US Stocks Topple on Fed Comments – Nasdaq Down 3%
The major US stock indices all fell in trading overnight as Jerome Powell pushed back on any heightened expectations of rate cuts in the US. The Fed Chair said, “The level of the tariff increases announced so far is significantly larger than anticipated. The same is likely to be true of the economic effects, which will include higher inflation and slower growth.” The Dow dropped 1.73%, the S&P 2.20%, and the Nasdaq dumped 3.07%. Treasury markets focused on the growth comment, with yields dropping down the curve—the 2-year off 7.6 basis points to 3.769%, and the 10-year down 5.7 basis points to 4.276%. Meanwhile, the dollar continued to fall, the DXY trading back towards the annual low, down 0.78% to 99.28. Oil prices spiked on news that the US has issued fresh sanctions on Chinese imports of Iranian oil—Brent up 2.03% to $65.98 and WTI up 2.09% to $62.61—whilst gold continued to break new records, up 3.59% to $3,341.63 an ounce.
Dollar Remains Out of Favour
The US dollar has taken a beating over the last couple of weeks, as President Trump’s higher-than-expected tariffs have led to a large restructuring of portfolios, with investors attempting to digest the implications on the global economy. Normally a safe haven trade in times of global distress, the market has interpreted the US tariffs as leading to much slower growth in the US, and the dollar has fallen swiftly out of favour after an initial rally following “Liberation Day.” In effect, the tariff update backfired for an administration which still favours a strong dollar, and the Liberation was really opening the door of the cage of dollar bears to then smash the market. The DXY now sits close to its annual low again as we approach a low-liquidity long weekend, and unless we see a strong change of direction in the coming days, the dollar could sink further into fresh ranges against most of the majors.
Another Busy Calendar Day to Close the Full Trading Week
Traders are preparing for another busy and volatile day ahead as they continue to battle geopolitical updates and a full macroeconomic event calendar before the long weekend. The Asian session has already seen a slightly higher-than-expected New Zealand CPI print, and now focus will move across the Tasman for Australian employment data later in the session. Investor focus will be firmly on Europe once London opens today, with the ECB due to update the market on its latest rate call. The market is expecting a 25-basis point cut, from 2.65% to 2.40%, but most traders are expecting the volatility to come from updates in the statement and press conference. The New York session sees the usual weekly unemployment data released (expected 225k) alongside the Philly Fed Manufacturing Index numbers, but again, most market participants are keeping a close eye on newswires for more tariff and trade updates to move markets.
