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Consumer confidence declined as inflation expectations increased, affecting market movements and currency values.
US consumer sentiment for May was 50.8, lower than the expected 53.4. April’s housing starts were also below predictions at 1.361 million, compared to the anticipated 1.365 million. Additionally, import prices increased by 0.1%, when a drop of 0.4% was expected.
Japan was hesitant in trade talks with the US, and President Trump’s tax bill did not pass a House panel vote. The Baker Hughes US oil rig count fell by one, and the Federal Reserve announced plans to reduce its workforce by 10% in the coming years.
In the markets, WTI crude oil rose by 88 cents to $62.50. US 10-year yields decreased by 2.3 basis points to 4.43%, while gold fell by $46 to $3193. The S&P 500 gained 0.6%, with the US dollar gaining strength and the Swiss franc weakening.
The foreign exchange market was stable until data showed increasing inflation expectations, which shifted market dynamics and impacted yields. The US dollar strengthened, causing EUR/USD to drop from 1.1200 to 1.1131, and USD/JPY rose from 145.45 to 146.05. Though some sellers of the US dollar returned, their impact was limited. The trade war tensions seemed to lessen, quieting the markets while President Trump visited the Middle East.
The consumer sentiment figure of 50.8 is concerning as it is close to historical lows. This suggests that households are cautious, despite strong job figures and rising stock markets. April’s housing starts were slightly off target, indicating that domestic demand may not be as strong as expected. The slight rise in import prices further complicates assumptions about continuing disinflation.
Japan’s reluctance to engage in US bilateral trade agreements raises ongoing concerns about transpacific economic cooperation—an issue to keep an eye on for safe-haven investments. The tax bill’s failure in Congress highlights the political challenges of pushing through supply-side reforms in an election year, affecting Washington’s credibility and future action.
The US oil rig count dropped by one, pointing to a slowdown in exploration growth amid softening energy demand and narrower refining margins. The Fed’s plan to cut its workforce by 10% reflects a move towards efficiency; however, it might signal a slower pace for balance sheet expansion and hiring, suggesting that monetary policy could become more neutral than previously indicated.
In terms of market movements, WTI crude’s rise was modest, largely driven by short-covering and some demand. US Treasury yields fell slightly by 2.3 basis points to 4.43%, which may lead some to pull back from floating-rate exposure. Gold saw a significant decline to $3193, down $46, aligning with the dollar’s rise and increasing real yields. This has prompted options traders to consider lowering volatility expectations for gold.
The S&P 500’s climb of 0.6% was steady, not frenzied, and led by rate-sensitive sectors rather than cyclical ones. This rally felt more like a defensive play, reflected in the support for the US dollar, which pushed EUR/USD down to around 1.1131. That’s a substantial drop, given the relative strength of the eurozone’s fundamentals recently. USD/JPY also rose to 146.05 as traders adjusted their inflation perceptions.
This shift was triggered not by a speech or central bank surprise, but by a gradual rise in US inflation expectations found in the TIPS market. This affected breakevens and real yields, prompting traders to quickly reassess their positions. Although some attempted to bet against the dollar’s rise, these efforts were short-lived, and the demand for dollars remained strong.
On the geopolitical front, trade tensions between Washington and Beijing have eased somewhat, and with Trump occupied in the Middle East, markets felt less pressure from potential tariff or sanctions disruptions. Consequently, volatility premiums have contracted.
Looking ahead, we will carefully navigate year-end rate positioning, focusing on short-term volatility tied to key inflation indicators. While liquidity is good, sentiment remains fragile. We should wait for precise price confirmations before making adjustments in rates and FX, especially since options are undervalued compared to historical ranges.
Gold prices fell over 4% due to improved market sentiment, leading to increased investment in riskier assets.
Gold prices fell by over 1.50% after a tariff agreement between the US and China, leading investors to shift their money into riskier assets. Despite a slowdown in US Retail Sales and mixed data from the housing market, inflation expectations remain high.
Gold had a rough week as market confidence grew, with XAU/USD trading at $3,187, down from a daily peak of $3,252. The economic data showed trading within the $3,120-$3,265 range, but momentum cooled as the week ended.
