GENEVA — US equities followed up on Asian and European gains on Tuesday. Major US indices rallied to highest levels since March. The S&P500 (+1.23%) traded above the 3000 mark, but closed a touch below this level. Likewise, the Dow extended gains past 25'170, yet ended the session slightly below the 25K mark on the back of some profit taking into the end of the trading session. Nasdaq tested 9500. Hope for a vaccine against coronavirus was a major catalyzer for the recent rally across world equities. The end of confinement measures has also contributed to the positive momentum, although the risk of seeing another vaccine fail and a potential second wave of contagion don't appear to be priced in at their fair value. Hence, we see a mounting risk for a downside correction in the coming days. Asian equities were mixed on Wednesday. The Nikkei (+0.89%) and the ASX (+0.65%) edged higher, but on a softer positive momentum compared to the beginning of the week, while stocks in China (-0.29%) and Hong Kong (-0.39%) pointed lower as investors' focus turned to US-China tensions after the White House warned that the new national security law in Hong Kong could compromise the city's special status as a global financial hub. Good news came from mainland China however, where industrial profits jumped 33.7% on monthly basis in April, as downstream industries outperformed giving hope that the healing process is now effective from the bottom-up. Demand in safe haven assets remained limited; the US dollar weakened across the board, the US 10-year yield advanced to 0.70% and gold retreated to $1,705 per oz, giving traders a window of dip-buying opportunity to hedge against a rising anxiety across risk assets. The higher volume of dollar purchases in Asia hints that the wind could change direction starting from today. Activity in FTSE (+0.52%) and DAX (+0.55%) futures hint at a positive start on Wednesday, but gains are fragile as investors have an increased intent to realize profits and turn flat at these levels. Data-wise, we are heading toward a slow day. The European Central Bank (ECB) President Christine Lagarde's speech about the bank's response to the COVID-19 crisis will be closely monitored by euro traders. But the latest German court investigation on the proportionality of the ECB's massive bond purchases should dent the bank's influence on markets, with the looming risk that the ECB could unwillingly scale down its rescue operations to support the Eurozone economy. And this is negative for the euro's upside potential. The EURUSD tested, but again failed to combat the solid 1.10 offers as the US dollar firmed on fading global risk appetite. The sharp reversal in daily direction could encourage a slide toward the 1.09/1.0880 area. The single currency is expected find some minor support near the 50-day moving average (1.0880), however. Also, we do not rule out the possibility of a renewed euro rebound toward the 1.10 mark if Lagarde convinces investors that the ECB has got the right arguments to continue its monetary policy without interruption. In the US, the Richmond manufacturing index is expected to confirm another cataclysmic month. Yet if the data is better than the consensus of -40 (versus -53 printed a month earlier), the marginal impact on the market mood should remain limited. Gains in Cable were capped by the 50-day moving average (1.2350) as expected. A swift move toward the USD safety will certainly pull the pound below the 1.23 mark. The first natural target for pound-bears is the 1.2160-support, if broken should pave the way toward 1.2080, the May dip. WTI crude consolidated a touch below the $35 per barrel, yet fresh long positions lose pace with the rising US-China tensions, hinting that a downside correction could be around the corner. As we mentioned in our earlier reports, the improvement in core energy demand is key for a sustainable recovery in oil prices, and that is happening with economies getting back to work across the globe. Hence, a potential pullback in oil prices triggered by mounting US-China tensions should find support near the $32/30 area. — The writer is senior analyst at Swissquote Bank