Markets Seek A Narrative As ‘Liberation Day’ Looms

WHERE WE STAND – Short & sweet this morning, as the week draws to a close.

In any case, markets appeared to be lacking a significant catalyst on Thursday, with fallout from Trump’s auto tariff announcement continuing – leading to EU equities stalling – but little by way of fresh information becoming clear. Stocks on Wall Street also ended the day marginally lower, with the S&P shedding around 0.3%, and I remain a rally seller here.

Fundamentally, this remains a market which is desperately seeking a catalyst, and one where participants are reluctant to take on too much risk in the interim, particularly as the 2^nd April tariff deadline, and next Friday’s jobs report, continue to loom large on the horizon.

This meandering is, perhaps, best exemplified by the FX space, where most G10s continue to trade in choppy fashion, albeit with some marginal USD softness having crept in yesterday, perhaps as a result of EoM/Q flows skewing things on the T+2 value date. Still, I favour fading any USD strength for the time being, with the idea of US exceptionalism now stone dead. This view, incidentally, has nothing to do with the fact that I have a rather punchy lunch riding on EUR/USD trading 1.10 before it hits parity!!

Perhaps the ‘trade du jour’ remains long gold, with the yellow metal continuing to shine, and trading to fresh record highs during Thursday’s session. Continued haven demand, coupled with EM central bank buying in an effort to diversify FX reserves, make for a convincing bull case here, and I remain happy to ride the bullish momentum wave higher for the time being.

The same could be said of the Treasury complex, where benchmarks advanced across the curve, led by the front-end as 2-year yields slipped around 3bp on the day. I still favour the risk/reward of long bonds here, particularly as downside growth risks mount, and as the balance of probabilities increasingly tilts in favour of a more dovish Fed path.

Besides the above, there is little else to mention in terms of trade yesterday, with the market lacking a distinctive narrative to latch on to. That said, the Norges Bank did pull something of an ‘unreliable boyfriend’ act, holding rates steady at 4.50%, despite having previously guided towards a cut at the March meeting. The NB did, though, note that cuts are likely at some point in 2025, though I’d be taking that guidance with a huge pinch of salt for the time being.

LOOK AHEAD – It’s finally Friday, and almost time for a beverage to see in the weekend!

Before raising a glass, however, there are a few things to get our teeth into. The data docket is highlighted by this afternoon’s US PCE figures, with the core PCE deflator – the Fed’s preferred inflation gauge – seen rising 2.7% YoY last month, up from 2.6% YoY in January. That, though, is unlikely to materially move the needle in terms of the broader policy outlook.

Elsewhere, participants might glance over this morning’s UK retail sales release, as well as January GDP figures from Canada, and the final read on March consumer sentiment from the University of Michigan. Plenty of central bank speakers are also due, which if nothing else might serve as a cure for the insomnia with which I seem to be suffering at the moment.