Stocks Shrug Off Soft Data As ECB Cut Looms

WHERE WE STAND – All is right with the world once more.

I’ll let the news speak for itself here…

*MSCI ALL-COUNTRY WORLD INDEX RISES TO TOP FEBRUARY RECORD HIGH

Yup, there we have it. Four months after global equities last touched an all-time high, and two months on from ‘Liberation Day’, the bulls are well & truly back in the driving seat.

This is, quite clear, an equity market that wants to rally; a market that is happy to look through the to-and-fro on tariffs, so long as the direction of travel remains towards deals being done; a market that has found relief in resilient earnings and macro data, despite the huge degree of prevailing economic uncertainty.

Not all bull markets are created equally, though. In local currency terms, while the S&P trades essentially unchanged YTD, European bourses have notched double-digit % gains, while the Hang Seng is up around 20%. There are reasons to think that this RoW outperformance can continue, particularly if the punitive retaliatory tax measures outlined in Section 899 of the ‘One, Big, Beautiful Bill’ were to be passed in their current form, further lessening the relative attraction of US assets for international investors.  

Clearly, while I remain an equity bull across the board, risks remain, especially if the tone on trade were to sour. But, there are few more bullish signs than a market printing record highs, with ‘long and strong’ still my stance.

Speaking of risks, progress towards a US-China trade deal is still rather sluggish, with there also having been little by way of concrete news regarding the Trump-Xi call that had been rumoured to take place this week. Trump did, though, rant away on ‘Truth Social’ yesterday about how, although he “likes” the Chinese leader, he is “very tough to make a deal with”. Not exactly friendly rhetoric, but at the same time no real escalatory action here either. Even if there was, ‘TACO’ is probably going to ring true again anyway.

Another risk is a potential softening in incoming economic data, and some cracks did perhaps emerge on that front yesterday. The May ISM services index fell below 50, just – at 49.9, but nevertheless printed its lowest level since last June; a dose of scepticism is needed here, though, considering how survey data has been overstating the extent of any economic slowdown of late. Similar caution is also needed with the ADP employment figures which, while pointing to a dismal +37k private sector jobs being added last month, really isn’t worth the paper that it’s written on. President Trump trying to use that figure to bully Fed Chair Powell into a rate cut is completely and utterly laughable.

Actually, on that, the logic is simple. The louder Trump shouts about the Fed needing to cut rates, the less likely those cuts become, as the need for Powell & Co to prove their independence grows even larger. I shan’t hold my breath for Trump to compute this idea, though.

As for markets, stocks shrugged off those negative data points with relative ease, as participants remain in the mindset of ‘good is good, bad is ignored’ when it comes to incoming releases. This dynamic makes a lot of sense, when any negative data surprises have been heavily skewed by tariffs that are either no longer in place any more, or soon won’t be when trade deals are likely struck. As noted earlier, I remain bullish here.

Elsewhere, that data did have a notable impact – Treasuries rallying hard across the curve, led by the long-end, while the dollar faced stiff headwinds, and gold caught a bid. The latter two moves, naturally, being a by-product of the first.

Those gains in Treasuries were perhaps unsurprising, given that 4.5% in 10s and 5.0% in 30s were levels where we thought dip buyers might emerge anyway, with the soft ADP & ISM srvcs simply giving those participants the excuse that they needed to enter the fray.

Meanwhile, I’d not be getting especially excited about any of the USD downside seen yesterday, even if the buck did soften against most G10 peers. By and large, recent ranges remain intact, with that move simply taking the EUR, for instance, back to where it was on Tuesday morning. Not really worth writing home about, if I’m being honest. Even the loonie, which did briefly rally to its strongest levels since October after the BoC kept rates unchanged, quickly pared the move, re-emphasising how G10 FX is simply all about trading the range amid rapid mean reversion at this moment in time.

On the subject of time, I was informed yesterday that we are now closer to 2050, than we are to 2000. I hope that makes you feel as old as it did me!

LOOK AHEAD – Happy ECB Day!

A 25bp cut is nailed on this lunchtime from Lagarde & Co, while the Governing Council will also stick resolutely to their ‘data-dependent’ and ‘meeting-by-meeting’ stance, making no pre-commitments as to the future policy path. Despite that, further cuts are essentially a certainty, especially with this year and next year’s inflation projections set to be lowered rather substantially, and the risks of a sustained undershoot of the price target growing.

I still view market pricing as too hawkish, though Lagarde will probably tie herself in knots if asked about this at the presser. Of much more interest, will be whether my doppelganger turns up to ask a question!

Besides the ECB, the docket is light-ish. The weekly US jobless claims figures are also due at lunchtime, though neither the initial nor the continuing claims print coincides with the survey week for the May jobs report, which of course drops tomorrow. There are also a handful of FOMC and BoE speakers slated to make remarks, while today’s most notable earnings report comes from Broadcom (AVGO) after the close.