Tariffs on trial, yields on the rise, bulls on pause

Selloff across major US indices slowed yesterday as pressures eased and dip-buyers came in to amass their favourite stocks at slightly lower levels than the recent all-time highs, while attention shifted toward rare economic data and messy politics.

First, the Supreme Court hearing yesterday revived discussions about the legality of Trump’s tariffs. Half of the six members of the GOP-appointed supermajority on the Court expressed skepticism toward arguments defending Trump’s wide-ranging and steep tariff rates imposed on the rest of the world. Yesterday’s hearing therefore suggested that Trump’s tariffs could be rolled back. Prediction markets slashed the probability of these tariffs surviving from the 40–50% range to around 25–30%.

Is it good news? Paradoxically, not really — because it brings uncertainty, renewed volatility, potentially more than $100 billion in refunds the US government may owe to other countries according to Bloomberg, and a deeper fiscal deficit. That’s concerning, especially considering that US debt has now surpassed the $38 trillion mark and is marching toward the $40 trillion psychological level — with nothing in sight to stop the climb. That certainly helped explain why the US 10-, 20-, and 30-year yields pushed higher yesterday.

A better-than-expected ADP print also supported a rise in shorter maturity yields. This week marks the first of a new month — and if the US government were open, we’d be getting the latest official jobs report. But since it remains shut, investors only have private data to rely on. The ADP report showed 42K new private-sector jobs last month, better than the 29K losses in the prior month and the 32K expected. Still, it’s a weak number, and a series of sub-50K prints would point toward recession. But for now, the slightly stronger-than-expected data further weakened the Federal Reserve (Fed) doves’ case. The US 2-year yield — a good gauge of Fed expectations — jumped past 2.60%, while the probability of a December rate cut fell to around 62.5%.

So I’m a little surprised the early-week selloff didn’t extend into a third day. This morning, we see a slightly improved tone in Asia. The tech-heavy Hang Seng returned above its 50-day moving average as local chipmaker SMIC jumped 5% and Alibaba rebounded 3% after the Chinese government banned state-funded data centers from using foreign chips. MSCI is also reshuffling its index to include more Chinese names, helping Chinese equities attract fresh inflows from global investors. Earlier this week, the People’ Bank of China (PBoC) bought bonds to shore up liquidity. As such, Chinese stocks remain in the race and continue to offer diversification versus US tech, as Jensen Huang said China “will win” the AI race with the US.

You know who might not win the race? Tesla. The company has been overtaken by BYD in UK vehicle registrations and is narrowing the gap in Germany. And in October, Tesla sold just 133 cars in Sweden. When I say Tesla doesn’t deserve this hype — and that the P/E ratio of 332 shows the gap between its stock price and reality — I mean it. There could also be some drama if Elon Musk fails to get his trillion-dollar pay package approved, with several large investors reportedly opposed to it.

Elsewhere, European carmakers could feel the pressure of renewed tensions over Nexperia, after reports that the company again halted supply as its Chinese unit refused to pay.

US futures are flat. On one hand, the rebound in Treasury yields and concerns over Big Tech valuations weigh on sentiment; on the other, earnings keep coming in strong and dipbuyers are impatient to join in. Yesterday after the bell, Qualcomm joined its peers with better-than-expected revenue, earnings and guidance — alas, the stock still slipped 2.6% in after-hours trading.

Conclusion: The weather remains cloudy, bulls are hesitant, but the dip-buyers are never far away. I’m not even sure we can get a meaningful dip when retail investors are so eager to jump back in — we’ll see.

In precious metals, gold rebounded yesterday alongside higher US yields — a very unusual move, which I attribute to the latest meme-like rally that temporarily undermined its safe-haven status. There should be a deeper pullback and consolidation before gold can reclaim that role. The longer-term outlook, however, remains unchanged: when in doubt, just look at the debt levels in developed markets.

In currencies, the US dollar’s recent rally hit a speed bump at its 200-day moving average yesterday, and the greenback is broadly sold against most majors this morning. The EURUSD is back above 1.15 after defending a minor Fibonacci support — which may improve appetite in the short term, though resistance sits near 1.1580–1.16.

Across the Channel, Cable managed to hold at the 1.30 psychological mark. The Bank of England (BoE) will likely leave rates unchanged at today’s policy meeting. Even the dovish members may prefer waiting for the Autumn Budget details. Rachel Reeves hinted on Tuesday at what might be coming — perhaps to test market reaction — and potential tax hikes were surprisingly well received by the gilt market. The 10-year gilt yield stayed mostly contained, which could give the BoE room to cut rates at its next meeting. That’s bearish for sterling.