US equity futures are pointing to another day of staggering losses - even as they rise from session lows - as Trump doubled down on sweeping tariffs and as the world continues its flight to safety. 

S&P futures had plunged as much as 5.5% around the time Europe opened but the stock selling stampede abated as traders boosted expectations for Fed rate cuts amid economic fears just days ahead of Trump’s deadline for reciprocal tariffs to take effect. The rout accelerated late on Sunday after the president struck a defiant tone and repeatedly defended the tariff barrage unveiled last week. His remarks underscored those of his top economic officials, who on Sunday doubled down on Trump’s plan, dampening risk sentiment further. Some comments this morning by Jamie Dimon urging a quick resolution to the trade war, helped calm sentiment. As of 8:00am S&P futures are down -2.6% with Nasdaq futures dropping around 3.0% but there is zero liquidity so it's pretty much impossible to ascribe a snapshot to what is happening. The yield curve is bull steepening, with 5x rate cuts now fully priced in by YE25. USD is flat and commodities are being sold with Energy complex the biggest laggard, though oil is also well off session lows. The VIX is rising again, and is around 50, while oil falls below $60/barrel for the first time since April 2021 on fears that demand will collapse. Ten- and two-year Treasury yields are falling with traders pricing in five Fed cuts this year and a possible emergency move. This is a light macro data week with CPI on Thurs the highlight as earnings kick off later this week, although nobody will care about anything besides tariffs and trade war.

For a sense of how much panic there was around the European open, look no further than the VIX which briefly topped 60.

Pre-market, Tesla shares slumped in premarket trading after one of the stock’s biggest bulls — Wedbush analyst Daniel Ives — slashed his price target by more than 40%, citing Trump’s trade policies and a brand crisis created by Elon Musk. The rest of the Mag7/TMT are also underperforming so we may see traditional defensive play outperform today (Microsoft -1.3%, Meta -2.6%, Alphabet -2.1%, Apple -3.3%, Amazon -2.2%, Nvidia -3.4%, Tesla -5.7%). Here are some other movers:

US-listed Chinese stocks extend losses over the escalating trade war between the US and China. Alibaba (BABA) -6.4%, JD.com (JD) -6%.

Apple Inc. (AAPL) slips 3.3% as Wedbush cuts the price target to $250 from $325, citing the Trump administration’s tariff policies.

Dollar Tree (DLTR) inches higher, up about 1%, after Citi turned bullish, anticipating that the higher across-the-board tariffs will be positive for the discount retailer.

It wasn't just the US, the panic gripped the entire world. Here is a summary of notable moves around the globe:

The S&P 500 looks set to open around 4,945 points, just above the level of 4,915 that would mark a 20% drop from its Feb. 19 record.  

Japan’s Nikkei 225 Stock Average slid into a bear market. The Nikkei has fallen more than all other major Asian indexes this month as the yen’s strength threatens to erode the profits of exporters.   

A gauge of Chinese shares listed in Hong Kong tumbled 14%, putting it into a bear market. Hong Kong’s Hang Seng Index had its biggest drop since 1997, wiping out all of its gains for the year.

The yield on the US two-year bond, among the most sensitive to monetary policy, fell as much as 22 basis points to 3.43%. German bonds also rallied hard, sending the two-year bund yield as much as 20 basis points lower to just above 1.60%, the lowest since October 2022.

MSCI’s emerging-market stock index dropped 7.9%, erasing its gain for the year and notching its biggest intraday drop since 2008.

Brent crude fell by almost 4% to $63.01 a barrel, a four-year low, before paring losses, while West Texas Intermediate was near $60.

Cryptocurrencies, an asset class that Trump has been promoting, wiped out almost all their gains since his election win in November. Bitcoin tumbled below $75,000 for the first time since Nov. 7 before paring the drop.

Meanwhile, Trump is giving no sign of backing down on his trade war: "I don’t want anything to go down, but sometimes you have to take medicine to fix something," he said.

Today's repricing ‘reflects the fear sweeping global markets, with Trump showing little appetite to back down on aggressive trade tariffs. Wall Street billionaires Bill Ackman and Stanley Druckenmiller slammed Trump’s decision to launch expansive global tariffs, and JPMorgan CEO Jamie Dimon urged a quick resolution. EvenTrump chimed in just before 7am on Truth Social writing "Oil prices are down, interest rates are down (the slow moving Fed should cut rates!), food prices are down, there is NO INFLATION, and the long time abused USA is bringing in Billions of Dollars a week from the abusing countries on Tariffs that are already in place." Trump isolated China, slamming them for retaliating to reciprocal tariffs and said "they’ve made enough, for decades, taking advantage of the Good OL’ USA! Our past “leaders” are to blame for allowing this, and so much else, to happen to our Country. MAKE AMERICA GREAT AGAIN!"

