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The US ISM manufacturing report was the latest to fan fears of stagflation. Dipping back into contraction after a one-month hiatus of expansion, the headline print of 49 was lower than the expected 49.5 and the prior 50.3. Prices paid rose to a 33-month high of 69.4, and its 7-point month-on-month increase was its second highest in 14 months and the second consecutive rise above its 1-standard deviation band. New orders also contracted at their fastest pace in two years.
The S&P global counterpart softened the blow slightly by etching out a marginal contraction of 50.2 and above the 49.8 expected, but it’s a small victory in a time of such uncertainty.
The irony is not lost on me that Trump’s tariffs are denting sentiment of the very sector his policies aimed to revive. But he has warned that they are willing to suffer short-term pain for longer-term gain. And maybe it will work. But for now, appetite for risk remains suppressed. And the best odds of its revival is for watered down tariffs and compromise from the Trump administration.
Trump’s liberation day to retain a tight grip on sentiment
Volatility is receding as we approach Trump’s Liberation Day, which really could go one of two ways in terms of direction and volatility. Should tariffs be watered down enough, appetite for risk could rebound and send the US dollar higher with it. But if they are as severe as feared, Wall Street indices could be facing another leg lower alongside the US dollar. Gold seems to go up regardless these days, but take note of key resistance levels around Tuesday’s that could prompt at least a minor pullback.
We have just under 24 hours until President Trump addresses the nation and announces his tariffs, which are to be rolled out at 16:00 pm ET (06:00 AEDT). That leaves headline risk on the table, and CAD, MXN, Nasdaq and S&P 500 in the limelight alongside bond yields over the next 24 hours at a minimum, and potentially into the weekend and beyond.
The 1-day implied volatility level for USD/CAD is around 105% of its 20-day SMA, whereas USD/JPY, USD/CHF, AUD/USD and NZD/USD are around their 20-day averages. It is worth noting that historical volatility of the past 20 days shows USD/JPY is where the action has been, with an average daily range of 131 pips, with Asia offering an average of 83 pips, Europe 107 pips and US 97 pips.
USD/JPY technical analysis
I’ll remain the optimist and vouch for a burst of risk-on, which could strengthen the US dollar and weaken the Japanese yen. A bullish hammer formed on Monday which saw a false break (and close back above) the monthly pivot point and 20-day SMA.
150 is the next level for bulls to take, but a break above it could see prices head for 151 and the resistance cluster just below 152, including the 200-day SMA (151.47) and monthly VPOC (151.74).
A break beneath the bullish pinbar’s low invalidates the near-term bullish bias. With that said, we may need to be open to some false moves and panic responses over the next 24 hours which can happily ruin a good technical setup. Stepping aside until the results flow in is always a valid option.
Economic events in focus (AEDT)
We don’t have any high-impact news lined up over the next 24-hours, though those seeking a pre-NFP fix will no doubt have a close eye on the ADP employment report. Check out my ADP vs NFP article link at the top of the page to see how strong a relationship the two really have.
- 08:45 – New Zealand Building Consents
- 09:00 – Australian Construction, Manufacturing Index (Mar)
- 11:30 – Australian Building Approvals, RBA Chart Pack Release
- 23:15 – US ADP Nonfarm Employment Change (Mar)
- 01:00 – US Core Durables (Feb)
- 06:00 – US President Trump Speaks
- 07:00 – US Reciprocal Tariffs Implemented
ASX 200 at a glance
- The ASX 200 ended its first day of Q2 on a better note than the final day of Q1
- Its 1% gain was accompanied with 11 rising sectors, led by Real Estate and Utilities, while 129 stocks advanced, 61 declined and 10 were unchanged
- ASX 200 futures (SPI 200) were up 0.35% overnight to point to a positive open for the ASX cash market today, though it trades around 8,000 and below last week’s high
- The ASX direction seems more likely than not to track Wall Street futures over the next 24 hours
-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
