The Overnight Report: Tariff Tantrum Returns

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With apologies: we are experiencing tech problems this morning with some of the overnight data.

Tariff reality brought US markets back to earth overnight with sellers stepping in offloading momentum stocks. ASX futures are indicated the local market is poised to open weaker by -37 points.

Good Morning, 

Sellers re-emerged pending President Trump’s 25% tariff announcement on all cars not made in the United States.

The sellers wrestle back control and ask is that all you’ve got? From Chris Weston, Pepperstone 

After a 6% rise in the S&P500 futures (7% in NAS100 futures) off the 13 March lows, and with price in both S&P500 and NAS100 futures threatening a convincing upside break of the 200-day moving average, the sellers have stepped back in, with Big Tech and the Magnificent7 basket firmly taken down.

One can take a guess as to whether this was profit-taking from fast money tactical longs who had recently bought the dip, or from legacy longs who failed to adequately cut back through the February to March drawdown and are now using the 6% rally to run a flatter risk position into the impending tariff noise fest. 

Either way, we’ve seen good interest to cut back on equity risk, with a modest pickup in shorting activity in the high short-interest names, with some increased demand for volatility hedges. 

The collective in the market certainly took its time to make up its mind, with a flat move seen through EU trade, with US equity then headed consistently lower 15 minutes after the US cash equity market was open. 

The market has a habit of humbling all and just as the bulls were starting to feel a sense that the equity rally could build, we’ve seen a solid reversal into 5743. From a price perspective, we look down to Monday’s low of 5739, where a downside break would see Friday’s high of 5674 come into play, and for price to close the gap. 

What happens from there should this scenario play out  would be key to the next move in US equity. 

Some will attribute the move to the tariff news flow, and it being prudent to de-risk ahead of 2 April. The news flow on the day has centred largely on the EU set to receive 20% tariffs on autos and we did see a reaction in EUR/USD.

If there were any worries about tariffs expressed in equity, then we haven’t seen it expressed in US Treasuries, the JPY or gold, which most have seen as the primary hedges against tariff uncertainty.

Gold has closed little changed, where already rich positioning explains that gold is well owned, and I would argue that gold’s primary hedge qualities are geared toward the fallout from a broad suite of Trump’s policy measures and a hedge against economic fragility, recession or even rising stagflation risk. 

Markets Research, National Australia Bank extract

Chicago Fed President Austan Goolsbee in an FT interview published yesterday afternoon said that “If you start seeing market-based long-run inflation expectations start behaving the way these surveys have done in the last two months, I would view that as a major red flag area of concern.”

This is from one of the more dovish FOMC members of late. The implication is clear the Fed should then be contemplating rate hikes, not cuts. Goolsbee admits that uncertainty (re the outlook for growth and inflation) has waylaid plans to cut rates further, but still reckons borrowing cost will be “a fair bit lower’ 12-18 months hence.

Meanwhile Fed President Alberto Musalem said it’s not clear the impact of tariffs will prove temporary and cautioned that secondary effects could prompt officials to hold interest rates steady for longer. “I would be wary of assuming that the impact of tariff increases on inflation will be entirely temporary, or that a full look-through’ strategy will necessarily be appropriate,” Musalem said Wednesday in remarks prepared for an event in Paducah, Kentucky. “I would be especially vigilant about indirect, second-round effects on inflation.”

The main US data point overnight was February durable goods orders, and while the headline numbers beat expectations, the core capital goods order ex-defense ex-aircraft’ series most relevant to GDP fell by 0.3% against a 0.2% consensus forecast. Pantheon Economics note that the level of orders here is, in real terms, about -1% down on a year ago.

Corporate news in Australia

-The Lottery Corporation ((TLC)) is considering a NZ lotto privatisation while retaining profits for charity.

-Bellevue Gold ((BGL)) halts trading with speculation of a guidance cut.

-Wisetech Global ((WTC)) is seeking assistance from Investment Banks for independent board members.

-Australian Super sells down Wisetech Global stake over governance concerns.

-Contact Energy ((CEN)) will appeal a decision blocking the development of its 300 megawatt onshore wind farm in Southland, New Zealand.

-TD Cowen said Microsoft walked away from new data centre projects in the US and Europe.

On the calendar today:

-CH Feb Industrial Prod’n

-US 4Q GDP

-US 4Q PCE

-AUSTRALIAN CLINICAL LABS LIMITED ((ACL)) ex-div 3.50c (100%)

-EAGERS AUTOMOTIVE LIMITED ((APE)) ex-div 50c (100%)

-BANNERMAN ENERGY LIMITED ((BMN)) earnings report

-HEALIUS LIMITED ((HLS)) investor briefing

-IPD GROUP LIMITED ((IPG)) ex-div 6.40c (100%)

-MAAS GROUP HOLDINGS LIMITED ((MGH)) ex-div 3.50c (100%)

-NEW ZEALAND KING SALMON INVESTMENTS LIMITED ((NZK)) earnings report

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days

For more detail go to FNArena’s Australian Broker Call Report, which is updated each morning, Mon-Fri.

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