"No Smoke Without Fire"

It’s often said that whenever there is a rumour/chatter in the financial markets, there is a high probability that the asset has priced in the move and the insiders have already bought/sold to benefit from the price appreciation /depreciation.

In the last month or so, we have seen wild moves across assets (FX, equities, bonds) on the tariffs flip flops, and the undeniable truth is that the tariffs, which everybody thought as a tool for “negotiation”, are snowballing into a bigger threat for financial markets.

In yesterday's latest salvo, Trump threatened to impose a “reciprocal” tariff and also spoke about the “universal” tariff, once again igniting suspicions that tariffs will ultimately be used to shore up the US government's “revenue” which is under severe fiscal stress amid rising Debt/GDP ratio.

Amid the tariff chaos, the unprecedented demand for precious metals (Gold and silver) continues, with COMEX reporting daily deliveries similar to those during the COVID-19 pandemic.

Furthermore, the mad scramble has reached such unprecedented heights that the cost of borrowing Gold has surged everywhere, with the LBMA reporting a 10X increase in borrowing rate.

As we mentioned in the title, “No Smoke without Fire,” we believe something is definitely worrying markets. We will discuss our thesis later about this “sudden” interest in commodities (ex-oil), especially precious metals.

Let’s analyse the macro data and dig deeper into the cross-asset moves!

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US!

The first week of the month is often heavy with macroeconomic data, which helps us assess the economy's health.

We prefer the ISM Manufacturing PMI as an indicator of the cyclical economy, as it has historically accurately predicted peaks and troughs.

Interestingly, we saw a significant acceleration in ISM Manufacturing after several months. For the first time since early 2021, the headline reading has risen above 50.5.

New Orders Less Inventories, an indicator used by most market participants, also rose to levels last seen in 2021 as New Orders jumped significantly (> 50) and investors contracted for a second consecutive month(less than 50).

We believe that some of the effects can also be due to the Trump administration's impending tariff threat. It seems that the manufacturing sector has increased its orders before tariffs raise the prices of goods.

Nonetheless, we will closely monitor the upcoming data to ascertain the trend and health of the cyclical economy.

Moving on, the ISM Services headline index came in at 52.8 lower than expectations (still in expansion territory, though), but the surprise was the ISM Services Prices Paid, which collapsed from last month’s sky-high 65 reading.

Note that last month, we wrote that we will watch the trend in the coming months as the ISM Services Prices Paid has been a very volatile series in the last few months.

Let’s now dig deeper into the most essential part of the macro puzzle: