Stocks rally on tariff hopes, USD posts a two-week high

• Dollar gains on improving US business activity, trade optimism
• Stocks jump as “Liberation Day” could be more targeted
• Tech and Tesla lead the gains after it had closed down for the 9^th straight week
• Gold ends flat on firmer dollar and Treasury yields

FX: USD picked up for a fourth day in row as it looks to build a base around the low 103s. Stronger US PMI figures helped the bulls ahead of Consumer Confidence, Durable Goods and PCE numbers released this week. Any more signs of stagflation will reinforce some of the economic projections from last week’s FOMC meeting and may cause the buck to turn down again. Buoyant risk appetite could further dent the dollar’s rise, unless US exceptionalism beomces a theme again.

EUR turned lower for a fourth consecutive day. Stronger than forecast French PMI data across the board, plus slightly disappointing German Services and Composite data resulted in some mixed Eurozone PMIs for March. But overall, the economy remains resilient ahead of big tariff risks.

GBP gave up some gains through the day after mixed PMI data. Manufacturing softened but services beat impressively. That could signal renewed momentum after stagnation. We get the Spring Statement and latest CPI data on Wednesday. Cable needs to hold on to 1.2860.

USD/JPY sharply underperformed as the major looks to be breaking out of its bear channel formed after topping out near 159 in January. The next upside level is 151.50. We note the 50-day SMA isa bout to crop below the 200-day SMA around 151.76/79.

AUD performed well on better than expected Australia PMI data, China stimulus hopes and the positive risk mood. Prices tried to cling to the 50-day SMA at 0.6287. CPI data is released Wednesday. USD/CAD outperformed but remains firmly in the recent range. The widely predicted election call was made at the weekend, with PM Carney going to the country on April 28.

US stocks: The S&P 500 gained 1.76% to settle at 5,768. The tech-dominated Nasdaq finished up 2.16% at 20,180. The Dow added 1.42% to close at 42,583. Consumer discretionary surged 4.07%, with communication services, industrials, financials and tech next best. Only one sector was in the red, and barely, with utilities down 0.10%. Tesla jumped 12% as the White House said it may give “a lot of countries” breaks on planned reciprocal tariffs, which are expected to go into effect on April 2. Nvidia was among the best performers on the Dow, with a 3.2% increase.

Asian stocks: Futures are in the green. APAC stocks traded mixed and were relatively rangebound amid trade-related uncertainty. The ASX 200 was little changed as strength in financials and consumer discretionary offset the underperformance in consumer staples and tech. The Nikkei 225 swung between gains and losses with price action indecisive amid a weaker currency. There was a deterioration in Japanese flash PMIs, which all printed in contraction territory. The Hang Seng and Shanghai Comp conformed to the lacklustre mood amid lingering friction. Chinese Premier Li stated at a business forum it is necessary for countries to open up their markets in an increasingly fragmented world.

Gold dipped for a third straight day after posting a record top at $3057. We obviously holding above the $3000 level with the next major price point at the February peak at $2956. Positive risk sentiment around “Liberation Day” and targeted tariffs buoyed more risky assets.

Day Ahead –German Business IFO Survey

Europe’s recent feelgood upswing has paused recently. But despite uncertainties regarding US tariffs, German businesses might be buoyed by the prospect of an eventual increase in spending on military and infrastructure. That comes after the German Parliament, the Bundesrat, last week ratified the government’s bill to amend the debt brake. Certainly, like in the recent ZEW survey, Germany’s fiscal package might also provide a boost to today’s IFO survey’s business expectations component, as well as, more broadly, providing a tailwind for the region’s economic sentiment indicators.

Yesterday’s March PMI figure showed cautious further improvement, up to 50.4 from 50.2 in February. Most notably, the manufacturing output PMI soared ahead of a possible further escalation of the trade war. For the first quarter, economists think this means that a positive GDP growth print is likely after stagnation at the end of last year. Of course, tariffs will have a big say going forward.

Chart of the Day – EUR rolls over

After a huge rally, the euro rally looks to be taking a breather. The single currency lost support around 1.08 to kick off the week. That level is a major retracement Fib point (61.8%) at 1.0817 of the September/January downtrend. Key resistance remains 1.0950/60 ahead of 1.0991. If we decisively lose support around 1.08, a drop back to the low 1.07s (the 200-day SMA sits at 1.0728) and the midpoint of that long-term downtrend at 1.0695 is likely.

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