Stocks choppy and USD off on mixed drivers

• Ukraine’s Zelensky says prepared to offer territory swap with Russia
• Fed Chair Powell sidesteps Trump’s tariff policies at semi-annual testimony
• Dollar slides, EUR outperforms on potentially positive Ukraine news
• Gold pulls back from peak amid profit-taking, trade war fears ease

FX: USD was weaker after three green days. The 25% tariffs on all steel and aluminium imports don’t start until mid-March. Markets generally took them in their stride. The Ukraine territory swap story came late in the US session and initially saw a spike lower. Fed Chair Powell had earlier reiterated that the fed was not in a rush to move on policy.

EUR outperformed due to late buying on the Ukraine story. We had heard on Monday from ECB President Lagarde who told EU lawmakers that inflationary pressures were easing, and the central bank was on target to reach its 2% inflation goal this year. But she cautioned that trade tensions posed a risk for the outlook.

GBP moved higher in line with the euro. Comments from the MPC’s Mann who had switched from a hawkish stance to voting for a 50bps rate cut were of interest. Her sudden change of opinion was due to the need to “cut through the noise”, suggesting that she feels her colleagues are moving too slowly on cuts.

USD/JPY lagged as havens turned with yields turning higher. The major is nearing the 200-day SMA at 152.70.

AUD traded higher but around the zone at 0.63. USD/CAD fell back to the lower end of the long held range below 1.43.

US stocks: The benchmark S&P 500 closed in the green, up 0.03% at 6,068. The tech-dominated Nasdaq settled lower, down 0.29% at 21,693. The Dow Jones finished up 0.28% at 44,593. Sectors were mixed with outperformance in Consumer Staples after strong Coca-Cola earnings. Energy and Materials also outperformed while Consumer Discretionary was hit as Tesla shares tumbled. Coca-Cola beat on Q4 results amid volume and pricing gains. Annual growth in earnings and organic revenue was projected in 2025. The stock closed nearly 5% higher. Tesla dropped close to 7%, with the EV maker now down over 19% year-to-date. See below for more detail.

Asian stocks: Futures are mixed. Stocks were also mixed after the Stateside tech-led gains and as markets absorbed the 25% steel and aluminium tariffs news. which take effect from March 12. The ASX 200 closed flat with gold stocks underpinned after the precious metal extended on its record highs. The Hang Seng and Shanghai Comp were subdued following US President Trump’s latest tariff actions. Hong Kong criticised the US tariffs and will file a complaint on US tariffs to the WTO. Japanese markets were closed for a holiday.

Gold slipped after printing a recent record top at $2911. Profit taking is partially to blame, plus potential softening in Ukraine tensions.

Day Ahead – US CPI

We get the latest US inflation numbers released later today. US consumer prices are seen rising +0.3% m/m in January, one-tenth lower than the prior. +0.4% in December). That means the headline is expected to print at 2.9%. The core rate of inflation is also expected to rise +0.3% m/m, picking up from the +0.2% M/M reported in December. The annual number is forecast at 3.2%. As is usual with this release, the decimal places will be watched. Economists reckon we need prints of 0.17% over a prolonged period to hit the Fed’s 2% inflation target.

Of course, all the market’s current attention is being focused on tariffs and potential trade wars. Tariffs are seen as inflationary with higher good prices likely. But these could be offset by further services disinflation. Suffice it to say there is much uncertainty which means markets are slightly stuck in a wait-and-see mode until they know exactly what material implications result from the entire Trump policy mix. There is very little possibility of a March move at the FOMC meeting and only around a one in four chance of a 25bps cut at its next gathering in May. Markets will price this out if the data is hotter than expected, which will fuel a dollar rally. Tariffs are typically seen as inflationary and will linger in the background, even with cooler data.

Chart of the Day – Tesla losing support

Tesla has struggled in recent months and is now down more than 31% since mid-December closing high of $479.86. The stock is currently down six of the past seven days and five straight days. Elon Musk’s bid for OpenAI is seen as highly uncompetitive and just the most recent round of the ongoing conflict between Musk and OpenAI Chief Executive Sam Altman. It also brings fresh concerns about Musk’s focus and Tesla’s financial stability. Falling sales, shrinking margins and fading brand loyalty add to the negative mix.

Prices have just fallen through a long-term Fib level (38.2%) of the bull move from the April 2024 low to the record high at $488.54, at $354.94. The 100-day SMA is $335.08 and the next retracement level (50%) is $313.67.

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