Stocks and dollar off after strong US ISM Services data

• Dollar weakens against major currencies on tariff uncertainty
• S&P 500 slides for first time in 10 sessions as traders await trade deals
• Gold gains on dollar weakness, safe haven demand
• Crude prices fall after OPEC+ agrees to surge production in June

FX: USD pared losses but still finished lower after stronger than expected ISM Services data. Notably, prices paid surged. The week kicked off with news that Trump was announcing tariffs on the non-US film industry. Meanwhile, China said it was considering how to address the concerns about its involvement in the fentanyl trade to restart trade talks. The FOMC meeting on Wednesday is a focus with rates kept on hold.

EUR gave back gains through the day. The European commission is set to present a €50bn trade proposal this week, while the smoke was said to be clearing on EZ consumer confidence data.

GBP held recent lows but also gave back some gains. Markets have an eye on Thursday’s BoE meeting where the MPC is fully expected to cut rates by 25bps.

USD/JPY fell for a second straight day and closed below 144 as the yen outperformed its peers. Japanese Finance Minister Kato said on Sunday that Japan has no intention of using the possibility of selling its US Treasury holdings for advantage in trade negotiations with the US, according to Nikkei. 

AUD performed relatively well after PM Albanese’s Labor Party won an increased majority in the election on Saturday. AUD/USD hit a peak of 0.6493as it looked to breaking to the upside. CAD consolidated near recent lows. The highlight this week will be today’s scheduled meeting between PM Carney and President Trump in Washington.

US stocks: The S&P 500 lost 0.64% to settle at 5,650. The tech-dominated Nasdaq finished down 0.67% at 19,967. The Dow closed 0.24% lower at 41,218. The VIX remained a touch elevated at 23.6. Energy was the big underperformer, down over 2% with every sector in the red apart from consumer staples which managed to eke out a 0.02% gain. President Trump ordered 100% tariffs on foreign-made movies, though it was later clarified that no final decision has been made. Netflix fell 1.94% and Disney 0.41%. Shell is evaluating a potential acquisition of BP. The latter’s stock is near lows last seen in early 2022.

Asian stocks: Futures are in the red. APAC stocks were ultimately mixed in holiday-thinned trade with most major markets in the region shut. Tariff concerns lingered after 25% tariffs on auto parts took effect on Saturday and President Trump announced a 100% tariff for foreign films but had also noted a willingness to lower tariffs on China at some point. The ASX 200 was led lower by weakness in the energy sector following a decline in oil prices after the OPEC+ decision for another accelerated oil output increase. Japan and China were closed. Regarding Japan, Kyodo reported the US has refused Japan’s full exemption from not only a 10% “reciprocal” tariff but a country-specific tariff in recent negotiations, according to sources.

Gold jumped as it regained $3,300 on a softer dollar and ongoing trade ructions.

Chart of the Day – Oil falls to recent lows

Brent crude is suffering on both the supply and demand side. OPEC+ surprised the market back in April with a supply increase of 411k b/d for May, above the scheduled increase of 135k b/d. This past weekend, the group decided to go with a similarly aggressive supply increase for June. This all means in the last three months, the cartel has decided to bring back nearly 1mn b/d of supply. The Saudis are also threatening more big supply increases if members don’t stick to their targets.

The market had already been hurting from major demand uncertainty amid tariffs risks with a big breakdown in prices last month, after taking out support just above $68. The April spike low is $58.24 and a major Fib retracement level (61.8%) of the April 2020 low to March 2022 high sits at $62.05.

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