People are probably sick of hearing about tariffs at this point, but they have once again been the main driver behind market movements over the past couple of days. On Wednesday, Donald Trump hurled another spanner into the works by announcing 25% tariffs on all foreign-made vehicles. To put the figure in context, the EU already imposes a 10% tariff on American vehicles, compared to 2.5% on European cars going the other way. The president also warned that the EU and Canada could face further tariffs if they work together to cause economic harm to the US. US stocks took the news badly. The Nasdaq Composite shed 2% following the announcement and fell another half percent on Thursday. Despite some minor volatility, the Dollar avoided overreacting to the most recent developments, with the DXY remaining in the mid-104 range. The Mexican Peso on the other hand, which is not part of the Dollar Currency Index, fell 1% against the Greenback yesterday. Gold emerged from the commotion as the clear victor. The precious metal clinched another record high yesterday and is currently pushing further still, to highs of $3,077 this morning in Asia. The safe-haven flows spread to silver, which rose to $34.40 by Thursday night, although the move does not appear to have carried any momentum into today’s session. The recent exuberance in copper markets also appears to have faded for the time being. Staying with commodities for a while longer, oil prices have swelled on supply concerns in recent weeks, allowing Brent Crude to rise above $74 for the first time this month, while WTI is as near as makes no difference $70 a barrel. Currency traders have their eyes glued to the latest PCE Price Index set to be published later today. The index serves as a crucial weather vane for US inflation trends and is particularly important to the Federal Reserve. While tariff drama and various geopolitical developments will always have an impact on the Dollar, monetary policy remains paramount to the Greenback’s future.
The controversial topic of dark pools resurfaces every now and then, usually followed by ethical debates relating to their use. But what is a dark pool? And why are people talking about them this time? A dark pool is a special type of trading environment found outside of normal exchanges. The name comes from the fact that the buy and sell orders are invisible. The parties submitting the orders likewise remain hidden. Market depth is also a mystery. No order book. No order history. Total anonymity. Traders using dark pools are truly going in blind. A nightmarish scenario for the average trader, so why do such systems exist? The short answer is that dark pools were not created for retail, but for institutional money. Because the entire system operates in the shadows, it allows institutional investors to submit orders while remaining discreet. Dark pools also enable big players to fill large orders without having to worry about markets moving against their trades. Let’s imagine a firm wanting to buy a large amount of a certain stock. If they were to use a normal stock exchange, the trade would send shockwaves throughout the markets. Everyone would see the huge buy orders coming in and would want a piece of the action. Competing trading desks would be all over the books, pumping the stock and ultimately leading to the firm getting a worse price. On the other hand, if the firm were to use a dark pool, the order would reveal nothing to markets at large, resulting in a much more optimal execution. The buy order might even hit a massive but invisible sell wall, giving both parties the price they were looking for. Dark pools still require parties to disclose their trades to the public at some point, but they have much more time to do so. Firms will typically delay this process as much as possible within the limits of the law. By the time their trades are public knowledge, the orders have already been filled and adverse price action is no longer a threat. The groundwork for dark pools began in 1980, when the SEC enacted rule 19c-3, allowing securities to be traded outside of exchanges. Dark pools would come into being a few years later. While extremely useful for large financial institutions, such trading environments initially accounted for no more than 5% of the daily market share in the US. In the years and decades to come, further concessions by the SEC and a growing appetite for private trading would inevitably push this figure higher. To the salient point: as of the time of writing, half of all trading activity now occurs away from the public eye. Whether in dark pools or internally at major firms, January 2025 marked the third consecutive month where private trading volumes surpassed those on “lit” exchanges. This is not merely a blip or anomaly, this paradigm shift has been decades in the making. Most trading now happens in the shadows. Hidden trading environments provide obvious benefits to large institutional money. Dark pools would not have become so popular if this were not the case. Dark pools also have the added advantage of not being subject to the same regulations as public exchanges. The likes of the NYSE or the NASDAQ have to provide extensive trading activity data to the SEC whereas dark pools do not. Because dark pools are essentially private, they also have the freedom to exclude firms as they see fit. They are under no obligation to offer their services to the public at large, nor are they obliged to bill different entities at the same rate. This is when the conversation inevitably shifts to the issue of fairness. All these massive banks trading among themselves, with different prices to the rest of the market, using unaccountable pools? A sternly worded letter is surely in order. Before you can say “free market at work” – it gets worse. Nestled deep within the confines of these dark pools are the so-called private rooms. Private rooms are an even more exclusive trading environment because they are invite-only. Not only do they grant institutions the