The dollar is retreating and North American equity futures are setting up for a second day of losses after a series of downbeat earnings outlooks from economic bellwethers like Ford and Palantir cast doubt on the growth outlook. Treasury yields are inching lower, oil prices are up slightly, and the currency markets are generally paring yesterday’s modest moves.

Activity in the US services sector – which accounts for roughly two-thirds of overall economic output – surprised investors by accelerating last month, suggesting that underlying growth could prove more resilient than had been feared. The Institute for Supply Management’s services index climbed to 51.6 in April – up from 50.8 in the prior month, and well above the 50 threshold that separates expansion from contraction – and the closely-watched new orders subindex increased 1.9 points to 52.2, marking its highest level this year. The prices-paid measure jumped 4.2 points to a two-year high however, with nearly 40 percent of purchasing managers seeing costs increasing in line with rising tariffs.

Data out this morning showed the country’s trade deficit exploding in March as companies rushed to import goods ahead of tariffs. According to the Census Bureau, the goods and services trade balance jumped 14 percent to $140.5 billion from $123.2 billion in the prior month, with imports climbing 4.4 percent while exports rose just 0.2 percent. Statisticians noted that consumer goods saw the biggest increase on record, but automobiles and capital equipment also surged on aggressive inventory-building efforts across the economy. This is not expected to continue: shipping volumes are down drastically across American ports, suggesting that higher import taxes are slowing new orders.

Widespread tariff front-running could help insulate the economy from the consequences of the trade war for at least another month, complicating tomorrow’s Federal Reserve decision. Several Fed officials have signalled a willingness to cut rates if labour markets show signs of softening, but tangible evidence of weakness isn’t yet showing up in the hard data typically used by central bankers to set policy: for now, consumers are buying in anticipation of future price increases, businesses are piling up precautionary inventories, and hiring levels are holding firm. Although investors are bracing for a stagflationary* set of economic outcomes this year, the jury is out on how price and demand dynamics will shift in the months ahead – and there remains considerable uncertainty around the extent to which tariffs will stay in place. As such, it is reasonable to expect a relatively-hawkish tone from Jerome Powell during the post-decision press conference as he downplays employment risks and attempts to keep price expectations anchored for now.

From a broader perspective, the momentum that carried most major currencies higher against the dollar through the month of April seems to have faded in early May. The euro is trading lower after a vote in the Bundestag failed to confirm Friedrich Merz as Germany’s next chancellor – casting doubt on his capacity for implementing massive fiscal reforms – and against a technical backdrop in which the 1.14 threshold has repeatedly stymied advances. The British pound is marking time ahead of an expected rate cut at the Bank of England’s Thursday meeting, Japan’s yen is hitting resistance at the 1.43 mark, and the Swiss franc’s long advance is slowing as traders brace for more central bank intervention.

Markets look vulnerable to reversals. The big ramp in speculative bets on the greenback that took place ahead of Donald Trump’s inauguration has been fully unwound, and traders are now crowded into bearish positions – something that in our experience has tended to provide a contrarian signal ahead of a market turn. On the flip side of the equation, Canadian dollar speculators are still sitting on the biggest net short position among the majors, raising the risk of an abrupt punch higher in the event that this week’s meeting between the US president and newly-confirmed prime minister Mark Carney results in trade tensions conclusively ratcheting lower.

*Historically, this word was used to describe a situation in which inflation and unemployment were simultaneously very high, and demand was very low. The economic consensus does not currently reflect anything that extreme, but the definition has (arguably) since expanded to encompass a broader range of circumstances in which prices are rising even as growth is slowing. It’s certainly reasonable to argue that this is inappropriate, but I would note that “silly” once meant happy, “nice” was a way to describe a foolish person, a “guy” was something you burnt once a year, “dinner” was breakfast*, and “awful” was wonderful.

**”Dinner” is still (very confusingly) still lunch in some parts of Canada, and breakfast for dinner is a thing that everyone should do.