US Consumer Sentiment Drops
In May, consumer sentiment in the US fell, as survey results indicated rising inflation expectations. Even though housing starts were mixed and import prices rose by 0.1%, Treasury yields bounced back, strengthening the US Dollar. Retail Sales slowed down in April, suggesting a deceleration. The Atlanta Fed projects potential US growth at 2.4% for Q2 2025. The market is closely watching the Federal Reserve’s moves and upcoming economic events. This week, the announcement of a 90-day trade pause between the US and China aims to resolve their trade issues. The US 10-year Treasury yield remains steady at 4.437%, with real yields at 2.0907%. Overall, changes in gold prices are influenced by geopolitical events, economic conditions, inflation expectations, and currency shifts. Actions by central banks and interest rate forecasts also significantly impact its value.The Impact of Economic Signs and Policy
Recent updates show that gold is losing its shine, closely tied to changes in risk appetite and US economic data. The metal dropped more than 1.5% after the trade pause news between Washington and Beijing. This agreement seems to encourage investment in stocks and other riskier assets, pulling funds away from safe havens like gold. Even though some US economic indicators point to weakness—especially in Retail Sales and housing starts—inflation expectations remain steady. This suggests that despite a minor slowdown in consumer spending, price pressures still persist. Treasury yields have slightly improved, particularly for long-term bonds, with the benchmark 10-year yield above 4.4%. This stability and strong real yields have supported the US dollar, making gold less attractive. The Federal Reserve’s role is crucial. No immediate policy changes are anticipated, but expectations for rate cuts are starting to waver as inflation proves stubborn. The Atlanta Fed’s forecast for a 2.4% growth in the second quarter of next year remains, but the underlying data isn’t consistently strong. A minor drop in Retail Sales in April hints at a potential slowdown in consumer spending, especially if inflation lingers longer than anticipated. Last week, gold traded in a clear range between $3,120 and $3,265. However, momentum faded near the top of that range, with the price settling closer to $3,187. This represents a significant drop from earlier highs around $3,252, indicating a cooler market sentiment. Consumer confidence indicators have also shown a decline. May’s metrics point to growing worries about rising living costs and economic stability. While this anxiety could benefit gold over the long term, it hasn’t yet sparked immediate demand. The modest rise of 0.1% in import prices last month complicates the inflation situation. This small increase is unlikely to prompt the Fed to act aggressively on rates, leaving room for data-driven decisions in the future. Still, policymakers remain cautious, monitoring jobs data, inflation trends, and inflation expectations closely. Moving forward, price movements in metals will likely depend on how Treasury yields behave and the strength of the dollar, along with geopolitical events and the durability of trade agreements. Currently, the gold chart indicates that traders have positioned the metal in a neutral space after struggling to break past recent highs. Although volatility has decreased, it may only be temporary. Significant moves in upcoming inflation data or a stronger-than-expected jobs report could prompt renewed interest. Conversely, if inflation pressures decline more clearly, that may increase expectations for earlier rate cuts, making gold more appealing again. Additionally, derivative markets may look to implied volatility and options skew for signs of potential stress or opportunity. As always, risk exposure should be assessed around macro data releases and possible policy changes. The ongoing tension between stubborn inflation and cooling growth will likely dictate market movements in the coming weeks. Create your live VT Markets account and start trading now.US stock markets rise for five consecutive days, driven by S&P 500 gains
The S&P 500 had a steady rise throughout the week, thanks to lower US-China tariffs. The index climbed without any interruptions.
On Friday, stock market data showed gains across multiple indices. The S&P 500 rose by 0.7%, the Nasdaq Composite by 0.45%, the Russell 2000 by 0.9%, the Dow Jones Industrial Average by 0.7%, and the S&P TSX Composite by 0.3%.
