The (Relative) Calm Before The Storm

WHERE WE STAND – I shan’t use the ‘Q’ word, at risk of tempting fate, though dare I say yesterday was a slightly dull start to the week, at least by recent standards.

The ‘calm before the storm’ sums it up, though, considering the ton of event risk that we have to come this week – 30% of the S&P reporting earnings, including 4 of the ‘magnificent seven’; a deluge of economic data, including Q1 US GDP, and the April jobs report; the Treasury quarterly refunding announcement; a policy decision from the BoJ; and, of course, any curveballs that President Trump may choose to throw our way. In addition, there’s the small matter of an FOMC decision next Wednesday in the mix as well.

Amid all of that, it shouldn’t really be especially surprising that participants took something of a ‘wait and see’ approach to proceedings as the new trading week got underway, with conviction lacking across the board, and markets largely meandering along in a relatively directionless fashion.

Anyway, at least that gave me a chance to do a bit of number-crunching.

There’s been a lot of excitement recently as stocks continue to pare post-Liberation Day losses, with the Topix & DAX having already cleared those pre-tariff levels, while the S&P 500 trades about 2% below the levels seen at the start of the month.

While that all sounds very positive indeed, a cursory look under the surface suggests that things are somewhat more fragile. Just a third of S&P 500 stocks now trade above their 200-day moving average, compared to around half of the index before its tariff related plunge. Furthermore, just 0.8% of constituents currently trade at 52-week highs, a substantial drop from the 5.5% on 1^st April. Meanwhile, at a sectoral level, only the Technology sector trades in the green since ‘Liberation Day’, with six of the S&P’s eleven sectors having lagged the S&P 500 at large over that time period.

All of this serves to reinforce my relatively cautious stance on equities right now, with rally selling my favoured strategy. One must also consider that the bulk of the recent gains have been built on ‘hope’ that trade deals will soon be struck, with said hopes having the potential to be dashed rather rapidly, depending on the latest ‘sources’ reporting. In addition, we have yet to see the actual economic harm that tariffs, and associated uncertainty, has caused, the impacts of which will only become clear in data over the next 4-6 weeks.

With all this in mind, I must admit that I found it frankly laughable to hear Treasury Secretary Bessent moaning on the weekend TV shows that nobody is writing stories about the “biggest bounce-back ever” in equity markets. To be blunt, it’s akin to me burning your house down, then rebuilding just the ground floor, and wondering why you’re giving me no credit for my efforts.

Away from that, the dollar traded broadly softer into month-end, supporting my ongoing rally selling view, albeit running contrary to models which pointed to solid USD demand as April wraps up. Still, flows or not, there in my view remains little to like about the greenback, with the ‘US exceptionalism’ narrative stone dead, and with the buck the most exposed asset of all to the ongoing trade uncertainty.

Gold continues to stand as a much more favourable haven, with dip buyers out in force yesterday. This $3,300/oz mark feels pretty pivotal in the short-term for the yellow metal, though so long as we remain north of the 50-day moving average, all the way down at $3,050/oz(ish), then the bullish trend remains intact as far as I’m concerned.

Treasuries, lastly, had a choppy day, as the long-end encountered selling pressure early doors as markets digested a hefty corporate issuance slate, before the bulls wrestled back control as trade progressed. It’s tough to have an especially high conviction call here as the vagaries of the QRA loom large on the horizon tomorrow, though participants do appear to remain rather over-excitable about the prospect of Fed cuts, with nigh-on 100bp in the curve before year-end. Should this unwind, front-end Treasury yields will likely roll higher as well.

LOOK AHEAD – While today’s data docket is a touch healthier, it’s not until tomorrow that the calendar really gets going for the week.

Regardless, participants may still pay some attention to March’s US JOLTS job openings figures (exp. 7.498mln vs. 7.568mln prior), and the latest consumer confidence index from the Conference Board (exp. 88.0 vs. 92.9 prior).

Elsewhere, a busy old day of corporate earnings awaits, with reports due from the likes of PayPal (PYPL), UPS (UPS), Coca Cola (KO), Spotify (SPOT), Visa (V) and Starbucks (SBUX). While not in any major benchmark, earnings after the close from Snap Inc. (SNAP) might also attract some attention, if for no other reason than options pricing a +/-18.9% move in the stock over the report.

Finally, Commerce Sec. Lutnick is due to speak on CNBC this evening, London time. Someone appears to have decided that the obsequious Lutnick can be let out from the broom cupboard he’s been kept in since Trump pulled a U-turn on tariffs nearly two weeks ago, in what I’d take as a sign of complacency from the Administration. It’s safe to say that Lutnick’s brash nature and hawkish rhetoric doesn’t tend to go down especially well with market participants.