Market Sentiment Reverses: USD Strengthens, Gold Falls, Equities Rally

Whether these moves can build and kick through Asia is the debate and we need to be open-minded to the path the market wants to take, but what we've heard from Bessent, Trump and even Musk (in the Tesla earnings call) suggests Asia will take the lead from US trade and possibly build on it.

The early focus came from Treasury Sec Scott Bessent, who was reported as saying that the current situation with China is unsustainable and that he expects a de-escalation. The comments came “from behind closed doors”, so they are not yet official, which tees up a big focus on his scheduled speech at the IIF in early upcoming US trade (10 am ET) for direction and clarity. Whether Bessent touches on relations with China will be keenly watched, as will his views on Jay Powell’s tenure as Fed chair – and it’s hard to know if he’ll go there, as the speech titled “State of the Financial System” could take us anywhere.

Headlines from Trump’s post-market interview do provide some validation to Bessent’s closed-door comments, with the President's views that China tariffs "won't be 145%" and that China will be “very happy” resonating across broad markets – clearly, this new stance is constructive for the USD and for risk more broadly, as are headlines that that Trump never had intentions of firing Powell and that if “Powell doesn't cut rates, it’s not the end”. Quite the reversal in thinking yet again from Trump and the stance should go some way to allying fears of a major policy mistake in pursuing the removal of the Fed chair. Markets become ever more conditioned to the President shooting from the hip and then reversing the stance like it was never a big issue.

We must also consider the recent one-sided directional moves, and extreme positioning that suggested these flows on the day were always at risk of reversing, and we’d certainly seen clients getting set in short gold/long USD positions thinking the risk to reward had shifted. Trump's comments came when gold futures were closed, with the reopen of gold futures resulting in a strong gap lower into $3321, and we now look to see how Asia takes trades this move, as Asia has been where gold has put in its best work of late - will traders buy into this pullback or use it to cut back on longs?

It’s a similar affair in the USD, with USDJPY finding better buyers below 140 in Asia, and from here we’ve seen a sustained rally through EU and US trade, with Trump’s comments on China & Powell taking the pair firmly above 142. USDCHF also saw a strong reversal higher, while the intraday tape of EURUSD portrays a strong high-to-low trend day with the market turning from 1.1547 and progressively working down through Monday’s low of 1.1383 – a daily close through 1.1383 in the session ahead could be the trigger for further covering of USD shorts.

US-China relations are the elephant in the room, but we watch for trade talks between the US and Japan and India, where both look constructive. We should get headlines tomorrow regarding the meeting between the meeting between Scott Bessent and Japanese FM Kato, although expectations have been hosed down, with talk that any agreement could take months to forge.

Aside from the politics that encapsulate markets, we consider the US economic data flow, as well as US company earnings. On the day, the Richmond Fed manufacturing report didn’t move the dial, but on any other day when the political headlines dominated, it could have perpetuated the selling in USDs, and equity (buying in gold), as the data was poor and highlighted everything that has been worrying market players – the Richmond Fed headline print coming in at -13 vs -7 expected, with the new orders component in at -15 showing weakening domestic demand, while shipments collapsed to -17 vs -7 in March. Inventories levels of finished goods rose sharply to +20 from 3 in March, a factor which plays into the idea of a weak US Q1 GDP print, with companies building inventories ahead of and into the tariff news.

In US trade ahead we see the S&P Global PMIs, which will no doubt see similar trends seen in the Richmond Fed report and in other regional manufacturing reports. A deterioration in the manufacturing report seems clear, so the focus will be on the services PMI. Cleary better numbers in the S&P services PMI will be taken well from a market that seems to seeking out good news and feeling the path for risk may be improving.

US equity offers Asia a strong platform to progress, with all major cash bourses higher by over 2.5%, and S&P500 futures spiking on the reopen. The S&P500 cash traded to a high of 5309 a third of the way through US trade, with sellers taking the index into 5235, before reversing higher into the close – the failure for the sellers to really dominate was a win for the buyers, as was the participation with 98% of S&P500 companies closing higher. Earnings from Tesla hit the wires shortly after the close and were as bad as feared, but the fact investors were bracing for poor numbers has contained the fallout – arguably the most impactful news comes from Musk’s post-earnings call that from May he’ll be pulling away from DOGE and allocating far more time to Tesla – shares rallying strongly in the post-market session on this development.

US earnings in the session ahead (Boeing, AT&T, IBM, Texas Instruments) shouldn’t flow-through into broad equity volatility, and we look to Thursday's aftermarket for that, where notably Alphabet report and the level of free cash flow and committed capex spend for CY 2026 on data centres could absolutely resonate through Nvidia and the AI scene.

Good luck to all.