US stock markets tumble on tariff uncertainty and US economic outlook

The market uncertainty about the possible effects of Trump’s tariffs in conjunction with the worries for the US economic outlook tended to intensify the risk-off sentiment among market participants, practically weighing on riskier assets such as cryptos and equities. It’s characteristic that headlines highlight how US stock markets lost about $4 trillion over the past month, with the prospect of further losses being dominant at the current stage. At the same time, political uncertainty rises as the Republican US Congress races to prevent a government shutdown on Friday. The government shutdown may not be material as such, but it is indicative of the political situation in the US. Overall, should the uncertainty based on the above factors be maintained we may see US stock markets losing further ground. On a monetary level, the weaker-than-expected US employment report for February tended to enhance market expectations for the Fed to ease its monetary policy further and the next big test is to be the release of the US CPI rates for February tomorrow. A possible slowdown of the CPI rates implying an easing of inflationary pressures in the US economy could be aligning with the weaker-than-expected US employment report in exercising pressure on the Fed to cut rates and in such a case weigh on the USD yet on the flip side provide some support for US stock markets.

On a technical level, we note the tumbling of Nasdaq yesterday as characteristic of the mood for US equities. The index dropped breaking the 19910 (R1) resistance line yesterday and continued lower to test the 19120 (S1) support level. We maintain a bearish outlook for the index as long as the downward trendline guiding it since the 21^st of February remains intact. Also, we note that the RSI indicator has dropped clearly below the reading of 30, highlighting the strong bearish sentiment among market participants for the index, but also may imply that the index has reached oversold levels and is ripe for a correction higher. Similar signals are being sent by the fact that the price action is constantly flirting with the lower Bollinger band. For a continuance of the bearish outlook we would require the index to break the 19120 (S1) support line with the next possible level, being the 18310 (S2) barrier. For a bullish outlook, we would require the index to break consecutively the prementioned downward trendline, the 19910 (R1) line and the 20535 (R2) level.

North of the US border, Canada is facing Trump’s intentions for annexation while the US tariffs on Canadian products are highlighting the tensions in the relationships of the two countries. In a latest development of the US-Canadian trade war, Ontario announced that it will slap a 25% surcharge on electricity exported to the US. Politically, the Liberals elected former BoC Governor Mark Carney on Sunday, as their new leader and seem to be rebounding in polls ahead of the national elections in Canada, in October upending the Canadian political scene. It’s characteristic that the Liberals covered an over 20% gap at some point in the polls within two months. Also, February’s employment data came in weaker than expected, adding pressure on BoC to cut rates tomorrow, weighing on the CAD. We see the case for the Loonie to be primarily led by fundamentals in the coming week, with BoC’s actions and intentions being in the forefront.

USD/CAD continued to rise yesterday yet hit a ceiling at the 1.4465 (R1) resistance line. We tend to maintain a bias for a sideways motion of the pair as expressed yesterday, despite a slight rise of the RSI indicator, which for the time being leaves us unconvinced for the pair’s bullish intentions. Should the bulls take over, we may see the pair breaking the 1.4465 (R1) line clearly and start aiming for the 1.4665 (R2) level. Should the bears take over, we may see USD/CAD breaking the 1.4280 (S1) line and start aiming for the 1.4100 (S2) level.

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Today we get the Czech Republic’s final CPI rates for February and from the US, January’s JOLTS job openings and API’s weekly crude oil inventories figure as well as New Zealand’s electronic card retail sales for February. In tomorrow’s Asian session, we get Japan’s corporate goods price growth rate for February.