U.S. Indices saw strength on Tuesday and pared some of Monday’s weakness amid the broader risk-on sentiment and participants buying Dollar-denominated assets. Risk-on trade was already seen as US players entered for the day and after the US cash equity open, but it was further buoyed after Bloomberg reported that US Treasury Secretary Bessent told a closed-door investor summit Tuesday that the tariff standoff with China is unsustainable and that he expects the situation to de-escalate. Do note, FBN’s Gasparino later posted on X that he has been told by a person close to Bessent that the reports on his remarks about a trade deal with China having been imminent overstate what he said. Elsewhere on the trade footing, Politico noted that the White House is ‘close’ on Japan and India trade agreements but added it may take months to hammer out the final deals. US data was dismal as both Philly Fed Services and Richmond Fed disappointed, albeit saw little market move, while IMF downgraded the 2025 and 2026 global growth forecasts. Amid the greater demand for US assets on Tuesday, the Dollar was bid to the detriment of most G10 peers (both the Euro and Swiss Franc lagged), although the Canadian Dollar saw marginal gains due to firmer oil prices. On this, the crude complex was firmer, buoyed by the aforementioned risk-on sentiment and new US sanctions against Iran, amongst other things. Overall, T-Notes reversed prior day Trump vs. Powell steepening. Fed speak saw little new. Sectors were all in the green with everyone noticing gains of around 1.5% or more. Financials outperformed, while Consumer Staples ‘underperformed’, with the focus in the US equities space on earnings. The highlights included VZ, RTX, LMT, and NOC with all major earnings recapped below. The Richmond Fed Survey disappointed in April, as the composite manufacturing index fell to -13 from -4 in March. Of its three component indices, shipments and new orders fell notably to -17 (prev. -7) and -15 (prev. -4), respectively, and employment fell slightly to -5 from -1. Moreover, the local business conditions index tumbled to -21 from -13, while the index for future local business conditions also dropped notably to -37 from -22. On the inflationary footing, prices paid and received both rose, and firms expected heightened growth in both indices over the next 12 months. Furthermore, the future indices for shipments, new orders, and capacity utilisation all fell into negative territory. Meanwhile Fed Member Kashkari speaking on tariffs, said they are somewhat inflationary and also slow growth, and it is logical that tariffs lead to one-time increases in prices, but the backdrop of high inflation runs the risk of unanchoring inflation expectations. Kashkari added that cannot allow inflation expectations to get unanchored, a familiar line from the Fed, and so far long-run inflation expectations have not moved much; the Fed’s job is to make sure they don’t. Kashkari added that it is too soon to judge the path of interest rates and interest rate level in the US is largely influenced by capital flows. On data, he has not seen evidence of widespread layoffs yet; but will be paying close attention to signs if the labor market is softening materially. Data showing the labor market is healthy is stale. Finally, Fed Member Barkin said inflation expectations may have loosened. Firms are defensive, delaying and deferring investments, and there are a lot of reasons to be worried about consumer spending. Elsewhere, Oil closed 1.78% higher while Gold ended Tuesday’s session lower by 1.55% following another wild trading day.
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