the last meeting however it is hard to say just how relevant the release will prove to be. Interestingly, there has been a dramatic shift in interest rate prediction markets, with the next meeting on the 7th of May now favouring a 25-bps cut. Before the events of the past week, markets were looking at a 90% probability of a rate hold. US inflation numbers may pique interests a little tomorrow, but anything relating to the developing trade situation will obviously continue to occupy centre stage.
The above statement, issued by president Trump late on Sunday night, will do little to ease the widespread panic currently enveloping both US and international markets. Suffice to say the new tariff regime turned out to be harsher than most analysts were predicting. Some parts of the world emerged from the wreck with better deals than others, but no country escaped unscathed. Trillions of Dollars were wiped from US stock markets last week as investors sought refuge away from the carnage. Following Thursday’s losses, the Dow fell a further 5.5% on Friday, as did the Nasdaq Composite and S&P 500, which plummeted 5.8% and 6% respectively. By no means has the damage been contained to the US however. International markets are reeling from the new tariffs and stock markets far and wide are currently undergoing drastic selloffs. Asian markets saw heavy selling pressure from the get go this morning, prompting a 7% loss in Japan’s Nikkei 225 index. In Hong Kong, the Hang Seng Index opened with a massive 9% gap down and is now pushing even lower. Europe was hit hard on Friday, with the FTSE 100 and German DAX both closing down 5% on the day. One can only guess what will happen once European and American markets wake up later today. The selloff in stocks has forced many parties to cover losses by closing long positions in precious metals, causing a sizeable drop in bullion prices. Gold fell down to $3,037 an ounce by Friday and dipped all the way down to $2,970 early this morning. Fundamentally, the case for gold and other safe-haven assets has not changed, but the chaos is such that some degree of rebalancing is in order. Given all the commotion revolving around tariffs, one could be forgiven for missing last Friday’s NFP report. In a surprising twist, the latest employment figures far exceeded expectations, coming in at 228k new jobs in March compared to predictions of just 135k. The report bolstered the Dollar, which despite the initial tariff-induced shock has been relatively resilient over the past couple of sessions. The DXY is currently hovering around the 103 mark but this fails to tell the full picture. Safe-haven currencies such as the Swiss Franc and Japanese Yen have benefitted greatly from the turmoil, seeing strong inflows since last week’s announcement. The Australian Dollar on the other hand crashed through the floor last Friday, reaching lows of just $0.60. Oil prices have been absolutely smashed by recent events. Brent Crude is now looking at just $64 a barrel while WTI is barely hanging on to $60 as of this morning. Crypto markets were initially unfazed by current affairs, but the pervading negative sentiment finally appears to have caught up. Bitcoin decisively lost $80k yesterday and is showing very little willingness to try to reclaim it. It is difficult to speculate on the longer lasting implications of the ongoing trade situation and tensions are obviously high. Now more than ever, it is essential to avoid getting carried away by headlines.
Long day ahead. The world will have to wait until 4pm Washington time to find out what the future trade structure with America will look like. The word on the grapevine is that president Trump is set to announce a blanket 20% tariff on most incoming goods. Nothing but rumours so far however – the actual arrangement is still anyone’s guess. It goes without saying that traders may expect heavy volatility leading up to the announcement. Stock exchanges across the world opened the week with major gaps to the downside and are now attempting to reclaim the lost ground. Markets across Asia have certainly had a nervous start to the week so far, with the Nikkei 225 tumbling 4% on Monday and many countries in the region following suit. Nations such as Japan are big exporters to the US and the incoming tariff regime will have no small impact on their economies. European stock exchanges were also looking dicey on Monday which is hardly surprising given the huge trade volumes on the line. Interestingly, US stocks have had a much more promising start to the week, although the Nasdaq Composite remains firmly in correction territory. As usual, gold is thriving amid the chaos, setting yet another record high on Tuesday as spot prices hit $3,149 an ounce before retreating to a minor daily loss. The precious metal climbed a staggering 19% in Q1 of this year, its biggest quarterly gain in decades. Whether or not the safe-haven flows continue will largely depend on the announcements programmed later in the day.
“Liberation day” is almost upon us. Wednesday is the day many of the long-discussed tariffs finally come into effect, although their full scope still remains somewhat of a mystery. Some elements were made relatively clear, such as the 25% import duties on foreign-made vehicles. Other measures, targeting Mexico, Canada and China, also appear to be set in stone. Beyond that, the proposed trade structure with the EU and the rest of the world is still anyone’s guess. US stock markets are clearly on edge, as evidenced by last Friday’s performance. The latest PCE Price Index did nothing to improve matters, revealing an unexpected uptick in core inflation. Excluding food and energy, prices grew by 0.4% in February, surpassing both expectations and the January figure of 0.3%. Ten basis points above predictions is hardly the end of the world, but markets could have done without it given the current environment. All three major indices wasted no time capitulating, the Dow falling 1.7%, the S&P 500 losing 2% and the Nasdaq Comp leading the charge with an impressive 2.7% decline. Ever the optimist, gold was all too happy to navigate the ominous conditions, rising to yet another record high of $3,086 an ounce on Friday. The precious metal has picked up right where it left off this morning in the Asian session, pushing all the way to $3,111. Gold has gone from strength to strength so far this year and has cemented its status as a safe-haven for troubled money. The same cannot be said for Bitcoin, which continued to bleed over the weekend and is now once again staring down the barrel at $80,000 per coin. The coming week promises to be a harsh one for traders. Today marks the last day of the quarter and although the economic calendar has very little to offer, unexpected tariff news could mark a dramatic end to Q1. The mid-week is dominated by manufacturing and services PMIs as well as the latest JOLT survey, but the regular schedule may be overshadowed by the enactment of the new tariff regime. As if that were not enough, Non-Farm Payrolls grace us with their presence on Friday.
