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USD struggles, stocks rise amid tariff speculation
Updated Updated Tue, 2025 January 21 09:27
- Dollar rebound stalls Trump tariff drama hits markets
- Equity markets higher as Treasury yields trade mixed
- Gold breaks higher with third highest close in history
- Netflix surged over 12.5% after hours on rise in new subscribers
FX: USD jumped initially after Trump said he would slap 25% tariffs on Canada and Mexico in an unscripted answer late on inauguration day. But the gains were given up through the US session with the DXY Index dropping close to 108. The long-term high from October 2023 sits at 107.34. We are now on watch for more official tariffs announcements, after a heavier focus on immigration than trade on Day One.
EUR slid to a low of 1.0341 before rebounding intraday. The world’s most popular currency major still closed below the long-term October 2023 level at 1.0448. Although not mentioned by Trump as yet, the zone is presumed to be in the crosshairs of trade policy. The German ZEW business survey showed a modest improvement amid tepid growth.
GBP settled up on the day after being in the red for most of it. The April 2024 low resides at 1.2299. Wage data picked up again in November, though it printed below expectations. However, the m/m increase in private sector pay, which the Bank of England closely monitors, was more subdued. A February 25bps BoE rate cut is nailed on.
USD/JPY printed a doji with eyes on nationwide CPI and then the BoJ meeting on Friday. A 25bps rate hike is virtually fully priced with more local press reports confirming the move. Attention is now moving to the Governor Ueda’s press conference and the Spring Shunto wage negotiations in March.
AUD regained nearly all its losses on the day, closing near to yesterday’s bullish move and close, after trading around 0.62 for a few weeks. Risk sentiment is relatively buoyant, and China is little mentioned by Trump as the moment. USD/CAD spiked to a new cycle high at 1.4516 before falling for most of the US session. Trump wheeled out the 25% tariff threat to Canada (and Mexico) in informal remarks. The CPI data generally missed estimates with housing a drag but forward-looking figures showing downward pressure.
US stocks: The benchmark S&P 500 closed in the green, up 0.88% at 6,049. The tech-dominated Nasdaq settled higher, up 0.58% at 21,565. The Dow Jones outperformed, finishing up 1.24% at 44,025. Markets re-opened after the holiday in observance of Martin Luther King Jr. Day. Industrials and utilities outperformed while tech lagged. This has been a theme this year with cyclicals beating the main driver of markets for the past two years. Apple shares continued lower as they slid over 3%. Bloomberg reported that iPhone sales slumped more than 18% in Q4. There has also been sluggish performance in hardware and services with intensifying competition and economic pressures.
Asian stocks: Futures are generally in the green. Indices were mixed after Trump’s inauguration and predictably unpredictable noise coming from the new President. The Nikkei 225 was mixed giving up initial gains. Tariff threats and the upcoming BoJ meeting are the obvious focus. The ASX 200 is on a win streak of seven days with a bid in financials and gold miners offsetting energy and more defensive sectors. China was mixed with little mention of China in Trump’s speeches, save a reference to the Panama Canal.
Gold broke to the upside in a textbook breakout, as we highlighted last week. Another push higher from minor bullish consolidation seems to have broken resistance around $2720, the highs from November and mid-December. Record highs beckon above $2790.
Day Ahead – Post Day One… (and the MAGA vs Tech Billionaires sideshow)
With little top tier data on the calendar, focus will inevitably fall on the new President’s next moves after a relatively quiet start. Of course, that is a quiet start for markets, compared to the shock and awe and aggressive tariffs that some were expecting on ‘Day One’. A more nuanced and phased in stance to trade policy would likely see more dollar selling as markets (speculative traders, real money, hedge funds, commercial accounts) take partial profits from long USD positioning in futures. The size of those longs recently beat the 2024 peak and got close to the April 2019 top.
We are in the blackout period of the next FOMC meeting which takes place next Tuesday and Wednesday. The next rate cut isn’t priced in until the middle of the year with two 25bps moves in the whole of 2025. Of course, much depends on the 47th US President with markets eagerly and with some trepidation, watching incoming events. (The battle between MAGA and the tech billionaires, who have recently sidled up to Trump, will also be an intriguing watch in the meantime. Has this fragile coalition begun to splinter over immigration and other domestic issues?)
Chart of the Day – King Dollar dips after stellar run
Crowded long positioning and overly high expectations of aggressive tariffs which failed to happen have seen the greenback fall from its recent highs. The Dollar Index had climbed nearly 10% in a steep bull channel since its lows in late September. The series of higher highs and higher lows saw the index surge to a high print at 110.17. Since then, prices have fallen out of the upward channel with near-term support at 107.81. That is the minor Fib retracement level (23.6%) of September bull run at 107.81. The October 2023 top is t 107.34. The next support zone is with the 38.2% Fib level and the mid-April 2024 high around 106.34/51. We expect dip buying as US economic exceptionalism should endure at least over the near-term.
