Dollar Weakens as Trade-Driven Moves Moderate: Markets Wrap

(Bloomberg) -- The dollar weakened for a second session while equities slipped, as large market moves earlier in the week driven by the US-China tariff truce moderated.

The greenback fell against major currencies with the yen and Swiss franc among the beneficiaries. The 10-year Treasury yield was slightly lower after declining 10 basis points Thursday, as traders priced in two Federal Reserve rate cuts this year. Australian and New Zealand yields fell.

The tepid action signaled caution after a strong week for risk assets following US-China trade talks. Coming into Friday’s session, a gauge of global stocks had advanced for seven days in a row to a level not seen since February when it set a record.

Shares in Taiwan and Australia rose, while those in South Korea whipsawed and benchmarks in Japan and China fell. US equity futures were flat after the S&P 500 gained 0.4% on Thursday, helped along by defensive dividend-payers that had underperformed in the past month. Meta Platforms Inc. paced losses in Big Tech on Thursday after a news report it was delaying the rollout of a flagship AI model.

Alibaba Group Holding Ltd. shares fell as much as 6.7% in Hong Kong after quarterly revenue disappointed. 

“It’s a bit directionless now,” said Vey-Sern Ling, a managing director at Union Bancaire Privee. “Markets needed new catalysts after the US-China tariff walk-back over the weekend and was looking to China tech earnings this week to sustain the rally, but Alibaba’s result last night wasn’t able to provide the lift.”

Gains for Treasuries partly reflected economic data showing prices paid to US producers unexpectedly declined by the most in five years suggesting companies are absorbing some of the hit from higher tariffs. Separate US data showed growth in retail sales decelerated. Factory production declined for the first time in six months while New York state manufacturing contracted again. And confidence among homebuilders slumped.

The market moves reflect a “benign backdrop,” supported by expectations the Fed will cut rates later this year, according to Frances Cheung, rates strategist for Oversea-Chinese Banking Corp Limited, speaking on Bloomberg Television. “The Fed would like to have a couple more months of data to give them the green light to cut interest rates,” she said.

The bond rally on Thursday sent yields down 10 basis points or more for debt maturing in two to 10 years. Longer-dated bonds were earlier whipsawed by large trades that briefly pushed the 30-year yield to nearly 5%.  

“Bad news is good news for the bond market” as Thursday’s data — including producer prices and retail sales — pointed to a weaker economy, said Zachary Griffiths, head of investment-grade and macroeconomic strategy at CreditSights Inc.

Elsewhere, Japan’s economy shrank for the first time in a year, illustrating its vulnerability even before sustaining the impact of Trump’s tariff measures. The yen gained 0.2% on Friday to trade around 145 per dollar. Bank of Japan official Toyoaki Nakamura will speak later in the day.

Stock Rally

Stocks are now trading like last month’s rout never happened. The S&P 500 is about 4% away from an all-time high, while the Nasdaq 100 swung from a bear market back into a bull market. The advance is building as economic tensions between the US and China ease and the White House appears to be softening its approach to trade negotiations.

“I don’t want to get too excited, but we may actually be able to focus on company fundamentals for a while this summer,” said Lamar Villere, portfolio manager at Villere & Co. “If you’d told me a month ago that stocks would be up year-to-date when my kids finished their exams, I’d have called you a liar.”

Still, there’s little clarity over how the existing levies might impact the US economy or the trajectory the global trade war will take in coming months.

Fed Governor Michael Barr said the economy is on solid ground, but warned tariff-related supply-chain disruptions could lead to lower growth and higher inflation.

Recession remains a possibility as tariff fallout continues to buffet global economies, according to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon. 

“Hopefully we’ll avoid it, but I wouldn’t take it off the table at this point,” Dimon said in a Bloomberg Television interview Thursday at JPMorgan’s annual Global Markets Conference in Paris. “If there is a recession, I don’t know how big it would be or how long it would last.”

Wells Fargo Investment Institute sees economic growth, clarity around Trump’s tariffs and continued earnings growth driving further stock-market gains through the rest of this year and next.

In commodities, oil edged higher Friday after slumping in its previous session as President Donald Trump said the US and Iran are getting closer to a deal regarding Tehran’s nuclear program. Gold fell.

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 12:41 p.m. Tokyo time
• Japan’s Topix fell 0.2%
• Australia’s S&P/ASX 200 rose 0.6%
• Hong Kong’s Hang Seng fell 0.7%
• The Shanghai Composite fell 0.5%
• Euro Stoxx 50 futures were little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro rose 0.1% to $1.1203
• The Japanese yen rose 0.3% to 145.28 per dollar
• The offshore yuan was little changed at 7.1978 per dollar

Cryptocurrencies

• Bitcoin rose 0.6% to $104,117.51
• Ether rose 1.6% to $2,578.44

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.42%
• Japan’s 10-year yield was unchanged at 1.465%
• Australia’s 10-year yield declined six basis points to 4.47%

Commodities

• West Texas Intermediate crude rose 0.2% to $61.72 a barrel
• Spot gold fell 0.9% to $3,210.69 an ounce

This story was produced with the assistance of Bloomberg Automation.

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