What Goes Up Must Come Down

WHERE WE STAND – It’s Friday, and it’s been a long week, I won’t take up too much time this morning.

Yesterday was, relatively speaking, a considerably calmer day than we’ve become used to of late, at least in terms of news flow. I guess President Trump was busy watching the Masters, as opposed to posting on social media.

We did, though, see most of Wednesday’s euphoria fade away, with stocks on Wall Street slumping once again, however given the double-digit midweek gains that benchmark indices printed, it’s not overly surprising to see the market take a pause for breath. If you were long, you’ve made a huge amount, and will probably have called it a week already. If you were short, and saw your book incinerated in an instant, you’ll logically be taking a break for a bit.

Furthermore, a huge degree of uncertainty that continues to linger – China trade is effectively embargoed; what deals are cut during the 90-day tariff pause remains to be seen; plus, a 10% tariff on imports remains a huge economic headwind.

While we probably know where the floor in equities is now, at 4,800ish in spoos, and trading ranges should now tighten, the significant uncertainty that continues to linger should also keep volatility high, and price action choppy. A durable rally in equities needs concrete progress towards the Trump Admin cutting trade deals, which other nations can then use as a blueprint to also take the tariff off ramp.

Yesterday also saw some of the recent FX moves unwind too, with the dollar sliding against most major peers, failing to find much love among participants, probably as the dust settled, and markets digested that the US economic outlook remains far from rosy, with downside growth risks still sizeable. I remain a dollar seller for the time being, particularly with no sign of the present policymaking incoherence ending any time soon.

Treasuries, though, remain of most interest to me, with both 10- and 30-year yields sat, as near as makes no difference, where they were on Tuesday evening, still about 35bp higher on the week. This is, yet again, a case of ‘stocks for show, bonds for dough’, whereby the equity market has mechanically rebounded, but fixed income operators take a distinctly more sceptical view of proceedings. It is, frankly, rare that bonds are wrong.

LOOK AHEAD – It’s very nearly the weekend and almost time for a cold beverage, or five.

Before that, though, we have another day of headline-watching ahead, while participants will also digest the latest UK GDP, US PPI and UMich sentiment figures. In all honesty, I’m not sure any of that will move the needle too much, with the data being incredibly stale, and the narrative firmly focused on trade developments for the time being.