Stocks Dip, but Dollar Takes a Breather
On Tuesday, shares took a little bit of a nosedive, but they ended well above their recent troughs. The dollar, meanwhile, gave up its recent rally, caught in the ebb and flow of ongoing tariff negotiations.
Where We Stand
Feeling dazed by the whirlwind of developments in the financial markets? You’re not alone. Let’s break it down.
Tariffs in Action
- Mexico: The U.S. had slapped a 25% tariff last weekend. It’s been lifted for the next month, and the same goes for Mexico’s counter‑tariffs.
- Canada: A 30‑day pause on tariffs (and Canadian retaliations) is in place to keep the dialogue going.
- China: No relief here—the tariffs are now in effect, and China’s responded with its own duties on U.S. imports like coal, LNG, and even a probe into Google.
And surprises? A brand‑new U.S. sovereign wealth fund was announced by President Trump overnight—rumblings about buying TikTok are probably a bit of sci‑fi fluff.
What’s the Core Message?
Tariffs are largely a negotiation tool. After the U.S. imposes them, the other side sits at the table, concessions are extracted, and the duties may be lifted or postponed. This shows that tariffs are more about political leverage than curing the trade deficit. A reality that leaves market players uneasy, as the next headline could completely flip the narrative—or flip it back again.
Market Reactions
- Volatility: Implied and realized volatility has risen, but the VIX hasn’t cracked 20 yet—a sign we’re still trading in a comparatively calm market.
- Safe‑havens: Spot gold surged to new highs, a sign that investors are hedging against uncertainty.
- USD Positioning: Shorting the dollar feels risky in a climate of policy uncertainty and unpredictable tariffs, though it remains the “best of a bad bunch” in G10 FX.
Equities – A Cautious Approach
Stocks held their ground today, but the risk assets still linger in a low‑water column. Fiscal uncertainty and a packed earnings calendar (Google, Amazon, and a Friday jobs report) could cause another dip. Meanwhile, a long‑term upside still seems plausible thanks to solid earnings and economic growth.
Trump’s rhetoric last year promised higher equities, lower rates, and a weaker dollar—but his policies now do the opposite. How does that add up?
Looking Ahead
- U.S. JOLTS job openings and December’s factory orders.
- New Zealand’s Q4 jobs data and a likely 50‑bp rate cut on Feb. 19.
- Speeches from Fed officials (Daly, Bostic) and ECB’s Villeroy.
- Corporate earnings: PayPal, Spotify, Pfizer, AMD—and a high‑stakes after‑hours report from Alphabet (Google).
Heads up: traders may expect a ±5.7% swing in Google options after the earnings release.
Stay tuned—markets are buzzing, and every headline could be another turn on the financial roller coaster.