Weekly Trends
For the entire week, the S&P 500 increased by 5.1%. The Nasdaq Composite surged by 7.0%, and the Russell 2000 gained 4.5%. The Dow Jones Industrial Average had a small dip with a 0.2% decrease, while the S&P TSX Composite rose by 2.4%. These numbers indicate strong interest in stocks, especially those focused on growth. The overall upward trend reflected confidence in trade improvements, particularly the latest tariff changes between the US and China. This kind of information often triggers renewed buying interest, especially from those who see geopolitical progress as a sign of favorable conditions. It’s more than just sentiment—it’s a response to real change. Cyclical stocks performed well, especially those linked to consumer demand and small companies. The Russell 2000’s rise was stronger than its larger counterparts, suggesting an increased willingness to take risks. Larger multinational companies with significant overseas revenue benefited from favorable foreign exchange movements during the week. Right now, market momentum and sector shifts are more important than balance sheet strength. At the end of the week, the market breadth was supportive. More stocks advanced than declined, and there were no significant intraday pullbacks, indicating that investors were confident even heading into the weekend. This is unusual, given the mixed earnings outlook ahead. Options trading confirmed this trend, with many investors favoring call contracts in large-cap tech, leading to a slight rise in implied volatility. This detail indicates ongoing speculative interest beneath what appears to be steady accumulation. Powell’s earlier comments about interest rates still influence bond-equity correlations, though the impact seems less severe due to tariff optimism. His previous remarks were taken as slightly accommodative, creating lingering sentiment. Yields are being closely monitored. Prices of thirty-year government bonds reflect uncertainty about how long the Federal Reserve will keep its current position. Volatility in longer-dated futures hasn’t spiked significantly, but the curve remains tightly grouped around the near-term midpoint, suggesting potential for sudden changes if new data varies. We’ve previously used this as an indicator for shifts in option gamma trends.Market Strategies
Traders focused on volatility would have seen a reduced skew on indexes, pointing to a lower perception of short-term downside risk. However, this doesn’t mean that selling protection is the best move. It’s a chance to reassess exposure to volatility, especially with key Fed comments expected soon. There’s little room for error if sentiment shifts due to bad jobless claims or unexpected inflation pressure. We don’t rely heavily on seasonal trends, but patterns suggest that this time of year often leads to tighter trading ranges until a catalyst breaks expectations. Macro hedge funds are currently staying light, avoiding firm directional exposure as much of the good news is already factored into prices. This could mean smaller volatility spikes have a larger impact on positioning. At the same time, low equity volatility across benchmarks offers opportunities for creating asymmetrical payouts using shorter duration spreads with controlled costs. Friday’s price action can also be seen as a test of market conviction. After a big week of gains, markets did not show immediate reversal in after-hours trading or international indices. This is significant. It provides a reference point for traders—indicating where buying interest may begin if a retracement occurs before the next CPI release. As a group, we are preparing for range-bound trading in the short term while staying responsive. Last week’s high correlations indicate that basket trades are still popular and could be sensitive to earnings from tech companies. Probability-weighted strategies involving paired long and short options could help manage potential abrupt shifts. Additionally, it could be wise to enlarge hedges as key economic data days approach. Currently, all attention will shift to incoming PCE data and whether the signs of disinflation continue. However, the earlier response to softer growth metrics shows that traders are willing to overlook short-term weaknesses if broader political and trade signals are positive. This creates a situation where short gamma exposure could be affected rapidly if complacency sets in. Keep your contract positioning flexible. The cost of misinterpreting the next set of data could outweigh the benefits of sticking to a static outlook. Create your live VT Markets account and start trading now.Weak Japanese growth figures lead to a rise in USD/JPY amid US inflation worries
### USD/JPY Movement
Recent data from the United States shows a decline in consumer sentiment but a surprise rise in short-term inflation expectations. Consumers now expect inflation to increase by 7.3% over the next year, highlighting ongoing cost-of-living pressures in the U.S.
Usually, the Yen strengthens during global uncertainty. However, weak domestic data puts its long-term strength at risk. If Japan’s situation worsens and inflation falls, the Yen may be sold off further, especially if the Federal Reserve sticks to its current policy.
### Currency Heat Map
The analysis indicates that USD/JPY exchange rate movements are affected by two main themes: weaker economic data from Japan and rising inflation expectations in the U.S. Although a 0.22% increase in the currency pair seems small, recent volatility suggests deeper trends that could begin to dominate the market soon.
Japan’s economy shrank by 0.2% in the first quarter compared to the previous quarter and by 0.7% year-over-year. This marks a significant change after a year of modest growth and aligns with known weaknesses in consumer behavior and trade—factors that can hinder central bank decisions. Softer data makes it too early to bet on changes in Japanese yields.
From the Federal Reserve’s perspective, the focus is not just on interest rate policy, but also on the recent jump in inflation expectations, now at 7.3% among consumers. This figure will not be overlooked by policymakers. Any new evidence of persistent inflation—whether from surveys or CPI data—could impact talks about rate changes in the near future. We don’t expect immediate shifts, but markets will closely watch for comments on Monday.
