- Improved risk appetite pushes stocks higher
- Focus shifts to Nvidia earnings after US markets close
- Trump highlights diplomacy as the main way out of the US-Iran crisis
- Gold and oil maintain recent gains; dollar whipsaws
Muted risk on reaction
After a difficult session on Monday due to tariff developments, risk markets experienced a decent bullish reaction on Tuesday as investor appetite showed some signs of improvement. US stock indices posted gains, with the S&P 500 rally being led by consumer discretionary and technology stocks. Similarly, the cryptocurrency market bounced higher, with bitcoin reclaiming the $65k level but ethereum failing to reach $2000.
Despite this reaction, the tariff situation remains in the spotlight as there are unanswered questions about whether the 15% global tariff under Section 122 will be extended after 150 days and, whether refunds for the estimated $211bn collected from the now illegal tariffs will be requested. Additionally, following the postponement of the EU Parliament vote on the US-EU agreement, some countries might even think of reneging on their signed trade agreements with the US.
An easing of concerns about the AI impact played a key role in improving risk appetite, with this sudden change of heart most likely also connected to today’s Nvidia earnings. Analysts expect another spectacular report, with the focus quickly shifting to the planned AI spending, which caused short-term corrections in other technology stocks, overshadowing their actual earnings.
Nvidia earnings do not tend to disappoint, but should that be the case today, apart from the stock price testing the strong support in the $184-$186 region, where the prevailing simple moving averages (SMAs) converge and point to increased volatility ahead, most major US stock indices will find it difficult to escape the bearish momentum.
Trump keeps the door open to diplomacy
Yesterday’s State of the Union Address by the US President did not hold any major surprises, with Trump repeating his known rhetoric on economics, foreign policy, immigration, etc. He was quite vocal on Iran, highlighting his preference for negotiations and his determination for Iran to remain free of nuclear weapons. His somewhat more conciliatory tone contributed to the dollar weakening, with the euro/dollar pair now trading around 1.1800.
Meanwhile, gold and oil are preserving their recent gains. The former is hovering below $5,200, with a continued improvement in risk appetite, most likely resulting in short-term weakness. Similarly, oil is stuck in a rather tight range, with the $67 level limiting the upside over the past few sessions, which means that a marked deterioration in US-Iran relations might be one of the few reasons that could fuel an upside breakout.
Fedspeak continues; fewer 2026 rate cuts priced in
Strong labour market and inflation data over the past two weeks have gradually dented rate cut bets in the market. Around 55bps of total easing is currently priced in, down from 65bps in early February, with the first rate cut pushed out to September.
Less dovish Fedspeak has also played a key role in this adjustment, as middle-grounders like Boston’s Collins and Chicago’s Goolsbee – both not voting this year – have highlighted the recent jobs data dynamics, and the need for softer inflation to open the door to rate cuts. Three Fed speakers will be on the wires today, with both St Louis’ Musalem and Kansas City’s Schmid potentially adopting a slightly more hawkish rhetoric than markets would prefer at this stage.
Yen under pressure
As forecast, the post-election decline in dollar/yen proved short-lived as Japanese PM Takaichi’s fiscal plan and the humongous debt burden have gradually returned to the spotlight. Additionally, yesterday’s newsflow confirmed expectations that Takaichi pushed for a steady monetary policy stance going forward at last week’s meeting with BoJ Governor Ueda.
As a result, since mid-February markets have erased 10bps of tightening, with a total of 47bps of rate hikes currently priced, and the probability of an April rate move dropping to just 54% from a high of 73% in late January. A decisive move above the 50-day SMA at 155.94 could pave the way for a retest of the early February peak.