Stocks chop on Ukraine truce plan amid “Trumpcession”

• Ukraine ready to accept US proposal for 30-day truce
• US February CPI expected to show inflation moderated amid stagflation fears
• Bank of Canada to cut as tariffs strike economy
• EUR jumps to five-month high, GBP up to levels last seen in November

FX: USD dropped again as it looked slid around the November low at 103.73. It’s tough to pick a bottom while the US stock slump carries on. Positive data might help, though the policy uncertainty of the Trump administration will likely continue for some time. That said, the whole bunch of negatives seems a little overdone – a recession or worse is getting louder traction, when signals, for example, from the NFP data are few?

EUR carried on higher, as it closed above 1.09. The German Green party, who had cast doubt on the fiscal reform bills passing, said they were hopeful of a deal this week. The pre-US election top is at 1.0936. Recession vibes continue to be talked up in the US, contrasting with the newfound huge loosening in eurozone fiscal policy and jump in yields.

GBP was firmer again, being dragged higher by the euro. Cable is trying to break above resistance at 1.2924, a major Fib level (61.8%) of the September to January decline. There is not a lot of UK data this week apart from GDP on Friday. EUR/GBP continued to soar, extending its win streak to seven days. January year-to-date highs are 0.8473.

USD/JPY underperformed as it found support at a major retracement level of the September/January rally (61.8%) at 146.94. Safe havens gave back some of the gains from Monday, but the major did initially make a new low for the move at 146.53.

AUD steadied after trading lower for three straight days. The 50-day SMA is 0.6266. USD/CAD moved higher for a third day, before paring some gains and printing a doji candle. There were more mixed tariff signals – Ontario suspended the 25% surcharge on electricity to US, while the White House reversed Trump’s 50% tariff threat. The BoC is expected to cut rates again as its main focus is squarely on the trade situation.

US stocks: The S&P 500 lost 0.76% to settle at 5,572. The tech-heavy Nasdaq finished down 0.28% at 19,377. The Dow fell 1.14% to close at 41,433. The benchmark S&P 500 is down over 9% so not quite in correction territory just yet, whereas the Nasdaq is off over 12%. Stocks did turn green on the Ukraine ceasefire announcement but turned red afterwards. Every sector was negative by the close with industrials the biggest underperformer, and consumer discretionary and tech the best sectors. Tesla CEO Musk said it is going to double vehicle output in the next two years, and he plans to remain CEO. The stock price added 3.79% to finish at $230.58, some way below its 200-day SMA at $281.65. That was after a 15% plunge on Monday, its worst day since 2020.

Asian stocks: Futures are mixed. APAC stocks were mixed on Tuesday following the big negative lead from Wall Street. The ASX 200 saw tech tank with most sectors in the red, aside from energy. The Nikkei 225 stayed below 37,000 with disappointing data also not helping risk sentiment. The Hang Seng and Shanghai Composite followed the negativity amid light catalyst amid trade war worries.  

Gold remained in consolidation mood as it hovers just below the record top at $2956. Support sits at $2856.

Day Ahead –US CPI, Bank of Canada meeting

After the January upside surprise, expectations are for US headline and core inflation to rise 0.3% m/m, and 2.9% and 3.2% y/y respectively.  As usual, economists will be watching the unrounded figures. Elevated food prices and persistence in services inflation are forecast, as seen in some survey data. Front-running of tariffs could also mean prices remain sticky.   Offsetting this should be softer energy and used car prices. Stagflation is being increasingly mentioned about the US, so this data could offer relief if it is cooler.

Markets are fully priced for another 25bps Bank of Cananda rate cut, after 200bps already in this policy easing cycle. The main focus for rate setters is the impact of US tariffs, especially with inflation ticking up recently in Canada. Governor Macklem has previously noted the eventual economic path would be 2.5% lower than assumed in January, if the levies are long lasting and broad based. A huge 76% of Canada exports go to the US which is 20% of Canadian GDP.

Chart of the Day – Nasdaq tries to find support

The tech-laden major US index has had a grim time recently as investors re-evaluate the sector which has driven stocks in the US to new record highs over the past few years. It had its worst day since 2022 on Monday. Stretched valuations and positioning, overspend on AI infrastructure, and now policy uncertainty and Trump’s admission of possible economic pain to come have seen strong selling, in fact four straight weeks currently. The rotation out of growth sectors, and just outright selling has pushed the index below its 200-day SMA at 20,254. It is now trading around a long-term Fib level of the October 2022 low to the recent all-time top, at 19,442. The next long-term Fib level is 17,721, the 38.2% of that long-term move. Prices are also near the major shorter-term retracement level at 19,264. Bearish momentum remains strong, if a little bit oversold. If the double top pattern plays out, the target for bears is around 19,000.  

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