After the correction suffered by US equities in recent weeks (fastest drawdown since 2020), the rebound is continuing (+4% for the SPX since its 13 March low), with many signs of the market remaining resolutely optimistic. Join our Webinar today March 25 at 1:30 pm CET: Emerging Markets Brace for Trade War Impact: Losers and Winners of Trumponomics - Click HERE to access the live.
Rates: € curves remained fairly stable compared with their US counterpart, which moved higher at the European close due to Trump's remarks on tariffs. The yield for the 10Y Bund closed 1bp higher at 2.77%, with the 2Y-10Y segment of the € swap curve steepening by 1bp to 42bp. Sovereign spreads narrowed slightly by between 1bp and 2bp to 110bp for the 10Y BTP-Bund spread and 69bp for the 10Y OAT-Bund spread.
The market is pricing in two 25bp rate cuts by the ECB over the rest of the year but is increasingly convinced that the ECB will cut in April (65% probability vs. 50% last week). US 10y yield was up 9bp yesterday, and is stable this morning.
Equities: European equities opened higher, but a downtrend then set in, resulting in a slight consolidation by the time markets closed. In the case of the SXXE, techs outperformed strongly (+1.4%) in the wake of their US counterparts, followed by autos (+0.85%), while real estate underperformed (-2%). The V2X fell back below 19 at the close. US indices rebounded, clearly outperforming their European counterparts yesterday, with a strong tech rebound (NDX +2.16%). There has now been a dis-inversion of the VIX curve, with the VVIX having fallen to its lowest level since July 2024.
Chinese equities tumble this morning (HSI -2.4%), with HSI Tech down 4%, following Alibaba chairman warned about a potential bubble in the datacenter construction sector. US and European futures are contracting slightly.
Credit: indices performed well (-1.9bp for the Main, -10bp for the X-Over) in line with the rebound by equities yesterday, while the cash credit market struggled to keep up (-0.6bp on average). The reason for this is undoubtedly to be found in the primary market, which suddenly perked up on hopes of more measured US tariffs. The auto sector underperformed due to Trump's announcement of tariffs on the sector (“very shortly” were his words).
Turning to the primary, note the €10bn order book for the new Deutsche Bank AT1 (€1.5bn placed) at 7.125% (compared with an IPT of 7.75%) and the wave of deals in the High Yield market (Fnac-Darty, Ontex, Itelyum, Schaeffler dual-trancher).
FX: the DXY dollar index put on 0.20% to 104.3, at its highest for three weeks, following the US president's remarks concerning tariffs, which are expected to be smaller and more targeted than initially anticipated. The US dollar appreciated against all G10 currencies except the Canadian dollar, Swedish krona and Australian dollar that rebounded by 0.29%, 0.24% (0.53% against the euro) and 0.10%, respectively, to 1.430, 10.10 (EUR/SEK at 10.91) and 0.628. The euro corrected by 0.20% to 1.078 against the US dollar, as fears of US tariffs and possible European retaliation weighed on the European currency.
Sterling corrected by 0.10% against the US dollar to 1.290, despite an improvement in activity in the UK services sector (53.2 for March PMI compared with Marketing communication: This document is a marketing presentation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. C2 - Internal Natixis 51.0 previously). The EUR/GBP put on 0.16% to 0.836.
The Japanese yen was the G10 currency that underperformed the US dollar the most, shedding 0.86%, taking the USD/JPY to 150.7, in reaction to the sharp rise in US long rates, contributing to the widening of the rate differential between the US and Japan. Turning to emerging currencies, the Turkish lira was the currency that corrected the most against the dollar, down 1.66%, the USD/TRY appreciating to 37.98, against a backdrop of political tensions and mass arrests.
Energy: oil prices traded higher during Monday's session, with Brent up 0.9% near the close, trading around $72.8/bbl. Prices tracked the broader market and also found support as Trump announced "secondary tariffs" of 25% on any country importing Venezuelan oil, with goods sold to the US impacted from 2 April. China imports ~55% of Venezuelan exports, at 0.5m b/d, and was expected to increase volumes in the coming months as waivers granted to Spain, Italy and other countries are not expected to be renewed.
Separately, OPEC+ sources stated the group will proceed with output hikes as planned in May. European gas prices closed 0.8% lower at €42.3/MWh as weather forecasts turned milder for the next week across NW Europe, which should support further injections. Reuters reported several Member States are set to lobby the European Commission to formalise the 5% downwards tolerance for the 90% end-Oct storage fill target.
