Five fundamentals for the week: Traders confront the trade war, important surveys, key Fed speech

Will the US strike a trade deal with Japan? That would be positive progress. However, recent developments are not that positive, and there's only one certainty: headlines will dominate markets. Fresh US economic data is also of interest.

1) Worrying signs from the trade front

How low will the US Dollar go? A large part of the answer lies with US President Donald Trump. His most recent tweet indicated a growing list of grievances with countries' trade practices, an adverse sign of things to come.

While the Commander-in-Chief may surely also make positive signs, like he did when suspending the reciprocal tariffs, with every day that passes, new tariffs make their way to the real economy. Moreover, uncertainty also weighs on sentiment.

What about America's trading partners? China remains defiant and is limiting exports of rare earths, among other measures. Allies also seem reluctant to rush to dealmaking. Initial talks with the EU made no progress, while Japan's trade minister cooled down expectations for an early accord.

Any adverse development weighs on the US Dollar (USD), Stocks and Commodities, while boosting safe-haven currencies and Gold. Hopeful news to the contrary.

Without any massive change, the playbook seems to be "sell the rally."

2) Fed’s Waller speaks

Wednesday, 13:35 GMT. Christopher Waller is a Governor at the Federal Reserve (Fed), which means he is a permanent voter on interest rates. He is also a well-known hawk, advocating for higher interest rates and a tougher stance against inflation.

However, Waller surprised markets in his recent speech by sounding more dovish. He expressed concern about the impact of tariffs on the economy and seemed to back providing more support.

Since then, Fed Chair Jerome Powell kept up his more hawkish wait-and-see approach, refraining from offering instant help but rather saying that the central bank's role is to prevent tariff-induced inflation from taking hold.

What will Waller say now? His speech in St. Louis will be closely watched. Investors want some love from the Fed, but such help may only come if things further worsen.

3) US flash S&P Global Services PMI

Wednesday, 13:45 GMT. How much should we worry about the US economy? S&P Global's Purchasing Managers' Indexes (PMIs) provide a forward-looking view into what businesses feel in April, after Trump's "Liberation Day" announcements early in the month.

Economists expect a slide in both the smaller manufacturing sector and the larger services one. Contrary to consumer surveys, S&P Global's Services PMI pointed to ongoing satisfactory growth, painting a picture of consumers who are crying all the way to the till.

The key level to watch is 50 – the threshold that separates expansion from contraction. A small retreat from the robust 54.4 score seen in March would not be of concern as long as it holds above 50. A further decline would already wreak more havoc, hurting Stocks and the US Dollar while boosting Gold. 

I expect a more negative sentiment this time, despite the partial suspension of tariffs.

4) Will US jobless claims finally reflect federal firings?

Thursday, 12:30 GMT. When COVID-19 hit, weekly jobless claims provided the first evidence that the economy was coming to a halt. So far, this high-frequency data has been robust and even improving. Last time, they fell to 215,000, essentially hitting rock bottom.

Any jump above 240K would be a cause for concern for the US Dollar and Stocks, while investors are set to ignore lower figures.

Elon Musk's Department of Government Efficiency (DOGE) has been busy laying off workers at various departments. In addition, uncertainty around tariffs could also trigger some firings. So far, there is no evidence of any significant adverse developments; however, I am highlighting this weekly release, as it is where such changes could be first observed.

5) How low is consumer sentiment?

Friday, 14:00 GMT. The revised Consumer Sentiment Index by the University of Michigan for April may show a bounce in how American shoppers feel. The initial reading for this month occurred after the significant "Liberation Day" tariff announcement and before some of the duties were suspended.

Nevertheless, current levels are the lowest since mid-2022, when inflation was raging. Investors would welcome any improvement ahead of the weekend, while a dip under 50 points would serve as another blow to investors.

As mentioned earlier, while these surveys paint a bleak picture, these figures are "soft data" – they reflect only what people say, not what they do. Hard consumer data points to upbeat buying. Nevertheless, the magnitude of the decline in confidence is significant and market-moving.

Final thoughts

Traders who have enjoyed a long Easter weekend may return with fresh energy, potentially lifting volatility. Trade with care.