‘Buy America’ Returns, Thanks To Europe & Japan

WHERE WE STAND – The ‘buy America’ trade made a resurgence yesterday, with the Europeans and Japanese being those who are owed thanks.

Firstly, the Europeans. As noted yesterday, President Trump’s weekend decision to delay the 50% tariff on EU goods imports until 9^th July gave sentiment a helping hand, after the EU pledged to speed up trade talks, and booked a few meetings in the diaries of US negotiators. I still think that the EU and US have very different definitions of the word “quick”, but at least Trump having kicked the tariff can another month down the road provides further credence to the TACO (Trump Always Chickens Out) idea.

Then, the Japanese. I haven’t covered it in much depth, but there have been a fair few jitters over the state of the JGB market recently, especially the long-end of the curve, where yields have torn higher amid a toxic storm of ongoing worries over ballooning deficits across the globe, and as the BoJ continue to pullback from the market after decades of ultra-easy policy. Yesterday brought news that Japan’s Ministry of Finance had been sounding out market participants on bond sale amounts for upcoming auctions, as well as potentially examining the possibility of trimming super-long issuance, the area of the curve which has been the ‘problem child’ of late.

Actually, we should also be thanking the UK here, at least a little. Reports yesterday suggested that the DMO may be considering a similar action, increasingly pivoting towards shorter-term issuance, principally due to lower rates (UK 2-year yields are 150bp below 30-year yields), but also as a result of waning demand at the long-end, largely a result of the phasing out of defined benefit pension schemes. That really is a topic for another time, but one that is nowhere near as dull as it may sound!

Anyway, when you chuck those two together, what you have is a much more stable DM fixed income complex, with Treasuries and Bunds both getting a helping hand amid a sizeable spill-over affect. Clearly, shifting around purchases isn’t going to solve the deficit issues that every man and his dog has become so jittery about, but an acknowledgement of these concerns has at least provided a modicum of reassurance. The fixed income sell-off was ‘fun’ while it lasted, I suppose.

I think it’s too early to say that the sell-off in long-end debt, and the curve steepening, is over, but yesterday’s 10bp rally in benchmark 30-year Treasuries, and over 5bp flattening of the 5s30s spread, were both signs of battered bond bulls staging a sterling fightback nonetheless. The issues which drove Treasury yields higher, and 30s north of 5%, haven’t gone away and, if you’re after an equity market analogy, yesterday’s gains are kind of akin to a ‘bear market rally’. I’d be fading this move, for now.

Speaking of stocks, more stable conditions in Govvies across the globe, coupled with a reduction in tariff uncertainty, saw the bulls get the bit between their teeth once more, as both the S&P and Nasdaq vaulted around 2% higher, in their best days in a fortnight. I remain one of those bulls, and remain happy to buy on any dips, with peak uncertainty in the rear view mirror, incoming economic data stable (yday’s consumer confidence print topped the forecast range), and FOMO likely to drive further buying interest. 6,000, then fresh highs, are still my upside targets.

Naturally, the positive risk tone posed a headwind for gold, though the yellow metal only traded back to where we were on Friday morning, so the downside is hardly worth panicking about, and I still like having some gold exposure as a hedge, given how volatile everything remains, and as institutions, especially in EM, continue to show demand for bullion amid a desire to diversify reserve holdings.

The broadly stronger dollar, which rode on the coattails of the ‘buy America’ theme, also posed a headwind to gold, with the greenback firmer against all major peers on the day. I find it notable that the dollar’s typical correlations with external drivers, such as equities and Treasuries, have all-but-broken down of late. Not only does this make the life of a strategist a rather difficult one, it also suggests that deficit worries, and the volatile nature of US policymaking, might be playing an even greater role than we’d though.

I wonder, then, if the ‘good old days’ of risk-on/risk-off, have now been replaced by a new buy America/sell America dynamic.

LOOK AHEAD – Are Nvidia still ‘the most important stock in the world’? I guess we’ll find out later on.

Earnings from the tech behemoth, due around 9:20pm BST/4:20pm ET, highlight today’s calendar, with consensus expecting adjusted EPS at $0.88, on quarterly revenues of $43.3bln, with margins seen tightening around 2.5pp to 71.1%. Naturally, participants will not only be looking for a beat on those figures, but also solid guidance for coming quarters, in order to unlock an after-hours rally. The latter is of considerably more importance, as investors seek to gauge whether NVDA’s strong performance can continue in coming quarters, amid numerous headwinds including trade uncertainty, changing chip export rules, and CapEx plans shifting since the unveiling of Deepseek.

Speaking of which, options tied to the stock price a move of +/- 6.8% in the 24 hours following the earnings release. In isolation, and not accounting for potential spill-over effects of the report on other AI names such as Broadcom and AMD, such a move equates to a shift in the S&P of +/- 0.4%, and in the Nasdaq 100 of +/- 0.75%.

Away from those earnings, the docket has a few other things of note on it. Minutes from the May FOMC meeting are due, which should reiterate policymakers’ ‘wait and see’ approach to future rate decisions amid the huge degree of prevailing uncertainty, and shouldn’t materially shift the market’s current view of two 25bp cuts being delivered before year-end. We also receive manufacturing figures from the Richmond Fed, as well as a 5-year Treasury auction later today.