This contrasting situation—soft data from Japan versus persistent inflation in the U.S.—creates a compelling trend. The Yen, often a safe haven during global market volatility, risks more decline if domestic confidence falters. With inflation in Japan slowing without strong action from the Bank of Japan, traditional protective long positions are losing effectiveness.
Looking beyond the USD/JPY pair, the broader currency landscape shows the U.S. Dollar gaining significantly against the Swiss Franc. This hints that demand for Dollars isn’t solely linked to the Yen but has broader implications. Monitoring the gap between inflation expectations and yield curves will help clarify if this momentum can continue.
Immediate focus should be on how Monday’s Fed communications might affect market volatility. Rate traders will be closely watching if headline inflation rises while Japan remains in contraction.
Create your live VT Markets account and start trading now.
US and EU begin trade negotiations on tariffs and digital investment issues
The US and EU have begun trade talks focused on tariffs, digital trade, and investment. Reports indicate that USTR Greer has suggested reintroducing 20% tariffs on EU goods.
These discussions are expected to be challenging, as European leaders have rejected a 10% threshold similar to one accepted by the UK. This week’s talks also included possible agreements with Japan and South Korea, though Japan has reportedly decided to withdraw.
The EU trade commissioner spoke with Greer and expressed interest in meeting next month in Paris. The outcome of these discussions is still unclear, reflecting the shifting dynamics between these global powers.
This article marks a new phase in US-EU negotiations, with tariffs, digital rules, and cross-border investments as key topics. Greer, the US Trade Representative, raised the possibility of new 20% tariffs on EU products, indicating a change in stance that many thought had been settled. European leaders have already rejected a 10% cap—something the UK had accepted—showing they are unwilling to compromise on those terms.
This week’s discussions also included South Korea and Japan as part of a broader strategy. However, Japan seems to have opted out, possibly due to dissatisfaction with proposed terms or a desire to wait for more stable dealings with the US. The EU’s trade commissioner has invited Greer to meet again in Paris next month, but no commitments have been made, leaving many issues unresolved.
For those watching price movements and market volatility, these talks are more than just bureaucratic maneuvering—they signal potential changes in tariffs, which can affect everything from market forecasts to volatility. If Greer moves ahead with higher tariffs, it could lead to significant price adjustments in various sectors almost instantly, impacting related asset classes. Our focus isn’t on the politics—it’s about anticipating direction amidst the noise, as this will influence the value of positions that last beyond a few days.
The rejection of the 10% cap by European leaders indicates a reluctance to compromise based on previous agreements. They are crafting their own deal this time, and if the US escalates, we may see retaliatory actions that limit currency movement and affect specific sectors. For assets linked to international trade or heavily reliant on exports, we expect broad testing of positions across implied levels, with rising premiums at the front end.
With Japan stepping back, the chances for a trilateral agreement diminish. This shifts the balance of potential hedging options in East Asia, narrowing choices for those who rely on regional stability as a signal for market movements. If these negotiations drag into next month without resolution, implied rates may rise further due to uncertainty.
Looking ahead, the next few weeks should not be about chasing quick moves but observing which parties are likely to make firm commitments. This will help identify which aspects of the market carry weight. Sensitivities will change based on discussions behind closed doors in Paris. The best trades now are those that minimize assumptions and emphasize protection.
US Dollar Index rises slightly following disappointing economic data and weak consumer sentiment
The US Dollar Index (DXY) is trading slightly higher at around 101.00, measuring the Dollar against six other currencies. This comes after mixed economic reports from the US and a drop in consumer sentiment, which fell to 50.8 in May from 52.2 in April, marking its lowest point since June 2022. Predictions for inflation are rising, with one-year expectations at 7.3% and five-year expectations at 4.6%.
Recent US data showed an unexpected drop in April’s Producer Price Index and a small increase of 0.1% in Retail Sales. President Trump’s announcement of new tariffs raises concerns about trade. Market forecasts suggest a 51.1% chance of a rate cut by September, with further cuts anticipated through 2026. The DXY is holding steady in the range of 100.52 to 101.14.
