Hope Builds in Markets, But Tariff Uncertainty Still Looms

We remain agile and dynamic to the possibility of short positioning being taken some off the table and more aggressive short-term traders buying into the move, while still highly cognisant that risk could just as easily roll over. This is a trader’s market and one where price is everything.

Investors are risk managers above all this week and will continue to massage exposures accordingly within the portfolio – however, as opposed to wanting to be involved in a possible short-term tradeable rally, investors will wait it out, wanting to see enough facts from Wednesday’s “Liberation Day” tariff headline deluge before holding a greater conviction to put new money to work.

They will want to see the levels of reciprocal tariffs, but also the treatment of VAT/GST in the initial announcements, and whether any VAT matching is rolled out with reciprocal tariffs or phased in after a period of review. They will want to know the legalities involved that offer a degree of clarity on the implementation timeline, and the path and willingness to negotiate, which leads to the idea that other nations may possibly reduce their current tariff levels (imposed on US imports). Or, whether certain nations move towards a tit-for-tat scenario and a heightened risk of an escalated trade war.

Essentially, the range of possible outcomes this week is diverse, and this makes pricing risk a challenge.

Many attempt to put a number on what level of tariff is already discounted, and while we all try and keep it simple and work with levels, both on a country-by-country basis and the average/weighted US tariff level, putting a number on this is never an exact science.

It seems highly likely that the market won’t learn everything this week, and uncertainty will remain in the markets for weeks. Still, the levels put to us on Wednesday (Thursday in Asia) will see the collective make a quick assumption on whether the dynamics will further weigh on business confidence and lead to higher short-term inflation expectations.

Market Moves - A solid turnaround in US equity

The positive turnaround in S&P500, NAS100, Dow, and Russell futures came an hour after the US cash equity open, and while there was no obvious smoking gun behind the flows, one can put this down to month- and quarter-end flows, with broad market participants managing exposures and not wanting to be caught short or overly underweight in the eventuality that we get a more market-friendly outcome through and post “Liberation Day”.

Intraday we saw S&P500 futures trading down to 5533, with futures volumes building on the push through 5550. The heightened volume speaks to a final dump of positioning, and a washout with accumulation, and it was on from here with the buying pressure stepped up, taking S&P500 futures +2.1% from the lows - intraday pullbacks in the rally were shallow and a solid low to high trend day playing out.

The bulls will point to solid volumes (in both US cash equity and futures) on the day, solid breadth (78% of S&P500 companies closed in the green), and the fact that NAS100 and S&P500 futures held and found good buying off the March lows. It seems a small win for the buyers, but out of the woods we are not, and while tariff headlines will start coming in thick and fast, we also have to navigate the US data flow, with JOLTS job openings, and ISM manufacturing (due in early US trade today,) ISM services (Thursday) and nonfarm payrolls (Friday) all having the potential to derail any further risk rally, or even accelerate it if the outcome is better than expected.

The USD finds Buyers but Conviction Remains Low

With US equity driven higher we’ve seen a better bid coming into the USD – again, how much of any buying can be attributed to month- and quarter-end and how much on positioning ahead of this week’s risk events is unclear, but we’ve seen better buying in the USD notably vs the AUD, NZD, CAD, MXN and CHF. Hardly emphatic moves on the day, with no G10 FX rate moving by more than 0.7%, but the vol of late has been largely centred in equity markets, and FX, despite most previously feeling was the clear channel to express a view on tariff risk, has been in consolidation mode of late and unsure of the next move.

Crude and Gold Pushing Higher

Crude has been lively, with buyers taking in tailwinds from calls from the Trump camp to cut back on crude shipments from Russia and the considering secondary tariffs. WTI crude futures broke above the 26 March highs ($70.22) and into $71.83, putting the 200-day MA (at $72.89) within reach. Gold remains well traded by clients and while the net positioning suggests traders see the risk progressively skewed lower, intraday we see that after hitting $3127 in early EU trade, the pullbacks were well supported at $3100 and consolidation that was the theme through US trade.

The tape and price action in Asian trade could reveal a lot around market sentiment – where having been passed a consecutive lead from Wall Street (S&P500 futures are 1.1% higher than where they were trading in Asia yesterday) the question from the open centres on whether we see risk build from the unwind of cash equity, or whether traders/funds look to fade that early strength.

Good luck to all.