Financial markets are facing renewed volatility as economic uncertainties and geopolitical tensions take their toll. European stocks took a hit on Monday, driven by mounting concerns that US President Donald Trump’s decision to impose tariffs on major trading partners and reduce the size of the Federal government could stifle growth.
On Sunday, President Trump addressed the economic situation, describing the US as undergoing a “period of transition”. This echoed comments from Treasury Secretary Scott Bessent, who on Friday acknowledged potential short-term disruptions. When asked whether a downturn could happen this year, Trump remained cautious:
“I hate to predict things like that. There is a period of transition, because what we're doing is very big — we're bringing wealth back to America. It takes a little time.”
However, traders remain wary, with many now betting on a potential US recession as the trade war deepens.
Recession Fears Intensify as Bond Yields Fall
The bond market has been increasingly pricing in the risk of a US recession. Yields on two-year Treasury bonds have fallen significantly since mid-February, as traders expect the Federal Reserve to lower interest rates to support the economy.
Meanwhile, Brent Crude (BZ=F) — a key indicator of global economic health — has also dipped again, trading around $70 per barrel. This decline reflects expectations of weaker energy demand as economic growth slows.
The volatility index (VIX), which tracks fear levels on Wall Street, hit its highest point since December last week. This spike suggests that the initial optimism following Donald Trump’s election victory has given way to caution as markets assess the potential economic fallout from his policies.
European Markets Under Pressure
London’s FTSE 100 (^FTSE) fell by 0.5% in afternoon trading, with mining companies and banks among the biggest losers. In Germany, the DAX (^GDAXI) dropped 1.3%, while France’s CAC (^FCHI) slid 0.5%. The pan-European STOXX 600 (^STOXX) also declined, down 0.9%.
US markets appeared poised for a negative start as well, with futures for the S&P 500 (ES=F), Dow (YM=F), and Nasdaq (NQ=F) all in the red amid unease over the potential economic effects of Trump’s tariff policies.
Currency and Stock Movements
While equity markets showed weakness, the pound made modest gains, climbing 0.1% against the US dollar (GBPUSD=X) to trade at 1.2931. Despite the broader economic concerns, currency traders appeared to favor sterling amid shifting sentiment.
In terms of stocks, several key names are on traders’ watchlists this week:
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TSMC: The chipmaker remains resilient amid global supply chain disruptions.
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Oracle: A strong performer, driven by ongoing digital transformation trends.
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Volkswagen: Potentially facing headwinds from economic policy changes.
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Inditex: Keeping a close eye on consumer demand shifts as the economic outlook evolves.
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Persimmon: The UK housebuilder’s performance could reflect broader confidence levels in the domestic market.
Key Events to Watch This Week
Staying ahead of market-moving events is crucial during periods of heightened uncertainty. Here’s what to watch in the days ahead:
USD/CNY (Chinese CPI)
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Event: Chinese CPI drops to -0.7%
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Date: Released
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Impact: Heightened concerns over a global economic slowdown, as the world’s second-largest economy shows signs of weakening demand.
USD (US JOLTS Job Openings)
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Event: Job Openings and Labor Turnover Survey (JOLTS)
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Date: Tuesday
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Impact: An important measure of labor market strength, indicating how many jobs remain unfilled. Lower numbers could fuel recession fears.
USD (US CPI and Fed Rate Projections)
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Event: Consumer Price Index (CPI) and Federal Reserve Rate Projections
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Date: Wednesday
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Impact: Inflation data and interest rate expectations could shape the Fed’s policy path. A higher CPI might pressure the Fed to maintain higher interest rates.
CAD (BoC Rate Decision and Press Conference)
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Event: Bank of Canada Rate Decision
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Date: Wednesday
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Impact: Any dovish tone could weigh on the CAD, while a more hawkish stance may boost it.
USD (US Unemployment Claims)
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Event: Weekly Unemployment Claims
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Date: Thursday
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Forecast: 226K
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Previous: 221K
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Impact: An increase could signal labor market weakness, fueling recession worries and potentially weakening the dollar.
GBP/USD (UK GDP and US Preliminary Consumer Sentiment)
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Event: UK GDP and Preliminary US Consumer Sentiment
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Date: Friday
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Impact: The UK GDP will shed light on economic resilience, while US consumer sentiment will gauge public confidence amid ongoing uncertainty.
As markets continue to react to shifting economic signals, traders should remain vigilant and prepared for sudden changes. Monitoring key data releases and understanding their potential impacts will be crucial to making informed trading decisions. Stay tuned for more updates as the week progresses.
