US exceptionalism losing its swagger

Markets

Thank the trading gods, it’s Friday! This week has been a full-contact brawl of conflicting geopolitical twists, trade war skirmishes, and central banks playing a game of rate-cut-hopscotch. Trump dialled up the tariff rhetoric again, U.S.-Russia talks over Ukraine took a bizarre detour, and global monetary policy threw doves and hawks into the ring—making it a chaotic mess for markets to digest.

But the real rally-capper? Walmart. The nation’s retail kingpin, a bellwether for the health of the American consumer, dropped a 2025 forecast that sent investors into a cold sweat. Coming hot on the heels of last week’s lacklustre retail sales data, Walmart’s softer sales outlook raised alarm bells about a consumer spending pullback—especially with Trump’s tariff wildcard looming large. If the low-price giant feels the pinch, traders are left wondering how deep this economic tremor runs.

Over in Europe, a different narrative took hold. The Eurozone’s economic surprise indexes hit their highest levels since last April, and Thursday’s corporate earnings impressed. Throw in whispers of post-election fiscal stimulus in Germany—particularly on defence spending—and euro stocks clawed back some of Wednesday’s losses. Sure, the looming fiscal risk premium hasn’t disappeared, but markets cheered the newfound policy unity at the top, a rare sight in recent times.

And then, like clockwork, Trump played yet another trade gambit—this time, an unexpected “good omen” card suggesting that a fresh trade deal with China could be in the works. While Asian markets reacted with measured optimism, the real fireworks erupted in the currency space overnight. The dollar came under siege, yen bulls took the reins, and the euro finally shook off its underperformance, blasting past 1.05. The FX battlefield was a sight to behold, with traders shifting gears as dollar bears smelled blood in the water.

Tariffs, treasuries, and Trump’s wild geopolitical gambit – markets caught in the crossfire

It’s been a wild week, and the markets are still digesting Trump’s latest tariff tantrum. While some investors are clinging to the idea that these economic body blows are just temporary or even a bluff, perhaps the reality is hitting back on the US exceptionalism narrative . The administration started February by punting new tariffs on Canada and Mexico down the road, but that reprieve was short-lived. A fresh 10% levy on all Chinese imports has been locked in, and global steel and aluminum tariffs are in full force. If that wasn’t enough, Trump’s economic war council is now cooking up reciprocal tariffs on any country daring to tax U.S. imports, with a 25% wrecking ball aimed at autos, semiconductors, and pharmaceuticals.

So much for smooth sailing—markets are now sweating over stagflation déjà vu. The ghosts of the 1970s inflation nightmare are creeping in, with fears that Trump’s hardball tactics could slam the brakes on growth while igniting a price spiral. St. Louis Fed President Alberto Musalem just threw more fuel on the fire, warning that the Fed’s upcoming decisions won’t be easy. Chicago Fed’s Austan Goolsbee? He’s outright nervous that Trump’s trade war could spark a supply shock nasty enough to torpedo inflation progress, just like the COVID-era chaos.

And speaking of the Fed—those January meeting minutes? A full-on head-scratcher. Central bankers are as uncertain as traders on how Trump’s policies will impact inflation. They’ve already hit pause on rate cuts, but behind closed doors, they’re also debating slowing or even halting quantitative tightening (QT)—a move that could lighten the pressure on Treasuries. The bond market wasted no time reacting, with 10-year yields slipping 3.2 basis points to 4.503%, helped along by Treasury Secretary Scott Bessent’s attempt to soothe markets by downplaying any plans to expand long-dated debt auctions. Translation? Less fresh debt flooding the market = happier bond traders.

Meanwhile, in the labour trenches, jobless claims nudged up to 219,000 from an upwardly revised 214,000—nothing dramatic, but just enough to keep the “soft landing” narrative alive. But here’s the kicker: The Conference Board’s Leading Economic Index? Down 0.3% in January, erasing the past two months of gains—the first positive streak since February 2022. A flashing yellow light for anyone betting on economic momentum.

With no major data on the docket for Friday, Asia’s traders are left staring into the geopolitical abyss as Trump throws another grenade into global diplomacy. This time? He’s labelled Ukrainian President Zelenskiy a “dictator” and is flirting with Moscow, leaving U.S. allies in Europe wondering if they’re about to get thrown under the bus.

Markets are a battlefield right now. Tariffs, Treasuries, and Trump’s geopolitical deck-shuffling keep traders on edge. US exceptionalism is waning, and next week could be even messier. If you’re not hedged, you might want to tighten that stop-loss and buckle up—because this ride is far from over.

So, as we wrap up this whirlwind week, one thing is clear—volatility isn’t taking a day off anytime soon.

Forex markets

Yen bulls run wild as Dollar staggers – BoJ tightening fever takes hold

There were slim pickings for U.S. dollar bulls overnight, with weak economic data offering little more than an open invitation for bears to storm the gates. But the absolute carnage unfolded in USDJPY, as the yen went full throttle on speculation that the Bank of Japan is gearing up for more rate hikes.

BOJ Governor Kazuo Ueda’s routine sit-down with Prime Minister Shigeru Ishiba sent ripples through Tokyo trading desks—not because of what was said, but because of what wasn’t. The absence of any mention of rising Japanese debt yields was taken as a green light for further tightening, igniting another round of yen buying. Add to that the fact that officials haven’t been swatting down the recent rise in JGB yields, and suddenly, traders are bracing for another BOJ rate hike this summer.

The OIS market is now pricing in 21bps of a 25bp hike for July, which would lift the policy rate to 0.75%. For a market that spent most of the past decade watching the BOJ do absolutely nothing, it's somewhat meaningful.

And yet, I’m completely gobsmacked by the yen’s strength in response to these still-modest rate adjustments. I should have read the writing on the wall and stayed out of the way of this move—lesson learned. But now, with Japan’s CPI release looming later today, there’s a real risk that another hot inflation print could fuel yet another leg lower in USDJPY.

For now, Tokyo desks remain impressed by the lack of intervention chatter from the BOJ or the Ministry of Finance, suggesting policymakers are willing to let the yen strengthen for now. But the question remains: Where’s the pain threshold? 148.60?

With the dollar on shaky ground and yen bulls feeling emboldened, this could get a lot more interesting before the weekend rolls in. Buckle up

Oil markets

Oil markets caught in the crossfire: US-Russia talks, OPEC+ maneuvers and supply shocks keep traders guessing

The sudden flurry of US-Russia talks on Ukraine has sent oil traders scrambling to gauge whether sanctions will tighten or ease, potentially altering the global flow of Russian crude. A looser sanctions regime would undoubtedly be bearish for prices, but despite this seemingly negative backdrop, crude oil surged to a one-week high on Thursday before settling moderately higher.

So, what’s driving the push higher?

 Stronger Asian currencies provided some tailwinds for energy markets, keeping paper crude bid.
 Geopolitical risk premium remains in play after this week’s drone attack on a Russian pumping station, which could choke Kazakhstan’s crude exports by 30%—a meaningful supply disruption.
 OPEC+ back in the spotlight—Bloomberg’s Wednesday report that the cartel is considering delaying its planned supply hikes set for April gave bulls another reason to step in.

However, not everything lined up in Crude’s favour. Prices pulled back from session highs after a mixed bag from the EIA weekly inventory report threw some cold water on the bounce.

Oil traders are now walking a tightrope between geopolitical uncertainty, supply risks, and central bank-driven macro forces. If talks between Washington and Moscow lead to an easing of restrictions, Russian barrels could flood the market, and that’s something the bulls won’t want to see.