The Overnight Report: Market Lull

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Investors took a deep breath and stepped away from the markets which were broadly flat to slightly weaker in the US. Volumes were low. After a positive day yesterday, the ASX200 futures are marginally higher.

Good Morning,

While US markets took a step back from volatility, there is an unease this is the calm before the next wave of the global trade war and tariff storm.

What happened overnight:  Extract ANZ Bank, Australian Morning Focus

-Volatility in global markets was lower overnight

-Media reports suggest no meaningful progress in bilateral trade negotiations between the EU and the US. 

-The US Empire State Manufacturing survey points to a contraction in manufacturing in April. 

US equities had a quieter day as the focus was on the first set of Q1 earnings results. The S&P 500 fell -0.2%, Euro Stoxx50 closed up 1.2%, and the FTSE 100 rose 1.4%.

The yield on the US 10y bond fell 2.1bp to 4.34%. WTI futures shed 0.4% to US$61.5/bbl, while gold continued its record run although the gain overnight was a more modest 0.1% to US$3,228.3/oz. 

The Empire State manufacturing survey’s headline index fell -11.9 points to -8.1 in April. That was above the consensus expectation of -13.5. 

The index for business conditions slipped -20.1pts to -7.4, its lowest since 2001. 

In Germany, the ZEW economic sentiment index plunged -65.6pts to -14.0 in April. The current situation assessment improved marginally, up 6.4pts month-on-month, but the expectations index fell sharply, -58.3pts month-on-month. 

The weakness was most prominent in automobiles, steel, chemicals/pharma and mechanical engineering industries. 

In the UK, average weekly earnings excluding bonuses stayed elevated at 5.9% year-on-year in the three months to February. 

US exceptionalism and tariffs: Extract NAB Markets Research

The Bank of America global fund manager survey revealed that 73% of respondents say “US exceptionalism” has peaked and the outlook for dollar and US profits rated worst since 2006/07. 82% of respondents expect the global economy to weaken, which marks a 30-year high; 42% say recession is likely. 

From a contrarian perspective, there is a signal here to go long US stocks, dollar, cyclicals, short gold, bonds, defensives, assuming of course, tariff relief ahead rather than more bad tariff news.

On the latter, overnight news has not been encouraging, but perhaps they merely reflect a classic case of tough talk at the start of any negotiations. After initial talks, the EU and US trade negotiators have made little progress in finding a common ground. 

Bloomberg reports that following talks with US Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer in Washington Monday, the EU’s trade chief, Maros Sefcovic, left the meeting with little clarity on the US stance, struggling to determine the American side’s aims, according to people familiar with the discussions. 

The EU is offering to mutually drop all industrial goods tariffs to zero, but the US is instead seeking concessions on issues like pharmaceuticals, steel, and aluminum, as well as from the Auto industry (more investment/manufacturing in the US).

Adding to the EU-US trade tensions, US officials indicated that the 20% “reciprocal” tariffs which have been reduced to 10% for 90 days as well as other tariffs targeting sectors including cars and metals, would not be removed outright. Meanwhile, the EU’s proposed retaliatory tariffs against the tariffs on steel and aluminium remain on pause, pending further negotiations.

China on the other hand, continues to play hard ball. Late yesterday, headlines hit the screen noting China ordered airlines not to take further deliveries of Boeing, seek approval before taking delivery of previously ordered Boeing aircraft, and halt any purchases of aircraft-related equipment and parts from US companies. Some Boeing aircraft destined for Chinese airlines have already been completed and are awaiting delivery. Boeing share fell 2.36% on the day. President Donald Trump called on China to reach out to him to start negotiations to resolve the escalating trade fight between the US and China.

Calm before the counteroffer: Stephen Innes, SPI Asset Management

US stocks drifted lower Tuesday as traders took a breather and turned their eyes toward the next act in this global trade theatre,  and make no mistake, it’s a big one. We’re entering what could be the most critical phase yet: the start of actual negotiations with both allies and adversaries. This is where the fog of war starts to lift, or thickens fast.

Markets are now treating Tokyo and Beijing talks as the real litmus test. Expect a relief rally on every handshake and headline if deals start forming. But if things stall? We’re straight back to risk-off roulette.

