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US MARKETS

U.S. stocks roared into the new week, with major indices surging Monday on reports that President Trump’s April 2 “Liberation Day” tariff rollout may be far more targeted and flexible than originally feared. Weekend chatter suggested the White House is preparing a more surgical approach, softening the blow of what many assumed would be a broadside to global trade.

The recent US rally suggests markets may have overshot to the downside, pricing in an economic worst-case trade war scenario that now seems far less imminent. The recent wave of doom-laced narratives—fueled by politically skewed consumer sentiment surveys and a flood of bearish op-eds—looks increasingly overcooked.

Ironically, just as headline after headline tried to chip away at the U.S. exceptionalism theme, the S&P 500 ripped higher in textbook fashion, delivering a clear message: the obituary for U.S. economic outperformance may have been written a bit too soon.

Adding fuel to the move, S&P Global’s flash U.S. composite PMI surprised to the upside, rising to a three-month high of 53.5, led by strength in the services sector. While manufacturing remained in contraction, the broader read above 50 signals continued expansion in overall business activity, giving risk appetite another shot in the arm.

Bottom line: Markets may still be digesting the evolving tariff narrative, but for now, U.S. resilience remains intact, and the dollar and equities are responding in kind.

FOREX MARKETS

On Monday, the U.S. dollar caught a bid in the New York session as investors rotated back into US risk, sending Treasury prices lower and pushing the 10-year yield up 7 basis points to 4.32%. The dollar also noticed a fresh geopolitical twist: President Trump announced a 25% tariff on all imports from any country purchasing oil or gas from Venezuela, further stoking the risk premium. Higher oil prices also provide a tailwind for the US dollar but a headwind for global energy importer currencies.

U.S. stocks held onto gains, while the bond market repriced for a slightly more inflationary and pro-growth outlook—especially as the White House continues to blend policy with punchy rhetoric.

In contrast, European equities remained subdued. The Stoxx Europe 600 dipped 0.1%, while Germany’s DAX slipped 0.2% and London’s FTSE 100 ended flat, as investors reassessed just how far and fast they've rotated out of U.S. assets. The market has arguably overcorrected the U.S.-Europe growth divergence, misjudging the speed and scale of the so-called “Guns or Butter” pivot. Yes, Europe is turning the fiscal taps on, but the reality is that this stimulus will be a slow drip over a decade, not a front-loaded boom.

So, while flows, as gauged by price action at the index level, aren’t exactly fleeing Europe, there’s a clear sense that the inbound stream is losing momentum. The euro’s rally is running on fumes, with upside looking increasingly exhausted as investors reassess the pace and scale of Europe’s fiscal rebound.

Meanwhile, USD/JPY is ripping higher, punching through 150 with conviction as U.S. yields climb and risk-on sentiment fuels mechanical FX algo flows. The move feels textbook: higher U.S. rates + bullish US equities = weaker yen, and the algos are feasting on it. It's not so much a discretionary trade anymore—it’s an auto-execute function tied to real-time yield spreads and equity tickers.

Europe’s story isn’t breaking down, but the runway for fresh capital appears shorter. Across the Pacific, the yen is getting steamrolled, and it’s all happening in fast-forward.

Meanwhile, up until last week, capital flows have reflected the broader macro tug-of-war: Europe and China are going full throttle on fiscal stimulus. At the same time, Trump—never one to follow the script—has reportedly granted Elon Musk's data team a government-wide license to hunt for inefficiencies under the newly minted Department of Government Efficiency. If that sounds like satire, welcome to 2025.

Bottom line: while U.S. yields rise and the dollar gains traction, global investors are still trying to make sense of a world where fiscal firepower is diverging, politics is policy, and the old macro playbook keeps getting rewritte

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