The Wait For Clarity Goes On

WHERE WE STAND – A subdued day for markets, yesterday, hence a short Friday note this morning.

Equities traded in choppy fashion, with the S&P ultimately finishing at a new record, albeit after a bout of early weakness which was likely a result of some positions being squared up ahead of next week’s risk event bonanza, as ‘Magnificent Seven’ earnings get underway, and as the first FOMC decision of the year looms large. Though the recent rally has slowed a little, I remain an equity bull here, with next week’s Fed ‘skip’ unlikely to pose much of a headwind, leaving strong tech earnings as a potential catalyst to ignite the next significant leg higher.

Of course, though, the tariff issue continues to cloud the outlook, with certainty on President Trump’s trade plans still sorely lacking. For the time being, participants seem able to shrug this uncertainty off relatively well, with consensus rapidly forming that – 1) tariffs are little more than a negotiating tool, and 2) said tariffs are unlikely to be as drastic as those touted on the campaign trail last year. Were those two assumptions to be challenged, a significant adverse reaction in risk assets is likely on the cards; unless, and until, then though, the path of least resistance should continue to lead to the upside.

More broadly, that uncertainty is leaving markets in stasis, with G10 FX having fallen asleep over the last day or so, and front-end Treasuries also doing little more than tread water. Although the recent slide in FX implied vols points to some degree of fading concern on the tariff issue, it’s tough to short the USD while the level of uncertainty remains as high as it is at present.

Back to yesterday, neither the weekly US jobless claims figures, nor the latest Canadian retail sales data, managed to move the needle much. That said, initial claims, at 223k, were a touch above expectations, and perhaps introduce a degree of downside risk around the January NFP print. Meanwhile, although Canadian retail sales stagnated in November, StatCan’s ‘flash’ estimate pointed to a chunky +1.6% MoM rise in December, hence lessening any immediate cause for concern.

Still, I wouldn’t go expecting these quiet conditions to change any time soon – no participant has much incentive to take a chunky position right now, only to be left with egg on their face as a Trump tweet sees the market sail off in an adverse direction while said participant is away from their desk. As always, markets are craving certainty, which is in incredibly short supply at this moment in time.

LOOK AHEAD – A few things of note during the session ahead, after the BoJ duly fulfilled expectations with a 25bp hike overnight.

The latest ‘flash’ PMI figures from pretty much every DM economy are due today, though the data is likely to reiterate what we already know – that the eurozone economy is stagnating, the UK is mired in stagflation, and that the US economy continues to vastly outperform its peers.

Besides those surveys, the final read on US consumer sentiment from the University of Michigan might be worth a glance this afternoon, while ECB President Lagarde is due to speak in Davos, though the ECB are – officially – in the quiet period ahead of next Thursday’s decision.

Finally, notable earnings before the open today come from Verizon (VZ) and American Express (AXP).