Markets Choppy With Trade Still The Focus

WHERE WE STAND – So, in the last four days, we’ve gone ‘risk-off’, then ‘risk-on’, then ‘risk-off’ again, before we went all ‘risk-on’ again yesterday.

Anyone else getting rather severe whiplash trying to keep up with all this!?

Though conditions have been choppy, I’d argue strongly that this is another of those occasions where the intraday price action largely represents ‘noise’, with relatively little ‘signal’ to be extracted from it.

In that vein, I’d also argue that relatively little has changed in the grand scheme of things since President Trump’s latest tariff threats on Friday afternoon – that’s still very much being viewed as a negotiating gambit, seeing participants continue to lean into the ‘TACO trade’, while also continuing to hedge the risk that this time could be different, thus being unwilling to go ‘all in’ on the idea until the latest round of tariff threats are walked back officially.

It, consequently, makes a lot of sense that, while equities have rebounded considerably from last week’s lows, we’ve yet to entirely erase the damage that was wrought. In fact, it seems unlikely that said damage will be entirely erased unless and until participants do indeed have faith that latest round of tariff threats are indeed just that, and not a realistic prospect. In the meantime, choppy and indecisive conditions are likely to prevail.

That said, I remain of the belief that the longer-run path of least resistance continues to point firmly to the upside. Yesterday brought solid results from both BofA and Morgan Stanley, reinforcing the idea that earnings growth remains strong which, when coupled with resilient underlying economic growth, and a looser monetary policy backdrop, all suggests that dips in the equity complex should continue to be viewed as buying opportunities.

Elsewhere, Wednesday brought little by way of fresh fundamental catalysts, though my attention was drawn to a discussion of the gold price on ‘This Morning’. For readers outside the UK, that’s a very generic mid-morning magazine TV show. Though this feels like one of those classic anecdotal top signals, akin to a market theme ending up on the front page of ‘The Economist’, I’m not sure I’d be prepared to lean against the bullion rally just yet, given that physical demand remains sizeable, the fundamental bull case firmly intact, and momentum favours further upside too, after spot broke north of $4,200/oz yesterday.

Besides that, there really isn’t much else worth mentioning, especially considering that the G10 FX complex went on a bit of a random walk for most of the day. It was, though, in the EM space, interesting to see the US extending a further $20bln swap facility to Argentina, while also conducting purchases of the peso in the open market. Increasingly, it looks like MAGA actually stands for Make Argentina Great Again.

Setting that aside, I remain bullish on the buck, as the Fed’s ‘run it hot’ approach underpins growth and tilts risks to the outlook to the upside, but must say I’m not really holding my breath for any sudden lurch higher, with that potential dollar upside increasingly looking as if it’ll be a slow and steady grind.

LOOK AHEAD – Another relatively light docket today, with the ongoing US government shutdown having put paid to the scheduled retail sales, PPI, and jobless claims releases.

As a result, there isn’t much for participants to get their teeth into. This morning’s UK GDP figures should point to growth having remained anaemic in August, with risks obviously tilted to the downside ahead of the autumn Budget, while this afternoon’s manufacturing survey from the Philly Fed shan’t be a market-mover.