freedom to trade away from prying eyes, they also allow institutions to trade within extremely limited circles. A financial firm may set up a room for the sole purpose of trading one particular asset with just a handful of other parties. Some private rooms have as little as two or three participants within them. Such rooms are not generally used by the very large players because they have the technical, financial and legal resources to host their own alternative trading systems. For smaller trading desks however, a private room within an already established dark pool is an ideal alternative, and one that is trivially easy to set up. Dark pools are obviously not without their flaws. Perhaps the most valid argument against them is the fact that they siphon away liquidity from the lit exchanges. Lower liquidity will inevitably impact the bid/ask spread, leading to less efficient markets and a more expensive experience for retail traders. Should the problem really exacerbate, the shift towards a darker trading environment would have gravely negative effects on price discovery. After all, who can say what an asset is worth if no one knows what it is being sold for? The lack of transparency is also a major issue. Dark pools are not subject to anywhere near the same kind of regulatory scrutiny as lit exchanges. As such, this leaves them wide open to shady trading practices, predatory price manipulation and even outright fraud. With that said, these problems only affect those using the dark pools, so they are in effect self-contained. Dark pools are a very controversial element of the financial world and routinely draw their fair share of ire whenever the subject arises. The fact of the matter is that markets are always looking for efficiency. If that means interacting directly and exclusively with carefully selected counterparties then so be it. Is a farmer at fault for selling produce to a chain of restaurants instead of unloading everything at the local market? The growing popularity of dark pools and private rooms is a testament to their usefulness. The trend is pointing in an obvious direction. Institutional money is shying away from the light and reaching for the hidden liquidity below the surface.
The week is off to a promising start. Reading straight out of his own playbook, Donald Trump’s initial aggressive posturing is now giving way to softer tones. On Monday, the president once again hinted that the incoming tariff regime may not be as harsh as originally stated. The White House is apparently planning on taking a narrower approach, potentially allowing some countries to escape the sweeping tariff plan. Music to the ears of US indices, which all closed significantly higher on Monday and carried over the momentum into the following session. The Dollar regained its composure early this week, offering currency markets at large some much needed stability. Movements in currency pairs have been marginal but have slightly favoured the Greenback so far. The Euro is struggling to hold onto $1.08 while the Yen is once again oscillating around the 150 mark. Cryptocurrencies are cautiously optimistic, with Bitcoin flatlining just under $88k at the time of writing. Gold finally eased off this week following its record-breaking run and is now hovering around $3,020 an ounce. That said, the more interesting developments are arguably occurring in some of the lesser metals, particularly silver and copper. The threat of tariffs levied against metals have prompted supply concerns, triggering massive imports of copper into the US and pushing valuations to record highs. The price of copper soared past $5.30 per pound earlier today before reconsolidating. Silver markets also perked up this week, with prices rising 2.1% yesterday to $33.7 an ounce. The move appears to have captured the attentions of traders and long-term investors alike. It has long been claimed that silver prices have been manipulated and suppressed, leading to an inexplicable ratio between gold and silver valuations. A reminder that unlike gold, silver prices are nowhere near their all-time high of $49.45 an ounce, a record measured in 1980s Dollars…
President Trump struck a more reconciliatory tone last Friday by indicating that there could be some degree of flexibility with regards to the upcoming tariffs. The suggestion followed equally reassuring statements from Fed Chair Jerome Powell a couple of days prior. Markets have been especially jittery over the past month and the combined remarks did a lot to assuage fears. The change in sentiment characterised a potentially pivotal week, which saw all three major US indices finish in the green. The Dollar also recouped some losses, dragging the DXY up 0.4% by the weekly close. Gold tapered off late last week after registering back-to-back record highs, perhaps also indicating a shift towards risk-on assets. The coming week is dominated by boring, but crucial economic data. Manufacturing and services PMIs, inflation and growth figures pepper the economic calendar, culminating in the PCE Price Index on Friday. Not the most headline-grabbing events, but together the data offer a reasonably encompassing view of the global economy. The week will also feature a slew of statements from various central bank board members, most likely providing the same kind of tight-lipped commentary we all know and love. The PCE Price Index is particularly important to the Fed, and by extension to markets at large. Consistent improvements to inflation figures pave the way for future rate cuts, which further bolster the argument for a return to a risk-on environment. Crypto markets have been somewhat overlooked in recent weeks, but are reacting positively this morning in the Asian session. The financial sphere is caught in a delicate balancing act and it is difficult to say which way the scales will tip. Crypto may well be the canary in the coalmine in this regard. Just as markets are poised in wait-and-see mode, traders would do well to adopt a similarly cautious approach.
