Dollar pushes higher as S&P 500 set for fifth monthly gain

Yesterday was a slow day in terms of data and information flow and a strong day in terms of meme trading and speculation, as Donald Trump’s Truth Social flew with its own wings for the first time yesterday, following last week’s successful merger with DWAC. Trump’s Media and Technology Group rose up to 60% under the ticker DJT before settling 16% higher at the end of the session, giving the day traders a nice swing. Reddit also saw some nice intraday volatility. The mother of meme stocks GME, is also showing signs of life since the beginning of this week, but that appetite will likely rapidly fade after the share price tanked 15% in the afterhours trading, after an earnings and revenue missed.

Appetite for meme stocks and cryptocurrencies is back and that’s an important gauge for overall risk appetite. Traders are confident in the upcoming rate cuts. Robust US growth doesn’t scare as long as inflation continues to ease. And even the recent rise in inflation doesn’t concern much as it is believed to be temporary.

As such, the Fed is expected to cut rates in June for the first time, yesterday’s 5-year bond auction in the US saw strong demand and the S&P500 retreated slightly from an ATH. The collapse of the Baltimore bridge dampened the mood for some companies that will see their trade routes distorted. The most concerned are automakers; transport of coal, gasoline and grains will also be disturbed.

But if all goes well, the S&P 500 is set to print a fifth consecutive monthly gain – a thing that has not happened since 2013. The major risks to the rally is a renewed pullback of Federal Reserve (Fed) cut expectations and/or a possible deterioration in earnings expectations. What’s also interesting regarding the Fed’s rate cut expectations is that, the expectation of 3 rate cuts is intact, but if and only if the first rate cut happens by summer. Many investors think that if the Fed doesn’t cut by June or July, there won’t be any cut this year. So, it’s 3 cuts or none. In the base case scenario of 3 cuts, the stock rally is expected to broaden beyond technology, the S&P500 equal index is expected to catch up with the normal weighted index, interest should also broaden in favour of small and mid-cap stocks, and commodities like gold, copper and oil.

US crude is under pressure this morning as the API report printed a surprise 9.3-mio increase in US oil inventories last week. The expectation was a 1.2-mio decrease and the official EIA data is due today. But buyers are seen into $80pb level as the growing excitation of rate cuts from the major central banks give support to the oil bulls right now.

Elsewhere, bad news continued to flow in for Apple. This time it’s about the company’s iPhone sales in China which plunged 33% in February compared to a year earlier and an insider denied the speculated collaboration between Apple and Baidu – which could’ve been a certain boost to the company’s China sales. Price-wise, Apple slid to close below the $170 per share yesterday, the share price stepped into the medium term bearish consolidation zone after having slipped below the major 38.2% Fibonacci retracement on the 2023 rally. There is a greater chance that we see a further slide in Apple than the contrary. Apple will reveal its AI strategy on June 10. Until then, investors will remain skeptical regarding how the company will make AI a priority.

Finally a quick recap for the FX. The dollar index pushes higher due to mounting edginess before Friday’s core PCE print and the fact that most Western traders will be off to their Easter holiday to hunt for expensive chocolate bunnies. Therefore traders are preparing for a potential bad surprise in advance. The USDJPY is testing the Japanese officials’ limits near the 152 level, as the EURUSD is softer before Spanish inflation and Eurozone sentiment data. Inflation in Spain is seen higher for March, a hotter-than-expected figure could slow the euro’s weakness against the greenback but will unlikely derail the expectation of a June cut for the European Central Bank (ECB). Across the Channel, Cable is under pressure as well on the back of growing dovish Bank of England (BoE) bets. But the direction in most major peers depends on the US dollar’s trajectory. And that’s on Friday’s PCE data’s shoulders.