Market activity has stabilised, with gains evident in Asian and European equities and US futures, reflecting optimism over potential tariff negotiations.
The US dollar has softened as stocks recover, particularly impacting high beta currencies like the AUD and NZD. Recent fluctuations demonstrate market sensitivity to tariff announcements, exemplified by a brief stock surge in response to misinformation regarding a tariff pause.
Unclear Communication Over Tariff Negotiations
Communication from the US administration remains unclear, with various conflicting statements regarding tariff negotiations. The NFIB Small Business Optimism index also fell by 3.3 points to 97.4, indicating a pessimistic outlook amid tariff uncertainty.
These past few sessions have given us a period of calm, at least on the surface. Asian and European equities have inched higher, and the same applies to US futures. That sort of coordinated uptrend doesn’t happen without reason. In this case, it’s rooted in speculation—traders appear to anticipate an easing in trade tensions, particularly surrounding tariffs. It’s not from any confirmed deal, though. Instead, markets are reacting to scattered hints and changes in tone from US officials.
With equity markets showing modest strength, the US dollar has eased, notably against more sensitive currencies like the Australian and New Zealand dollars. These are what we’d refer to as high beta currencies—ones that tend to exaggerate market movements. That they’re strengthening suggests markets are feeling some relief from the stress they absorbed just a few weeks ago. But this should not be mistaken for a lasting shift.
A false report recently triggered a bizarre burst of optimism, lifting stocks sharply over a rumour that tariffs might be paused. Within hours, that narrative was walked back. What matters more than the spike itself is what it reveals: how finely tuned the markets now are to the language used around tariffs, real or rumoured. A well-placed headline is all it takes to shift sentiment for hours, sometimes days.
That fragility stems from inconsistent messaging. Decision-makers in the United States continue to offer contrasting perspectives—some hinting at concessions, others underscoring tougher positions. This kind of daily inconsistency forces the market into a guessing game. The alignment between official comments and real policy intentions is thin at best.
Business Outlook and Risk Adjustments
In terms of business outlook, smaller US firms aren’t feeling particularly hopeful. The NFIB Small Business Optimism Index dropped by 3.3 points to 97.4. That’s its lowest reading in several months, and the decline feels connected to the same broader uncertainty hanging over every decision-maker just now.
With derivatives, pricing risks becomes tricky when positions depend on assumptions that shift by the hour. We’ve seen options implied volatility edge higher in the past weeks as hedging activity increases. Risk premiums are expanding—markets aren’t confident this environment is stable enough to lean too far in one direction.
So, we reevaluate how forward expectations are being priced. Daily ranges have narrowed, but there’s still a great deal of re-pricing happening beneath the surface. It’s imperative to monitor not what is being said outright by officials, but how the broader market reacts to those shifts. More volume is flowing into shorter-dated instruments, possibly as a reflection of unwillingness to make large directional bets over longer timeframes.
In the coming weeks, we focus more on the divergence between realised and implied volatilities, which are giving early signs of disconnect. When realised price swings remain modest but the cost of protection continues to rise, it typically implies that participants are bracing for sudden news-driven moves. That’s not resolved by general optimism in equities alone.
As always, we perform risk adjustments not only based on price but depending on how positioning aligns with sentiment. The calm seen in spot markets is not fully confirmed by positioning and hedging flows across derivatives. That dissonance could explain fast reversals if sentiment happens to turn.
We’re staying aware of structural positioning as well—particularly as some macro funds start to rebuild trades that were unwound during more volatile sessions. This compression we’ve seen in vol levels looks increasingly temporary, and it would be a mistake to extrapolate this relative quietness into an expectation of directional certainty.
It means opportunity, certainly—but one that comes with agility rather than comfort.
