As a reaction, the US 2-year yield fell to 4.26% and the 10-year yield posted a sharp drop to below the 4.30% for the first time in two weeks. The US dollar softened against major peers and the major US indices posted gains. The S&P500 added 0.30%, Nasdaq 100 0.14% and Dow Jones jumped 1% while Russell 2000 rallied 1.50% to a fresh ATH.

But, wait. Investors didn’t have time to fully enjoy the news as Trump said that the US will impose extra 10% tariffs on Chinese goods and 25% levies on all products from Mexico and Canada. Mood in Asia was less cheery. The Mexican peso took a hit, and the USDCAD shortly rallied to 1.4180, hit by the falling oil prices as well, and traded at a level last seen in April 2020.

Of course, the new tariff talk didn’t enchant investors in China, but the CSI 300 recovered early losses on optimism that the additional tariffs were only 10% and not 60%, and perhaps on the expectation that the renewed tariff threat would trigger a bigger policy response from the Chinese government.

Coming back to the US, the market reaction to Bessent’s appointment was probably exaggerated. Donald Trump - who has been cleared for a few important criminal charges including obstruction of justice and classified records – is probably free to play his hand as he pleases.

US crude slips below $70pb on easing Mid East tensions

US crude slipped below the $70pb level on rising hope of a cease-fire between Israel and Hezbollah. From a technical standpoint, US crude’s latest geopolitical-led rally remained short the $72.85pb level, the major 38.2% Fibonacci retracement on summer selloff. As such, the medium term outlook remains bearish on weakening global demand and ample global supply outlook. The failure to clear key offers brings the $65/67pb range back to target.

On the nat gas front, the positive pressure due to geopolitical tensions remains intact. Nat gas futures came down from January highs, but the bulls are chasing a solid ground to jump back on the back of a bull. European nat gas futures kicked off the week with a 2.5% rally on the back of renewed tensions between Russia and the West. The geopolitical setup remains supportive of a further rise as we enter cold winter months in the Northern hemisphere.

In the FX

The US dollar’s weakness on Bessent’s nomination remained short-lived. The EURUSD – which tested the 1.05 offers to the upside yesterday - is back below this level. On the macro front, yesterday brought more weakness from Germany: Thyssenkrupp’s steel unit announced to cut its labour force by 40% this decade, adding to industrial worries in Germany where investments are in a free fall since the war in Ukraine started and the energy crisis took a toll on country’s industries. Needless to say that yesterday’s Ifo data from Germany didn’t look bright.

Today, the FOMC will release its latest meeting minutes and investors will be looking for signs of Federal Reserve’s (Fed) easing plans. The Fed has lowered interest rates by 50bp in September – a bit too much in my opinion, and another 25bp in the last meeting. But inflation started giving signs of a potential uptick and the inflationary worries got a boost with Trump’s election.

Of course, Trump’s nomination is a politically sensitive subject for Powell, therefore the Fed minutes will certainly not mention the political risks directly. But what we could find an increased focus on the resilience of the US economy that could – in return - justify a slower easing path for the Fed in an effort to tame the potential boosting effect of Trump’s tax cuts and tariffs. If that’s the case, if we find a clear hawkish shift in the Fed minutes, the US dollar could get a fresh boost.

Activity on Fed funds suggests that the Fed would cut its rates by another 25bp at the December meeting with a little more than 50% probability. From a data perspective, it would make sense for the Fed to sit and wait for the impact of the first cuts on data. But from a political perspective, not cutting the rates could be interpreted as a sign of weakness. And Powell can’t afford that.