- Uncertainty weighs on risk appetite; crypto winter persists
- Stocks try to find their footing ahead of Wednesday’s Nvidia earnings
- Trump’s State of the Union in focus as reports point to an imminent strike on Iran
- Dollar’s rally pauses; gold and oil consolidate after gains
Markets adjust to new tariff regime
It has been almost four days since the US Supreme Court ruling and markets are still digesting the new status quo. Tariffs imposed under the International Emergency Economic Powers Act (IEEPA) have been deemed illegal, opening the door to a potential refund of $211bn collected under this Act. As widely anticipated, Trump has already announced a 15% global tariff under Section 122, which will be in effect for 150 days, unless of course Congress extends it.
The initial positive reaction – the dollar sold off and US stocks rallied – proved short-lived, as uncertainty is the name of the game again. US President Trump is furious with the ruling, making him especially unpredictable. The most pessimistic analysts see a return to the April 2025 situation, but investors have mostly figured out Trump’s game plan by now, resulting in a lack of aggressive selling pressure in risk assets.
US futures are slightly recovering today following a difficult session yesterday, but the same cannot be said for cryptocurrencies. Despite the initial relaxed reaction to the tariff newsflow, bitcoin eventually failed to remain above the key $65k level, resulting in a series of stops being hit. The king of cryptos is currently trading at $63k, with a drop below the early February $60k low potentially opening the door to a move that could even reach the summer 2024 low at $53k.
Interestingly, the dollar has mostly erased the Supreme Court-induced move, with euro/dollar trading at the 1.1785 area. This could be a signal that markets are not extremely worried about tariffs. That could prove a risky proposition, though, as an angry Trump could take adverse action. A first real indication of his intentions will be given later today, when the US President delivers his State of the Union speech to Congress at 02:00 GMT. He is expected to touch upon a number of issues, including the economy, immigration and Iran.
Part of the reason for this dollar reaction could be developments in the Middle East. With analysts highlighting that the current US military build-up in the region is the greatest since the Iraq invasion in 2003, numerous reports point to a US strike this week, aiming to increase the pressure on Iran to accept US demands regarding uranium enrichment.
Such a move could prove extremely risky due to likely retaliation from Iran, with Israel likely among the primary targets. Negotiations are set to continue on Thursday, with the third round of US-Iran nuclear talks in Geneva, but that might not stop Trump from greenlighting a US strike soon.
Oil climbs to 6-month high; gold benefits from newsflow
Oil prices are hovering around the $66.50 region, as investors price in the probable US strike. That said, there seems to be a growing view that the Iranian response could be limited. That expectation could quickly backfire, though, if the Iranian regime feels that its existence is seriously threatened and decides to materially retaliate.
Gold is obviously benefiting from developments in both tariffs and geopolitics. After a period of sideways trading, with investors starting to question gold’s ability to return to previous highs, the precious metal climbed to a one-month high. It is edging lower today, testing the support of the $5,182 level, but, given the newsflow, it is difficult to foresee a sustained sell-off at this juncture.
Key US data and busy Fedspeak; Nvidia earnings tomorrow
With investors counting down to Wednesday’s Nvidia earnings report, US house price data and the key US CB Consumer Confidence will be in focus today. The latter is particularly key after the abysmal Q4 GDP report. Even more importantly, at least six Fed members will be on the wires throughout the day. The recent set of mixed data releases and the tariff developments are expected to be at the heart of today’s commentary.
Notably, after repeatedly voting for rate cuts, Board member Waller made an impressive U-turn yesterday. Following the robust January nonfarm payroll report, he is open to supporting a rate pause in March, and potentially for longer if the labour market data continues to improve. Could this be the start of less dovish Fedspeak going forward, or is Waller just feeling a tad bitter that he was not nominated for Fed Chair?