With political uncertainty at an all-time high, the news flow weakening rapidly and no Trump put 2.0 (D. Trump: “you can’t really watch the stock market”), concerns are growing by the day, triggering yesterday a sharp selloff by US risk assets, with a widespread flight to quality: NDX -3.8%, S&P 500 -2.7%, Tesla -15%, -12bp for the US 2Y TNote yield, +4pts for the VIX near 28%, +13bp for the CDX High Yield, Bitcoin still in freefall..
The NDX has now lost 13.5% since last February’s peak. Though sentiment for equities already appears to be close to rock bottom, systematic funds still have the capacity to reinforce the downtrend further. This morning US equity futures stabilize.
Rates: while EGB curves underwent a bull steepening over a session that turned out to be relatively calm despite the announcements by Germany's Green party, what was observed was a sharp easing of $ rates fuelled by concerns about growth, the catalyst being Trump's announcements on this subject. The session closed with the yield for the 2Y Schatz down 3bp at 2.22%, the yield for the 10Y Bund also down, off 1bp at 2.83%, with the 10Y TNote-Bund closing at 140bp, 8bp tighter. Sovereign asset swap margins and spreads remained relatively stable, with the 10Y OAT-Bund spread trading at 71bp and the 10Y BTP-Bund spread widening slightly by 1bp to 108bp, while € curves steepened, with the 5Y-30Y segment of the € swap curve now trading at 10bp (+5bp).
Equities: correction of equity markets on Monday, as concerns about the US economy heightened. European indices fell by 1%, with the DAX underperforming. However, the correction was far more pronounced in the case of US indices, with losses of 3.8% for NDX on Monday, 2.7% for the SPX and 5.7% for the Magnificent 7, the Tesla share price plunging 15%, its biggest one-day loss since 2020. The VIX put on more than 4 points to almost 28, at its highest since August 2024. Nikkei and HSI are down 1% this morning.
Credit: there was a widening of iTraxx indices (+1.2bp for the Main, +8bp for the X-Over), with an underperformance by some cyclicals (ArcelorMittal, Rentokil, etc.) and banks (2bp-3bp widening of BBVA, Mediobanca, Ispim and Deutsche Bank CDS). By contrast, the cash market held up rather well, including hybrids, with prices stabilising yesterday. The Bayer hybrids outperformed, with prices up by 10 to 30 cents following the announcement of the capital increase at the end of last week.
FX: the DXY dollar index treaded water at 103.9 (+0.03%) amid growing investor concerns about the impact of Trump's trade policies on the US economy. The Norwegian krone was the G10 currency that appreciated the most against the US dollar (+0.84%, USD/NOK at 10.77) but also against the euro (+0.79%, EUR/NOK at 11.67) following higher-than-expected inflation figures (acceleration of CPI to +3.6% YoY, up from +2.9% YoY), curbing expectations of a rate cut by Norges Bank in March. The euro remained stable (+0.02% at 1.084 against the US dollar) after recording its best weekly performance in 16 years last week. The Japanese yen rebounded by 0.55% against the US dollar (the USD/JPY pulling back to 147.2) spurred by renewed risk aversion. The USD/CHF pulled back to 0.879, with the Swiss franc strengthening against the dollar to its highest level since early December. Turning to emerging currencies, the Latin American currencies corrected the most against the dollar, with the Chilean and Colombian pesos, for example, both underperforming the greenback by 1%, with the USD/CLP firming to 939 and the USD/COP to 4,176.
Commodities: oil prices tracked lower through Monday's session, with Brent closing 1.7% lower at $69.2/bbl. Prices tracked broader equity indices in a risk-off session triggered by continued concerns about the impact of US tariff policy on global growth. Prices had rallied on Friday as Trump stated he would consider tightening sanctions against Russia to push Moscow into ceasefire negotiations, although this was contradicted in reports late on Friday that the White House had asked the Treasury to explore options to quickly ease energy sanctions targeting Russia.
