HFMarkets (hfm.com): New market analysis services.

[HFM]

Date: 06th May 2025.


Wall Street Rally Ends | Fed Decision & Trade War Weigh.



Trading Leveraged products is Risky


Wall Street’s Longest Rally Since 2004 Ends Amid Trade Uncertainty and Weak Tech Performance


Wall Street’s nine-day winning streak—the longest since 2004—came to a halt as bullish momentum faded. Major US indices closed lower: the Nasdaq dropped 0.74%, the S&P 500 fell 0.64%, and the Dow Jones Industrial Average slid 0.24%. Despite easing concerns over tariffs, lingering uncertainty surrounding their long-term impact kept investors on the sidelines.


A stronger-than-expected ISM services report, which included a sharp rise in prices paid, and optimistic remarks from Treasury Secretary Bessent, failed to lift sentiment. Apple led the market declines, while media and entertainment stocks—including Disney—fell after a 100% tariff was announced on imported films. Berkshire Hathaway also declined following Warren Buffett’s retirement announcement after six decades as CEO.


Treasury Yields Climb as Rate-Cut Hopes Fade


Treasury yields rose as upbeat economic data tempered expectations for rate cuts. The 2-year yield increased 1.2 basis points to 3.836%, the 3-year note ended 1 bp higher at 3.810%, the 10-year yield advanced 3.7 bps to 4.358%, and the 30-year yield climbed 4.2 bps to 4.830%. This marked the third straight session of yield increases. Despite a strong 3-year auction, bonds remained under pressure.


US Dollar Index Slides Below 100; Greenback Faces Broad Weakness


The US Dollar Index (DXY) slipped below the 100 mark, closing at 99.809 after touching a high of 100.030 and a low of 99.464. The dollar weakened against most G10 currencies and lost ground to several Asian counterparts as rate differentials failed to offer support.


Nevertheless, stronger US economic data—including accelerated activity among US service providers—helped the dollar edge higher during the session, easing a rapid appreciation in Asian currencies spurred by optimism over potential trade agreements.


Asia Forex Volatility Increases Amid Trade Hopes


The greenback gained 0.2% after the ISM data release. The Taiwanese dollar dropped 0.1% after Monday's historic surge—the strongest since the 1980s. The yen also weakened slightly. Meanwhile, Taiwan’s currency saw its biggest inversion in over two decades as the spread between the spot rate and one-year NDFs hit 3,000 pips, signalling ongoing selling pressure on the US dollar.


Global Market Reaction and Oil Rebound


Equity index futures for the S&P 500 declined 0.4% after the index snapped its longest rally in nearly two decades. European and Asian markets mirrored the US retreat. Cash trading in Treasuries was halted during the Asian session due to a Japanese holiday.


Oil prices rebounded slightly from four-year lows. US crude rose $0.74 to $57.87 per barrel, while Brent crude also gained $0.74 to settle at $60.97. However, WTI crude remained down 1.96% on the day, closing at $56.81 amid concerns about a global supply glut. OPEC+ announced it would increase output by 411,000 barrels per day starting June 1, contributing to a 4% drop in prices on Monday.





Gold Surges on Chinese Demand; Equities Under Pressure
Gold prices jumped 2.84%, reaching $3333.22 per ounce, driven by increased demand from China. Chinese markets rose after reopening from the Golden Week holiday. The Shanghai Composite added 0.7%, Hong Kong’s Hang Seng gained 0.4%, Taiwan’s Taiex edged up 0.2%, and Australia’s S&P/ASX 200 rose 0.2%.


Tech Stocks Lead US Declines; Fed Decision in Focus
On Wall Street, tech giants dragged the market lower. Apple fell 3.1%, Amazon dropped 1.9%, and Tesla lost 2.4%. Palantir sank more than 9% in after-hours trading following disappointing results, while Ford warned of a $1.5 billion profit hit due to tariffs, causing its stock to fall 2.5%.


Netflix and Warner Bros. Discovery lost 1.9% and 2% respectively after President Donald Trump announced a 100% tariff on foreign-made films. Meanwhile, shoemaker Skechers soared 24.3% on news it would be acquired for $9 billion by 3G Capital.


Trade War Escalates as Tariff Policies Create Market Turmoil
Tariff-related volatility continues to dominate market sentiment. Trump’s unpredictable trade measures—often announced or reversed overnight—have undermined the dollar’s traditional role as a safe haven and forced investors to reconsider US exposure. A recent 145% tariff on Chinese imports has triggered a steep decline in shipping activity and logistics.


According to a Caixin survey, China's services sector activity fell to its lowest non-pandemic level, pushing Chinese firms’ overall optimism to its lowest since records began in April 2012, prompting further job cuts.


Outlook: Federal Reserve Decision and Inflation Risks Loom
Attention now turns to Wednesday’s Federal Reserve meeting. The Fed is widely expected to keep interest rates steady after cutting them three times in 2024. With inflation hovering just above the 2% target and economic uncertainty lingering, policymakers are likely to maintain a cautious stance.


The US economy contracted by 0.3% in Q1—the first quarterly decline in three years—raising concerns about tariff driven slowdown. Inflation fears are resurfacing, compounding market anxieties as investors await clearer guidance from the Fed and potential developments on the trade front.


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Please note that times displayed based on local time zone and are from time of writing this report.


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Andria Pichidi
HFMarkets


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