Compared to last week’s chaos, Tuesday felt like a relative lull, a calm mostly engineered by the Fed and Treasury flashing their bond market backstop badges. That helped suppress volatility, even as trade nerves remained. Remember, just a few sessions ago, we were bouncing around on every tariff tweet and bond market plumbing scare.

The market upheaval left a trail of carnage. The aftermath was textbook market triage: margin calls kicked in, portfolios were rebalanced on the fly, and profitable assets were dumped to plug holes. That frantic scramble only fueled the fire, amplifying market stress. It was less about strategy and more about survival.

But buckle up; now comes the hard part: separating US friends from foes and pricing ” The Art of the Deal ” unknowns.

The positive sentiment is already fading, and fast. Rather than clinging to political soundbites tailor-made for op-eds, traders are now zoning in on what really matters: hard data. And the early reads are flashing red.

Trade war angst isn’t simmering under the surface anymore, it’s bleeding through in real-time data tape. Just look at China: port data released Monday showed cargo volumes plunging. Last week, Chinese ports handled 244 million tons and that’s down -10% from the prior week and -4% year-on-year. Not exactly the stuff of soft landings.

But it’s not just China. Europe’s seeing a wild surge in ship traffic. Antwerp hosted 226 vessels in early April versus just 34 a year ago. Rotterdam and Hamburg are seeing similar pile-ups. Why? Because vessels are getting rerouted to avoid looming US. tariffs, with whispers of a US$1 million docking fee on China-bound ships now floating through the markets. That’s not a typo, that’s a wrecking ball to global shipping flows. A massive inventory overhang is building, and if it sticks, brace for a sharp production collapse, first in China, then in the rest of the world.

On the inflation front, the NY Fed’s 1-year expectations just jumped from 3.13% to 3.58%, the biggest surge since Feb 2023. But here’s the twist: Fed Governor Waller is framing tariffs as a temporary inflation bump, arguing that the growth hit will outweigh the CPI spike, and therefore justify easing. Dollar bearish, right?

Well, not so fast. The greenback is actually stronger today and even as U.S. equities sag. Why? Three reasons:

1. The bond risk premium is easing. The Fed and Bessent’s soft backstop are working. Yields are coming off, plumbing’s stabilising, and US assets are suddenly less radioactive.

2. The euro was stretched. As we flagged Monday, EUR/USD was overbought and ripe for a fade. Ahead of a major risk event like the ECB, risk managers tend to lighten up, regardless of bias. That’s not euro hate; it’s just standard tape management.

3. Cleaner, calmer price action. Reflexivity is returning. Bonds are rallying as stocks dip, the market’s no longer acting like a headless chicken.

Some pretty unsavoury data prints are hitting the EU tape, and it’s definitely not doing the euro any favours. The near-term outlook looks economically nasty from where I’m sitting.

Corporate news in Australia

-Aristocrat Leisure ((ALL)) is negotiating to acquire Interblock, a leading electronic table gaming company, for about $1bn

– Robex launches $120m IPO to fund Guinea’s Kiniero gold project, offering shares at a -14.8% discount

– Collins Foods ((CKF)) exits Taco Bell, flags impairments, shifts focus to KFC growth in Germany amid leadership changes

– Accent Group ((AX1)) to launch Sports Direct in A&NZ via 25-year Frasers deal, expanding sports retail and brand access.

– Westpac ((WBC)) and CommBank ((CBA)) are under fire for a $500m “sustainability-linked” loan to salmon farmer Tassal, accused of greenwashing while fuelling environmental damage in Tasmania’s Macquarie Harbour.

On the calendar today:

-NZ March Trade Balance

-JP Feb machinery orders

-CH March retail sales

-CH March Unemployment & GDP

-UK March CPI & PPI

-US March retail sales

-BANK OF QUEENSLAND LIMITED ((BOQ)) earnings report

-HORIZON OIL LIMITED ((HZN)) ex-div 1.50c

-ILUKA RESOURCES LIMITED ((ILU)) Qtr Report

-KAROON ENERGY LIMITED ((KAR)) Qtr Report

-RIO TINTO LIMITED ((RIO)) Qtrly Report

-REJECT SHOP LIMITED ((TRS)) ex-div 12c (100%)

-WAM CAPITAL LIMITED ((WAM)) ex-div 7.75c (60%)

-ZIP CO LIMITED ((ZIP)) Qtr 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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