Indicators of Market Momentum
Indicators such as the Relative Strength Index and Moving Average Convergence Divergence show neutral momentum with a slight positive tone. The Dollar is the most traded currency globally, accounting for over 88% of all foreign exchange transactions. The Federal Reserve’s monetary policy, including interest rate changes, greatly affects its value. Practices like quantitative easing and tightening are significant strategies used by the Federal Reserve. The dollar index has modest gains despite mixed data from Europe. It remains above the key 101.00 level but is trading within a narrow range for now. Consumer sentiment in May drops to levels not seen since mid-2022, indicating falling consumer confidence. This is not a good sign for economic growth, especially as spending shows signs of weakness. The slight 0.1% increase in retail sales in April suggests no revival is on the horizon. Combined with soft producer inflation, this signals stagnation rather than overheating. At the same time, expectations for inflation—both short and medium-term—are rising. The one-year inflation expectation increased to 7.3%, and the five-year to 4.6%. While this may not raise immediate concerns for the central bank, it contradicts the disinflation narrative the markets anticipated. This uncertainty is reflected in futures markets, where participants are divided on the timing of rate cuts, with just over half expecting the first cut by September. This situation is not reassuring for momentum-based strategies, with expectations now extending to 2026 as a more extensive easing cycle is anticipated.Trade Policy Risks
There is also a risk from trade policy. Renewed talk of tariffs raises concerns about price stability and supply chains. Such policies can impact the consumer price index over time, complicating large capital flows. From an indicator perspective, medium-term technicals show pricing caution. RSI readings are close to neutral, and MACD has lost much of its strength. This suggests a lack of clear direction, which might not be helpful for making bets based on trends. However, the slight upward trend indicates the market is not ready to abandon the dollar just yet; it seems to be observing rather than acting. Currency risk is heavily influenced by forward guidance and rate expectations, especially in derivatives. Daily price swings tend to react more than predict, suggesting that patience may be more effective than impulsive decisions. Current information suggests a waiting game. Watching the evolving odds of policy announcements—both expected and unexpected—might be more advantageous than jumping into price movements too soon. Any strong directional commitment will likely need to align with confirmed economic reports, particularly in inflation and consumer spending. The Fed has significant influence and navigates a narrow path based on data and market reactions. Its tools for managing rates and liquidity limit the potential for surprises. This could result in sharper moves in the dollar once any directional shifts are confirmed, as current consolidation limits expectations. We will keep an eye on spreads and cross-currency flows, focusing on widening policy differences. When other central banks change rates faster or slower, the dollar’s strength could be challenged. For now, it’s essential to align strategies with the facts, not assumptions. Create your live VT Markets account and start trading now.Canada has a holiday while economic data is expected later this week.
April’s Consumer Price Index Release
Canada will have a holiday on Monday, as markets will be closed for Victoria Day. The Bank of Canada is scheduled to decide on interest rates on June 4, influenced by various economic data. On Tuesday, July will release April’s Consumer Price Index (CPI) numbers. The month-on-month CPI is expected to drop by 0.2%, down from the previous increase of 0.3%. Year-on-year, the headline CPI is forecasted at 1.6%. Core measures are expected to remain steady at 2.9% and 2.8%. Right now, there is a 64% chance that rates will be lowered by 25 basis points. On Wednesday, the Government of Canada will auction C$3 billion in 30-year bonds. Thursday will provide updates on April’s producer price index, where previous figures showed a +0.5% increase for industrial products and a -1.0% decline for raw materials. A speech by BoC Deputy Governor Toni Gravelle could influence the interest rate decisions in June. Friday wraps up with March retail sales data, expected to show a month-on-month change of -0.3%, an improvement from -0.4% earlier. There’s no agreement yet for sales excluding autos, which previously increased by +0.5%. The USD/CAD exchange rate is expected to finish the week just below 1.40. Currently, we see a consistent decline in several indicators. Consumer-level inflation pressures continue to ease. If April’s headline CPI confirms a drop of -0.2% month-on-month, it will be the softest reading since the pandemic distortions of 2020. The year-on-year inflation rate falling to 1.6% is well below the Bank of Canada’s 2% target. However, core measures close to 2.9% indicate some resilience in harder-to-change areas like services and housing.Market and Inflation Trends
