Markets Rally on Trump’s Move—But Is This a Win or Just Delayed Risk?

And… are we really at a point of renewed certainty where senior executives will congregate in the boardrooms and have the visibility that was previously lacking to forge capex plans and be confident enough to offer explicit guidance in the upcoming reporting period? Absolutely not, and good luck to anyone attempting to model future US economics – from the US growth and recession calls being put out, and then subsequently changed just hours later, economists are all over the place in their thinking, and while the implied probability of a US recession (over the coming 12 months) has been walked back from market pricing, 90 days is an eternity in markets – the Fed aren’t coming to the party as soon as some would hope – and the uncertainty still so high that the risk to the incoming economic data remains skewed towards weaker surprises.

Asia has rightfully fired up today, with huge gains in the NKY225 and ASX200 cash equity markets and follow-through buying in NZD, AUD, gold, crude, and copper… European equity markets are flying on open, although DAX futures have come a touch off their highs, while NAS100 futures are 1.8% lower through Asia.

Of course, it’s hard to read too much into a 1.8% decline in US equity futures, as we may just be seeing fast money accounts taking profits after a lazy 10% move and say, ‘Thanks very much for playing’, and a 1.8% move in the context of recent volatility doesn't impact like it once would, but it's well worth monitoring. Digging into the move though, we've seen net selling in our US 24-hour share CFDs through Asia (Nvidia -2.2%, Apple -2.3%, Tesla -3.9%). In the volatility space, S&P500 1-week ATM implied volatility has lifted an impressive +7 vols to 41%, suggesting vol traders still see residual risk in the system and volatility back at levels – along with gold - that offers a compelling tail hedge should things become precarious again. If implied volatility really kicks up from here, then equity will be sold, and liquidity will remain a concern.

Calmer conditions can be seen in US Treasuries, which is a net positive for risk given the vol in the US 30yr was a core consideration for Trump to pause tariffs at 10%. Last night's strong US 10-year Treasury auction was clearly helpful as it showed solid demand - notably from foreign entities - at a time when many were feeling the bid had completely come out of the market - but the buying we’re seeing across the curve today is perhaps indicative that the bond market still sees obvious downside risk to US growth.

We look to the $22b US 30yr Treasury auction and US core CPI in US trade ahead, and both carry two-way risk for traders…for now, most are still shell-shocked after one of the most incredible reactions to what was a highly reluctant call from Trump. There is also still a high degree of pessimism that the risk rally can build from here - that in itself suggests some ability for equity and risk FX to climb the wall of worry. But having found sellers at the 50% retracement of the recent 20%+ drawdown in the SPX500 and NAS100, the bulls will need to remain composed and step up and follow-through with the buying flow in the session ahead if this is to be more than a rapid-fire 1-day relief rally, knowing that we’re still very much in a headline-driven world.

Good luck to all.