Risk sentiment chopped to start the week with US Equity Futures initially hit with T-Notes supported following reports over the weekend that US President Trump is pushing senior advisors to go big on tariffs. However, a turnaround was seen after the Chicago PMI data topped all analyst forecasts, with month/quarter-end also at play. This saw T-Notes fall from highs while equities picked up from lows. Crude prices surged after the Chicago PMI data and the reopening of cash energy trade as traders digested escalating geopolitics and the improvement in the risk tone. On geopolitics, US President Trump over the weekend threatened to bomb Iran if they do not make a nuclear deal, while he also threatened oil sanctions on Russia over the war in Ukraine. In FX, the Dollar was bid ahead of the key risk week (Liberation Day, NFP, ISM PMIs, Fed Chair Powell), while the antipodeans lagged, but were off lows on the improvement in risk sentiment while attention for Australian traders turned to the RBA overnight. Gold prices continued to surge ahead of Liberation Day. Fed Member Wiliams stated it is early days in figuring out the impact of tariffs, noting there is a lot of uncertainty and they will need to watch the data to measure the impact. He stated the Fed has the ability to gather more information on hard data as the economy is doing reasonably well with a solid labour market. Williams said that he will not discount the weak survey and anecdotal data, noting uncertainty appears to be impacting behaviour. He warned there are upside risks to inflation being higher than Fed forecasts, and he forecasts that inflation will be relatively stable this year, but with upside risks. Williams expects the economy will continue to grow, but slower than last year, noting the economy does not have stagflation right now. He noted the Fed needs to keep longer-run inflation expectations anchored as they are today. Williams said monetary policy and the target rate for the FFR are currently really well positioned, and when asked about the balance sheet, said it was the natural next step to slow the balance sheet runoff to minimise bumpiness where possible. Meanwhile, Fed Member Barkin said it is going to take a while before we get clarity on tariff impact, and to cut rates you need confidence on inflation and the higher the inflation numbers, the less likely you’ll see that. Barkin added he is in no hurry on rate cuts, this is not a time for him to say how many rate cuts he has pencilled in for this year, and let’s wait and see how it plays out, as Fed Chair says. Richmond Fed President on the balance sheet, said run off could be slower for longer. Moreover, Barkin added data right now is okay, there is a risk on the employment side, and he is nervous about inflation and employment. Elsewhere, Oils surged, closing higher by 3.16% on Monday, while Gold made a new all-time high, with a 1.2% gain.
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