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Global markets are torn between different themes, with traders switching back and forth between inflation and recession risks depending on the latest round of data releases.

The week started with the ghost of inflation returning to haunt investors after OPEC+ boosted oil prices, but the session closed with recession nerves in the driver’s seat following a disappointing reading on US manufacturing.

Manufacturing activity in the United States contracted for a fifth straight month in March according to the ISM survey.

New orders fell sharply and employment trends weakened as business leaders painted a worsening picture of demand for goods. It was an ugly report all around, underlining the challenges the economy is grappling with.

Since the manufacturing sector is considered the ‘canary in the coal mine’ for the broader economy, the mounting signs of an impending recession emboldened bets that the Fed will resort to cutting rates later this year.

In the markets, the main casualty was the US dollar.

The reserve currency absorbed some serious damage as the weakening data pulse gave investors the green light to speculate on rate cuts, pushing Treasury yields down.

Both the euro and sterling staged a fierce intraday reversal, rising more than 1% from their lows yesterday against the sliding dollar.

Gold managed to claw its way back above the $1980/ounce region, taking full advantage of the renewed weakness in the dollar and real yields.

Dip buyers have been out in force ever since the banking episode, which changed the landscape for gold by solidifying expectations of rate cuts and smashing yields lower.

It was a different story in stock markets.

The warning signs in manufacturing did not scare the S&P 500, which closed higher with some help from energy shares storming higher after OPEC announced plans to axe oil production.

Overall, the atmosphere in equities remains sanguine as the liquidity taps have reopened now that the Fed’s balance sheet has started to expand, undoing several months of quantitative tightening.

The impressive part is that Wall Street powered higher despite a 6% decline in Tesla shares.

Investors were left disappointed when the electric carmaker disclosed its deliveries for the latest quarter, which did not improve much even after Tesla slashed its prices to bolster demand.

Riding the wave of euphoria in equity markets and rising commodity prices was the Australian dollar, which rose almost 2% from its lows yesterday against its US counterpart.

This move retraced a little after the Reserve Bank of Australia hit the ‘stop’ button in its tightening cycle earlier today.

The RBA kept interest rates unchanged and broke protocol by indicating it could remain sidelined indefinitely, introducing an element of uncertainty about whether further tightening will be needed. While the aussie fell in the aftermath, its decline didn’t even erase half of yesterday’s rally.

It seems the currency is paying more attention to the global risk mood.

Coming up next is the Reserve Bank of New Zealand rate decision on Wednesday.

A quarter-point rate increase has already been fully priced in, with traders also pricing some chances for a larger move.

The kiwi dollar will be driven mostly by whether the RBNZ mimics the RBA and signals this might be the end of the tightening cycle, which seems unlikely judging from the strength of domestic data.