Sentiment Solid As Trade Hopes Mount

WHERE WE STAND – Three days in a row of solid-enough risk sentiment, pigs will probably end up flying next.

We did, though, kick things off on a relatively soft note, amid signs that the apparent softer trade tone being taken by the Trump Admin isn’t being mirrored by China. Both the Foreign and Commerce ministries were out with punchy rhetoric yesterday, noting that the world’s two largest economies are not yet in any form of talks over tariffs, and that ‘respect’ and ‘sincerity’ remain pre-conditions for said talks to take place. China also reiterated its preparedness to ‘fight a tariff war if we must’ – not exactly rhetoric that screams of being desperate for a deal asap.

For the time being, then, at least on the big issue of China, it remains the case that the Trump Admin appear to be negotiating with themselves, as rumours of unilateral tariff reductions continue to swirl, while the Chinese side appear to be playing their hand very well indeed. I suppose, with retail CEOs having reportedly warned Trump that shelves could become empty within weeks, owing to the supply chain disruption caused by ever-changing tariff policy, the President is growing increasingly jittery.

It’s also notable, in terms of general nervousness, how both Lutnick and Navarro seem to now be being kept away from the TV studios as much as possible, and how all seems to have gone (relatively) quiet in terms of additional tariffs, on chips, pharma, etc.

Perhaps that nervousness also explains what looked to be some favourable murmurings around a potential US-India ‘agreement in principle’, which is apparently inching closer, and which could also apparently serve as a template for similar deals with other nations. While all of that is a little sketchy, and unconfirmed, it nevertheless gave risk appetite a shot in the arm – sending stocks higher across the board, while high-beta FX also advanced, though both Treasuries and gold held earlier gains, both signifying some degree of lingering unease among market participants.

Anyway, given the lack of fresh concrete fundamental developments over the last day or so, plus with uncertainty remaining elevated, I see little reason to shift from my current market biases.

To recap, those are to sell equity rallies; to fade strength in the greenback, most notably against the JPY and CHF; and, to buy gold on dips, like the one we’re seeing right now. While short Treasuries is also worth considering, especially at the long-end, I’m not convinced the risk/reward is overly favourable right now.

At a presentation on Wednesday, I was asked what factors could engineer a more durable and sustained turnaround in equities. I’d break that down as follows – greater policy coherence from the White House; 1 or 2 trade deals being made and officially announced, which can serve as a blueprint for others; exemptions on tariffs for certain sectors, or countries; activation of a ‘Fed put’, albeit we are some way from that strike price right now.

Unless and until we see one, or any of those, factors come to fruition, then I struggle to see a reason to shift away from my current defensive view.

LOOK AHEAD – Just a couple of datapoints to get through today, before it’s time for a cold beverage to begin the weekend. Personally, I shall be enjoying that beverage over a free lunch, claiming my winnings for that wager I won on EUR/USD printing 1.10 before parity.

Enough about my social life, the docket today gives us retail sales prints from both the UK and Canada which, while likely not being market-moving in themselves, will at least give us some steer on whether the present degree of uncertainty is causing consumers to tighten their belts. Final sentiment figures from the University of Michigan will also be viewed through that lens, though recall they are incredibly skewed by political allegiances.

Finally, in news we can all celebrate, the FOMC’s pre-meeting ‘blackout’ period begins at close of play, so at least we shan’t have to worry about their comments for a while, until the next policy meeting wraps up on 7^th May.