The dust is beginning to settle after a busy few days of central bank jostling. Markets have now had an extra day to digest the implications of the latest Fed meeting and in the absence of much else going on, attentions are focused on fundamentals. The Dollar reacted positively to Jerome Powell’s statements on Wednesday and the bullish momentum carried over to Thursday’s session. The DXY briefly rose back above 104 yesterday before a minor pullback and is once again on the front foot this morning in Asia. The Euro, which makes up the bulk of the Dollar Currency Index, failed in its attempt to reclaim $1.10, at least for the time being. Cable was likewise unable to hold onto $1.30 despite the Bank of England’s warnings that rate cuts were unlikely over the next few meetings. Central banks around the world are all reading from the same script, from the Bank of Japan to the ECB, the dominant theme is one of uncertainty caused by the ongoing tariff antics. Until such fears are addressed, financial markets are in wait-and-see mode. The US Treasury Department issued new sanctions against Iran on Thursday, this time by targeting a specific Chinese oil refinery responsible for processing Iranian crude oil. Such ventures are known as “teapot” refineries and are a way for regimes to bypass international sanctions. Crude oil is carried via shadow fleets, the purpose of which is to conceal the origin of the sanctioned oil, before being processed in a private foreign refinery and sold on. The move is interesting because it marks the first time such sanctions have targeted a specific company. Coupled with worrying developments in the Middle East, crude oil prices finally had grounds to rise this week, to $72 a barrel for Brent and to $68 for West Texas Intermediate.
In a widely expected move, the Federal Reserve elected to maintain rates on the Dollar within the current 4.25 - 4.5% range during yesterday’s FOMC gathering. The chances of any kind of rate cut were essentially zero, allowing attentions to shift instead towards the wording behind the decision. A characteristically level-headed Jerome Powell once again reiterated the Fed’s wait-and-see approach to monetary policy, saying that there was no rush to cut interest rates given the uncertainty enveloping the US economy. Economic predictions were tempered slightly, with board members expecting marginally higher inflation and unemployment figures by the end of the year and slightly lowering growth forecasts. Nothing unusual so far, but a few comments gave grounds for optimism. As in previous addresses, Jerome Powell cited the strength of the US economy despite the growing uncertainty surrounding trade tariffs. The Fed Chair told reporters that tariffs are indeed causing some degree of inflationary pressure, but that their effects would ultimately be transitory. Powell also seemed somewhat dismissive of recent survey data, claiming that the relationship between said data and actual economic activity had not been very tight. The real gift to markets however was the signal that the board is still expecting two rate cuts this year. US stocks were clearly overjoyed by the prospect, leading to decent gains in the major indices. The Nasdaq Composite rose 1.4% following the meeting, the S&P 500 climbed 1.1% and the not so volatile Dow finished the day 0.9% in the green. In an environment mired by fear, markets were all too grateful for Powell’s serene statements. When it comes to economic forecasts, there is a widening gap between commenters on either side of the debate. On the one hand are those convinced the world economy is on the brink of collapse. On the other, those demanding an immediate loosening of fiscal policy. Such debates will have to endure until the next FOMC meeting on the 7th of May.
