Waiting for the Treasury Secretary shoe to drop

Asian equities stumbled, while European futures signalled a lacklustre open as traders took a cautious stance ahead of Nvidia Corp.’s earnings. While micro factors dominate today’s discussions, the overarching narrative remains transparent: European and Asian markets are bracing for Trump tariffs.

China's aggressive and unprecedented stimulus efforts have provided fleeting market boosts. However, the optimism is tempered by simmering U.S.-China tensions, which have resurfaced as a significant market headwind. With Donald Trump’s re-election bid now sharpening the possibility of renewed trade wars, the mood surrounding global markets has darkened.

The US Dollar Index (DXY) remains firmly rangebound, hovering below the critical 107.00 resistance level as its recent rally loses steam. Markets are waiting for the next significant catalyst to break the deadlock. All eyes are on President-elect Donald Trump as traders eagerly anticipate his crucial cabinet picks for Treasury Secretary and Trade Representative. These decisions could serve as pivotal signals for the dollar’s near-term trajectory, particularly as upcoming macroeconomic data remain clouded by the hurricane effect and strike distortions.

Across the Atlantic, The European Central Bank’s focus shifts from inflation to growth as U.S. tariff hikes loom large for early next year. Unsurprisingly, EURUSD has become the G10’s weakest performer since the November 5 U.S. election. While oversold conditions are giving euro bears reason to pause, many are eyeing better levels to reload shorts, especially with easing U.S. yields creating room for a temporary squeeze.

The USD/JPY pair briefly tumbled to the lower 153s, rattled by exaggerated fears of Russian nuclear sabre-rattling, but quickly snapped back, showcasing the market's tendency to downplay geopolitical theatrics once the dust settles. However, the pair's recent climb has lost steam, with yen bears pausing to reassess the landscape amid growing speculation of a December Fed rate cut and a temporary lull in U.S. Treasury yields, even as the BoJ is expected to hold. Although the 160-level looms as a significant psychological barrier, any near-term challenge remains distant unless US bond traders aggressively return to the “ Trump Trade” through rates in earnest or USDCNH spikes.

China has been holding its ground, keeping the renminbi (RMB) steady despite looming U.S. tariffs. Beijing appears to be in "wait-and-see" mode, playing the long game with its trade strategy.

Market chatter suggests that after Xi’s latest olive branch, China might double down on a charm offensive, focusing on goodwill gestures like ramping up U.S. agricultural products and aircraft purchases to curry favour with the incoming administration. It’s a savvy play—less a retreat and more a strategic pause, aimed at buying time and potentially staving off aggressive tariff measures.

But the clock is ticking, and the effectiveness of this approach remains a wild card. Will these moves be enough to sidestep the heavy hand of U.S. trade policy, or is Beijing merely delaying the inevitable? For now, traders are left speculating, watching as the chess game of U.S.-China trade relations enters its next unpredictable phase.

The real headline, however, is Trump’s impending announcement for the Treasury Secretary, a role that could redefine the administration’s trade and fiscal playbook. Former Federal Reserve Governor Kevin Warsh is emerging as the clear frontrunner, bringing with him a wealth of experience and influence as a critical policy advisor during the transition and would be a very market-friendly appointment.

Overall, Traders have hit the pause button, and the initial adrenaline rush of the "Trump trade" is now a distant memory. The juice is gone, and the market is in a tense wait-and-see mode for President-elect Donald Trump's policies to hit the stage.

The stakes couldn’t be higher. If unleashed in full force, Trump's protectionist playbook could light the inflation fuse and force the Federal Reserve to tap the brakes on its interest rate-cutting spree. For the U.S. dollar, that’s a recipe for a turbocharged rally, as a trade-weighted greenback index could surge higher on the back of reignited demand.