With the overnight rate still quite high, it’s becoming harder to keep rates steady each week. The market’s 64% chance of a rate cut in early June is looking stronger. Unless CPI or Friday’s retail sales exceed expectations by a large margin, this probability might become nearly certain. Gravelle’s comments could impact the overall tone, but the data is doing most of the work right now. The midweek bond auction provides insight into thirty-year pricing as expectations change. Long-term yields are likely to be more responsive to speculation about interest rates than short-term ones. If CPI disappoints or retail sales drop again, the curve may steepen, as markets anticipate quicker easing. Movements in the CAD financial market are telling a clear story—staying around 1.40 indicates traders are adjusting to a weaker domestic economy. Local demand is falling, and households are spending less. The previous high-interest approach to contain inflation no longer looks justified if these trends persist. Thursday’s producer prices might not grab headlines, but they’ll be more significant this time. If industrial product inflation cools below the current +0.5%, it would reinforce a deflationary trend in manufacturing and pricing. For those involved in medium-term volatility, shifts in expected input costs could start influencing inflation forecasts. We should get ready for heightened sensitivity to interest rate changes leading into early June. Any major changes to forecasts, especially on Tuesday or Friday, will impact USD/CAD trading and bond market volatility. Activity may increase in the risk reversal market due to the uncertain nature of the rate cut odds. It seems worthwhile to explore adjustments around skew and term structure as the bank approaches a critical decision point. Create your live VT Markets account and start trading now.Investors ignored weak consumer sentiment data, leading the Dow Jones Industrial Average to hit new weekly highs.
The Dow Jones Industrial Average (DJIA) hit new weekly highs even though the University of Michigan’s Consumer Sentiment Index dropped to 50.8 from 52.2. Consumer inflation expectations also rose, with 1-year predictions increasing to 7.3% and 5-year predictions reaching 4.6%.
Concerns about tariffs are affecting consumer outlook, raising fears of “profit-led inflation.” Recent US inflation data was better than expected, but tariff impacts remain a worry, as the Effective Tariff Rate climbed to 13% from 2.5%. The tariff rate on China alone exceeds 30%.
Market Response to Policy Changes
The Trump administration frequently proposes bold policy changes that are often reversed later. A recent budget bill was rejected in Congress, affecting spending plans and likely sparking criticism from President Trump. The DJIA has bounced back to 42,500 after dipping to 36,600, thanks to easing trade concerns. Overall, bullish market trends pushed the DJIA above the 200-day Exponential Moving Average of 41,500, with a gain of 16.25%. The DJIA, which includes 30 major US stocks, is affected by macroeconomic data, interest rates, and inflation. According to Dow Theory, both the DJIA and the Dow Jones Transportation Average should be analyzed together to understand market trends. Despite a significant drop in consumer sentiment, which now sits at a low 50.8, the DJIA continues to climb to new weekly highs. This contradiction can be explained by market behavior; sometimes, positive shifts in broader economic indicators or central bank policies can outweigh consumer pessimism. Inflation expectations are rising again, with 1-year predictions at 7.3% and 5-year predictions at 4.6%. These increases shouldn’t be overlooked. Pricing pressures are rising higher than what policymakers might be comfortable with. Recent inflation data was surprisingly low, which helped support stock prices, but it’s essential to view this in context. Costs from tariffs are starting to have a more significant impact on company profits. The Effective Tariff Rate is now at 13%, a fivefold increase from 2.5%. Tariffs related to China exceed 30%, adding strain to corporate expenses. While short-term data shows resilience, ongoing cost pressures can impact profits over time.Impact of Dow Theory on Market Trends
Policy unpredictability has returned to the discussion. Historical patterns indicate that bold policy announcements often get revised or retracted, as seen with the recent rejection of a budget proposal in Congress. The implications of these actions on fiscal spending are crucial, especially with inflation pressures still present. Without clarity on fiscal policy, corporate earnings projections become uncertain. On a technical note, the DJIA has successfully surpassed the 200-day Exponential Moving Average of 41,500. This average serves as a key indicator of market sentiment, and staying above it generally suggests that investors are willing to take risks in equities. The DJIA’s rise from 36,600 to 42,500 represents a 16.25% gain—not necessarily an ideal entry point for quick trades but still promising. The Dow Jones is comprised of 30 large-cap US companies and operates as a price-weighted index. This means that higher-priced stocks can influence it more significantly than lower-priced ones. Therefore, it reacts not only to economic data but also to interpretations of interest rates and inflation expectations. According to Dow Theory, strength in the industrial index should be confirmed by movements in the transport index. Discrepancies between the two can signal potential issues, particularly when demand slows. If the transport index fails to keep up with the industrial index, it may indicate trouble ahead. We need to pay attention to how rates respond to unpredictable fiscal actions and whether increased tariff pressure leads to higher producer-level inflation. For now, fluctuations in rate expectations are the more critical factor to watch, even if the overall market suggests a recovering appetite for risk. Create your live VT Markets account and start trading now.S&P 500 rises 0.6%, with over 5% gains for the week due to positive momentum
Stock markets have had a good week as US-China tensions ease. The S&P 500 hit a new high, rising by 33 points or 0.6%.
