Choppy stocks as Fed rate cut bets get clipped
Updated Updated Wed, 2025 May 14 09:40
* White House eased China tariffs after warnings of harm to “Trump’s people”
* US not seeking to weaken dollar as part of trade deals
* European equity markets sag late, Spain stocks hit 16-year high
* Wall Street wavers as investors focus on trade, wait for data
FX: USD rebounded from a second day of potential big losses as the world’s reserve currency found support around 100.61 on the Dollar Index. The 50-day SMA looks to be acting as resistance this week at 101.87. There was speculation in the Asian session about FX talks with South Korea which caused initial selling of the greenback. These talks took place earlier in the month and play on the theme about the Trump administration’s preference for a weaker dollar. But Bloomberg offered a counter story later in the day. Retail sales are in the spotlight today.
EUR gave back initial gains and slid below a minor Fib level from this year’s rally at 1.1243. Spanish and German final inflation figures were unrevised. Markets are slightly ignoring the ongoing dovish chatter from ECB officials. That said, today’s rejection of higher prices with the major settling near its lows is bearish.
GBP popped up to 1.3359 early in the UK session before losing ground through the day to finish in the red. We heard from BoE arch-hawk Mann, who noted that the UK labour market has been more resilient than expected. She was also worried that household inflation expectations have increased. GDP data gets released today.
USD/JPY outperformed all other majors amid reports that the Trump administration could focus on FX. The positive risk mood has also cooled off from the week’s early trade euphoria. However, prices rebounded off the 50-day SMA at 146.17 as the 10-year US Treasury yield broke above 4.50% as Fed rate cuts bets were trimmed. That Treasury bond correlates strongly with this currency pair.
AUD underperformed as prices continued to trade around the 200-day SMA at 0.6457. Prices had tried to break higher initially above 0.65. CAD also lagged with the other commodity-dollar currencies. Upside in the major looks initially capped by resistance at the 200-day SMA at 1.4010.
US stocks: The S&P 500 gained 0.10% to settle at 5,983. The tech-heavy Nasdaq finished up 0.57% at 21,319. The Dow closed 0.21% lower at 42,051. A similar session to yesterday with healthcare sold again, down another 2.3% with only three sectors in the green. Communication Services led the way, up 1.6%, with tech up close to 1% and consumer discretionary adding 0.38%.
Nvidia continued its march higher, rising 4.2% after news of the Saudi AI chip deal. A new Saudi-backed firm called Humain plans to buy hundreds of thousands of AI advanced chips, offsetting softer Chinese demand. Nvidia’s market has risen to around $3trn, just below Apple’s. Tesla added another 4.1%. AMD’s announced $6bn stock buyback boosted sentiment in the semiconductor space, with the company noting the decision reflects confidence in growth prospects. Money markets now price in less than two 25bps cuts for this year, and that hurt hit real estate and small caps.
Asian stocks: Futures are mixed. Asian markets traded mostly mixed after similar performance Stateside. The Hang Seng and Shanghai Composite gained amid strength in healthcare and tech names. The Nikkei 225 toyed with the 38,000 level with companies who have just reported earnings lagging. The ASX 200 lacked direction with softness in utilities and consumer stocks offset by strength in tech and energy.
Gold dropped sharply; below the neckline of the double top reversal pattern we highlighted yesterday around $3,200. The measured move points to decline below $3,000. But there is initial support at $3,132 with the 50-day SMA at $3,1549.
Day Ahead – Australia Jobs, UK GDP, US Retail Sales
Data releases pick up today, with figures across the globe worth keeping an eye on. First up, employment numbers in Australia should show us that the labour market remains robust. The jobless rate is likely to have remained at 4.1% while employment barely grew over the first quarter, with population growth slowing. Expectations for new jobs added are for a positive reading of around 20k.
Q1 UK growth is expected to accelerate from almost zero growth in the previous quarter, with consumption leading the way, helped by still elevated inventories. Strong GDP in February is likely to offset a March pullback, with eyes on how the economy is entering Q2.
US retail sales will be a gauge for how all-important consumer activity is faring amid the tariff turmoil. Activity ahead of big price hikes due to levies may help sales again in April. But consumer confidence has been hit hard and along with government spending cuts, may impact the key core and control group data. Those two figures feed directly into GDP, though the very recent China-US de-escalation may not have impacted just yet.
Chart of the Day –USD/JPY downtrend resumes?
We get Q1 Japan GDP data released imminently, with consensus expecting a slowdown in growth but FY24 still held at 0.7%. Going forward, tariffs are predicted to weigh on the economy. However, domestic demand led by consumption on support from large wage hikes should help.
USD/JPY had been in a long-term bear channel since hitting a high at 158.87 in January. Prices moved above the top end of the channel twice with the 50-day SMA also capping more upside. Recently, the major broke higher through the downward trendline, which matched the major Fib retracement level (38.2%) of this year’s drop at 147.13. But the risk-on environment has eased over the last couple of sessions, so the pair has moved back below that Fib pivot point. The 200-day SMA sits above at 149.57.
