An Eerily Subdued Start To The Week

WHERE WE STAND – The eye of a hurricane is said to be unnaturally still, characterised by calmer conditions, and bright skies. The eye is also the most dangerous part of a storm, often lulling people into a false sense of security, only to then be caught off guard by violent winds, and tempestuous conditions, once the eye passes.

Don’t worry, this isn’t a weather report, though I feel the analogy is a rather apt summation of where markets stood as the new, holiday-shortened, trading week got underway. News on the tariff front was eerily lacking, despite an hour or so of idle waffling from President Trump in the Oval Office.

I don’t wish to tempt fate whatsoever here, as I think most participants – myself included! – will be incredibly glad of the somewhat calmer conditions that seem to be prevailing. I think most, particularly given recent events, will also not be expecting these conditions to last especially long.

As for those market conditions, yesterday, I guess I can bring out some clichés – participants taking a ‘pause for breath’, suffering from a ‘bout of exhaustion’, as we stare at an ever-growing ‘wall of worry’.

Clichés aside, we did see the major Wall Street benchmarks notch gains on the day, albeit closing well off intraday highs, and trading on pitiful volumes at about half the 15-day average in the S&P future – hardly signs of a rally that has tons of conviction behind it.

I remain a rally seller in the equity space, though, especially as we’ve now locked in 90 days of tariff-related uncertainty at the very least, amid the pause in ‘reciprocal’ tariff measures. One would expect vol to remain higher for the foreseeable future as a result. In any case, participants are likely to grow increasingly jittery, the longer time goes on without trade deals being agreed, and tariff off ramps being used. This is particularly true if incoming data begins to soften in the meantime, making Wednesday’s US retail sales data pivotal, particularly given the collapse in consumer sentiment of late.

Away from the equity complex, it was something of a relief to see Treasuries gaining ground, likely as a result of the real money selling from last week, as capital fled from the US, abating a touch. Benchmark yields hence fell across the curve, with 10s trading below 4.40%, and 30s below 4.80%, both now trading a fair way off the ‘panicky’ levels seen last week. Governor Waller putting in his pitch for Chair Powell’s job when it becomes vacant next May, courtesy of some uber-dovish remarks suggesting rate cuts being brought forward in a scenario where sizeable tariffs return, also gave the front-end a helping hand.

Still, Treasuries do seem to be on relatively shaky ground, particularly with there being no sign of policy incoherence abating any time soon, and levels of uncertainty remaining extremely elevated. It’s, obviously, far too early to say that we are ‘out of the woods’ just yet.

While selling pressure in the Treasury complex faded, it didn’t for the dollar, with the greenback trading in choppy fashion, though sliding once more against most peers, particularly the higher-beta GBP and NZD. I remain a dollar rally seller for the time being, with the buck still acting as anything but a safe haven, and the idea of ‘US exceptionalism’ now stone dead. It is, furthermore, noteworthy that the bulk of dollar selling pressure in recent days has been confined within the London and Tokyo trading sessions, again suggesting international investors seeking an exit from the US in relatively rapid fashion.

Of course, it remains the case that gold is probably the most desirable haven right now, even if the yellow metal did slide a touch to start the week. This is, though, a dip I’d be happy to buy, with momentum remaining firmly with the bulls for the time being.

LOOK AHEAD – Headline-watching will, naturally, be the main order of business once more today, though a busy data docket awaits anyway.

We kick things off with the latest UK labour market figures, which must continue to be accompanied with a health warning, owing to the incompetence of the ONS in not being able to produce accurate statistics. Unemployment is seen having held steady at 4.4% in the three months to February, while earnings growth should remain at a pace of around 6% YoY over the same period. Whether or not that data actually bears any resemblance to reality, though, is up for debate.

Elsewhere, today, the latest ZEW sentiment surveys are due from Germany. With the expectations index having enjoyed a fiscal stimulus induced surge to 51.6 in March, we should now see a tariff-induced slap lower, to around 10.0, in the April reading.

Across the pond, Canadian CPI is due before the BoC decision tomorrow, while the US gives us manufacturing figures from the New York Fed, and remarks from the Fed’s Cook. Q1 earnings season also continues on Wall Street, with the likes of BofA, Citi and United Airlines due to report.