As the week progressed, trading volumes decreased, but trading activity remained strong. This trend suggests there’s little stopping a return to February’s highs.
The AI sector is also seeing a surge in trading activity.
So far this week, investor confidence has grown due to decreasing political friction between the US and China. Equity indices have risen, particularly the S&P 500, which has steadily climbed. A 0.6% increase isn’t huge on its own, but in the context of the overall market, it shows a healthy risk appetite.
Lower trading volumes later in the week are common for this season, especially ahead of earnings reports or major economic news. While low volumes can exaggerate price movements and make patterns less reliable, the market still showed an upward trend. It’s essential to note the difference between a market pullback caused by low participation and one driven by fading confidence.
Meanwhile, artificial intelligence stocks are gaining fresh interest. After being overvalued earlier this year, this sector is seeing renewed activity. Corporate updates have hinted at stronger developments in machine learning products. Although traditional valuations may seem off, the demand for tech stocks remains strong.
These trends aren’t isolated. Until now, we’ve seen mixed signals across various asset classes — defensive and cyclical sectors were moving together, creating conflicting macro data. However, this week shows clearer signals leaning toward cautious growth.
We also noticed that implied volatility hasn’t increased despite these shifts, suggesting the market isn’t expecting sudden shocks soon. This creates opportunities for tactical trading. Options like straddles might be less appealing right now due to lower premiums, so strategies like calendar spreads could be more beneficial as they take advantage of differences between actual and expected market movements.
Federal Reserve Chair Powell’s comments this week were cautious but reassuring, suggesting no further tightening of policies soon. This lifted some concerns for rate-sensitive assets. Interestingly, yields decreased even without an official policy change. Sometimes, simply holding rates steady can feel like easing.
We’re also monitoring the relationship between equity indices and commodities. When they move together, it usually signals broader optimism. This alignment gives us better insights into institutional positioning. At present, it suggests a tentative risk-on attitude is being maintained.
Short-term positioning may need some caution, especially with technical resistance levels nearing. We can’t ignore the possibility of intraday reversals around February’s highs. As these levels approach, sensitivity to external shocks could increase. Instead of taking full long positions, it may be wiser to balance exposure with clear stop-losses and remain aware of daily sentiment changes. A sudden move could erase gains if not managed well.
As the week goes on, long gamma exposure is becoming more costly, which might limit significant price movements unless supported by trading volume. Option markets indicate that traders prefer structured plays to accumulate delta rather than outright volatility purchases.
The momentum is strong, but it’s crucial to stay alert. Order books still show caution near past highs, with institutional trading not fully aligning with retail enthusiasm. This divergence is significant.
Lastly, it’s important to consider the upcoming macro data, such as consumer spending and jobless claims, which could introduce fresh volatility. However, unless there’s a significant surprise, the groundwork laid in recent sessions seems to support further testing of upper resistance levels. Whether these levels can hold will be a different question.
We’ll keep watching not just prices but also how participants adjust their sector exposures. Sector rotation can provide insights that basic charts may miss. This rotation could reveal early shifts that quantitative models overlook in the short term.
USD/CHF tests resistance at 0.8380 amid mixed economic signals and global trade tensions
The USD/CHF pair is rising, currently around 0.8380, as mixed signals emerge from the US economy and global trade tensions continue. It has gained 0.28%, but concerns about the US economic outlook and tariff policies are keeping it from rising further.
The US Dollar is finding support amid uncertain global risk sentiment. However, recent economic data raises worries. The University of Michigan’s Consumer Sentiment Index dropped to 50.8, falling short of expectations. Inflation forecasts have increased, with one-year expectations at 7.3% and five-year at 4.6%, indicating growing price pressures.
