Markets cling to highs: Resilient or wishful thinking?

US markets

The S&P 500 notched its second record-high close of 2025, easing into the shortened trading week with a whisper rather than a roar. Stocks drifted aimlessly throughout the session before inching higher—the Dow added a meager 10 points (less than 0.1%), the S&P 500 edged up 0.2%, and the Nasdaq barely moved, rising less than 0.1%.

But beneath the surface, tension is brewing. Investors continue to ride the wave of strong corporate earnings and relentless risk-asset resilience, yet the sheer froth embedded in these record highs makes markets look increasingly fragile. The list of looming threats keeps growing—sticky inflation, escalating trade tensions, and the AI wildcard that is DeepSeek, which could shake U.S. dominance in the sector.

Even with today’s milestone, the market feels stuck in limbo. Only a decisive breakout above record levels, powered by tangible macro tailwinds, would be a compelling signal. But right now, two massive unknowns are keeping investors on edge—Trump’s tariff hammer and a potential U.S.-brokered Russia-Ukraine peace deal. Both remain unpredictable, forcing Wall Street into ‘wait and see’ mode.

The Federal Reserve is equally cautious, tracking inflation’s seasonal playbook. Historically, price pressures run hot in January and February before easing through the year. If that pattern holds, it could breathe life back into rate-cut expectations. But with Tariff D-Day looming on April 1, the script could flip fast.

And let’s be real—Trump’s trade war strategy doesn’t run on a calendar. That tariff hammer could drop at any moment, and when it does, markets won’t have the luxury of waiting.

China markets

Optimism is spreading like wildfire across Chinese stocks, with tech leading the charge as investors pile into what’s shaping up to be a new golden era. The catalyst? AI startup DeepSeek’s meteoric rise and President Xi Jinping’s high-profile sit-down with China’s top tech moguls. It’s a clear signal that Beijing is reopening the gates for private enterprise—and hedge funds and global investment banks are rushing to capitalize.

The rally has serious momentum, and while there’s always the risk of overheating, we’re not at nosebleed levels just yet. Still, this isn’t a one-way street. The broader macro landscape remains a geopolitical minefield.

Case in point: On Tuesday, China took the gloves off at the World Trade Organization, blasting Washington’s tariffs as a direct threat to global trade stability. The stakes couldn’t be higher—if this trade war escalates further, the ripple effects could slam markets and even tip the global economy toward recession.

The bottom line? China’s tech sector is basking in renewed optimism, but it’s navigating a global storm. For now, the bulls are running, but keep one eye on the trade battlefield—because tariffs, not tech, could dictate how long this rally lasts.

Forex markets

If a Russia-Ukraine peace deal lands, the dollar might take a breather—but don’t count on a full-blown retreat. Right now, there’s simply no knockout bearish catalyst for the greenback. Sure, a finalized peace agreement might spark a knee-jerk risk-on, dollar-off move, but markets have already front-loaded much of that optimism. And let’s be real—long-run geopolitical risk isn’t vanishing overnight.

Meanwhile, Europe’s latest “defense fund” brainstorming session won’t be riding to the euro’s rescue. The whole initiative is a reaction to Trump threatening to scale back NATO support, which is hardly a bullish development for European currencies. And anyone expecting EU leaders to magically coordinate fiscal policy to counter U.S. tariffs is setting themselves up for disappointment. Europe’s structural unpreparedness for Trump’s trade war playbook remains a glaring weakness—and that’s why we’re still bearish on the euro.

Markets have penciled in 75 bps worth of ECB rate cuts this year, but let’s face it—four cuts (to 1.75%) seem more likely. That, combined with Europe’s trade vulnerabilities, means the euro’s recent resilience might be a mirage.

Look at the bigger picture: The dollar’s recent 3% pullback was built on wishful thinking—that Trump’s tariffs would be more bark than bite. In reality, the trade war premium got wiped from the euro way too soon. That could turn out to be a costly miscalculation.

Now take Japan. The latest GDP surge? Fueled mainly by net exports—translation: they’re dining out on U.S. demand. And when you realize Japan alone is responsible for $68 billion of America’s monstrous $1.2 trillion trade deficit, it’s safe to say they just landed in Trump’s tariff crosshairs.

That partially explains last night’s mini JPY rollercoaster—a classic tug-of-war between a hawkish Bank of Japan amid thoughts of rising trade tensions triggered a nascent unwind in what had become a crowded yen-long trade.

As we flagged on Monday, 151.50-152 is now shaping up as a tactical pause zone—a battleground where traders are waiting for concrete confirmation before making a decisive breakout move. Break above? We’re looking at a momentum push via US yields. Break below? A deeper dollar unwind could be in play.( BTW, Sometimes its just good to trade the range, but you need to respect stops on these trades)

For now, it’s all about proof in the pudding—until we get clearer signals, expect this chop-heavy zone to keep traders on their toes.

The bottom line? EUR/USD erased its trade war risk premium too fast, and traders betting on a prolonged dollar correction might be in for a rude awakening. With tariff risks still looming and the Fed keeping rate cuts at arm’s length, the dollar still has plenty of fight left.

Gold markets

Gold is on an unstoppable tear, surging every single week in 2025 as Trump’s tariff onslaught fuels safe-haven demand. Last week, bullion hit an all-time high of $2,942.70 per troy ounce, and the momentum suggests we’re about to take another shot at the summit. The metal is now up more than 7% since Trump’s inauguration—a stark contrast to Wall Street’s lukewarm 2% gain on the S&P 500 and the unraveling of earlier Trump trades like the strong dollar, rising Treasury yields, and even Bitcoin.

Gold traders aren’t buying the "bark is worse than the bite" tariff narrative. With April 1—Tariff D-Day—looming, investors are bracing for an even more chaotic global trade landscape. The playbook is simple: the more tariffs go up, the more world trade gets disrupted, and the stronger the bid for gold.

Adding fuel to the fire is a sharp increase in physical delivery demand at COMEX. More players are opting to settle in gold rather than cash, putting pressure on market makers to avoid settlement risk—a dynamic that’s only accelerating bullion’s rally.

And let’s not forget the Veblen goods effect—when the price of gold goes up, demand doesn’t fall. It rises. The higher the price, the stronger the allure, reinforcing a self-sustaining rally that’s keeping gold bulls firmly in control.

Bottom line? The gold trade is running hot, and until the tariff storm clears, there’s little standing in the way of new all-time highs.