Sentiment Rebounds With Trade Still In Focus

WHERE WE STAND – Somewhat calmer tones prevailed yesterday, at least compared to the chaotic, risk-averse trade that we saw to kick-off the week.

Nevertheless, participants understandably remain jittery, not only as the haven value of both Treasuries and the USD continue to be called into question, but also as a huge degree of trade uncertainty continues to linger. As a reminder, the whole concept of ’90 deals in 90 days’ is currently running at ‘0 deals in 14 days’ which, to be frank, doesn’t quite have the same ring to it.

Still, Treasury Secretary Bessent – reportedly speaking at a private event yesterday – does see de-escalation with China on the cards, given the present “unsustainable” situation, which in turn helped to give sentiment a further ‘shot in the arm’. President Trump’s overnight insistence that he has no plans to fire Fed Chair Powell have also helped here, though I for one will be taking this with a huge pinch of salt, especially when in the next breath Trump repeated his call for rate cuts!

Still, as noted previously, the longer we go without trade deals being struck, or even signs of concrete progress being made, the more the issue is likely to weigh on sentiment. This is particularly the case when, not only are we still waiting for sector-specific tariffs on chips and pharma, but also when the first few trade deals will likely be used as a blueprint for other countries to strike agreements and remove their own ‘reciprocal’ tariffs.

In light of that continued uncertainty, it was no surprise to see havens continuing to gain early doors – gold rose north of $3,500/oz for the first time ever on Tuesday, while the JPY rose to its strongest since September, as USDJPY slipped beneath the 140 mark. Though both of these moves did reverse intraday, the former in relatively violent fashion, both should remain underpinned for the time being, particularly with the greenback acting as anything but a haven right now.

On gold, specifically, though, it’s worth remembering that we’ve come a very long way, in a very short space of time – with the yellow metal having already gained 30% YTD. Furthermore, since 2000, spot gold has notched a daily gain in excess of 3% on just 48 occasions, less than 1% of all trading days. Yet, three of those occasions have come in the last fortnight. Everything does seem to be pointing towards, at least, a pause for breath sooner rather than later, though I’d be content to buy gold on weakness for the time being.

Back to FX, where the dollar founds its feet and steadied somewhat yesterday, retracing a chunk of Monday’s lost ground against most G10 peers. Still, given that ‘US exceptionalism’ is stone dead, trade deals remain elusive, and policy incoherence continues to erode the haven value of the buck, this rally is one that should be sold into, with further downside likely on the cards.

At risk of sounding like a broken record, paradigm shifts such as Trump’s attempts to re-order global trade, and the apparent ongoing process of trimming exposure to US assets, are not those which are ‘done & dusted’ after a couple of days, instead being trends that pan out over months, if not years. A day of dollar upside doesn’t suddenly mean that all is ‘fine and dandy’ once more.

As for equities, it was a day of gains across the board on Wall Street, which put the benchmark indices back where we were at the futures open on Sunday night. Nice waste of a couple of days for us all there. Bessent’s relative positivity on China, coupled with a technical rebound after Tuesday’s steep declines, were the catalysts driving gains on the day, though I still view rallies as selling opportunities for the time being, with a durable turnaround likely needing concrete progress on trade deals before coming to pass.

Treasuries, though, didn’t benefit from the positivity that overcame equity operators, though the modest advances seen, and twist flattening of the curve, was likely mechanical as a result of the over-extended moves in the opposite direction which we saw to begin the week. The same idea of a paradigm shift in the USD not being over and done with in a day applies equally to the Treasury complex, where renewed selling pressure, and curve steepening, remains likely.

LOOK AHEAD – A busy data docket today, though it remains questionable how much of it participants will bother to react to, given the ongoing (perennial!) focus on incoming trade headlines.

Nevertheless, the latest ‘flash’ PMI figures are due from pretty much every DM economy through the day, with the surveys set to point to a slowing in economic activity across the board, though the degree to which this softness in survey data will feed through to comparable ‘hard’ prints remains to be seen. The same applies to this evening’s Fed ‘Beige Book’ release, though Chair Powell has placed a lot of weight on anecdotal evidence of late.

Besides all that, another busy slate of corporate earnings awaits, with Boeing (BMO) and IBM (AMC) the most notable releases. A busy slate of central bank speakers is also up ahead, including four FOMC members, plus BoE Governor Bailey, and Chief Economist Pill.