Meanwhile, S&P 500 Index targets are getting slashed on Wall Street while Fed rate cut bets are rising. UBS strategists say “stagflation on steroids” is possible. Other strategists are also ripping up their previous forecasts as the meltdown continues. Oppenheimer’s John Stoltzfus cut his year-end S&P 500 target to 5,950 points from 7,100, while Morgan Stanley’s Michael Wilson warned the benchmark could sink another 7%-8% if the Trump administration stays firm on levies. Goldman Sachs strategists warned that a recession is not yet priced in.

The magnitude of moves across equities, rates, and many commodities is resulting in hedge funds being hit with some of their largest margin calls since the Covid pandemic. The good news is that this forced de-risking may be near completion, which could offer US stocks the chance for a rebound in the American session when cash trading gets going.

"Are we there yet?" asked Jonathan Krinsky at BTIG. “Many metrics are at panic levels associated with meaningful bottoms over the past 40 years. The issue is when you get into the capitulation zone, markets often move beyond what many think is likely or possible."

To Matt Maley at Miller Tabak, the tariff issue is far from the only one that has caused this decline, so those looking for a V-shaped recovery in the stock market will likely be very disappointed. “We should see a strong bounce at some point soon, but the process of repricing the market to its realistic economic outlook will take time,” Maley said. “There will be plenty of time to get aggressive when it becomes more evident that the worst of the decline is behind us.”

HSBC strategist Max Kettner is making the case for a “very short-term bounce” in stock markets, with the Magnificent Seven possibly benefiting the most. However, any rebound will only set the stage for another leg lower, he warns. To Morgan Stanley’s Michael Wilson, investors should be prepared for the S&P 500 to drop further if tariff angst doesn’t subside.

BNP strategist Stephan Kemper said "people’s hopes for getting some positive signs on the tariff front during the weekend have been clearly disappointed. Thus, it starts to feel as if the market is getting into a ‘sell now, ask questions later’ kind of mood."

Europe's Stoxx 600 plunged 5%, earlier touching the lowest since December 2023 as EU trade ministers meet in Luxembourg to discuss their response. Energy and defense stocks are among the biggest drags, while telecommunications and health care shares are top outperformers. Shell plunged 8.4%, touching the lowest in two years, after the oil major forecasts lower natural gas production and LNG volumes in the first quarter of 2025 than previously expected, citing unplanned maintenance in Australia and adverse weather. European defense stocks, one of this year’s best-performing groups, also slump amid a broad market rout. Some of the biggest movers include: Rheinmetall falls 5.8%, Hensoldt drops 7.1%, Rolls-Royce falls  4.9%, while Thyssenkrupp slumps 7.6%. Here are the biggest movers Monday:

Volex shares rise as much as 12%, rebounding after ending last week at their lowest level since 2020, as the connectivity and power product specialist said growth and profit for the year to the end of March was ahead of market expectations

European defense stocks, one of this year’s best-performing groups, slump amid a broad market rout. Meanwhile, Reuters reports that US firm Howmet Aerospace told customers it has declared a force majeure event in the wake of the tariffs announced by Trump

UK homebuilders are trading lower on Monday after house prices fell in March and the shares got swept up in a broader tariff-driven selloff

Germany’s DAX Index falls as much as 10%, most since March 2020, as Rheinmetall tumbled by a record 27%

While the US is in pain, nothing compares to what Asia went through, and especially China which was closed on Friday and which saw record drops across several of its indexes this morning. As Goldman trader Sean Navin writes, flows were - obviously - all to sell, and the bank was "very busy across the franchise as we saw notional on the pad vs. the 4 week average in China+10%, in Japan+38%, in Korea+75%, and in Hong Kong  +115%. We were net to sell across the region with the heaviest skews in China >3X Better to sell, Korea 2.5X Better to sell and Japan 1.63 X better to sell." 

Some more details:

We had LO and HF’s active today across the pad but it is worth noting that we saw relatively more LO money active in Japan and Korea as those markets are now in day 3 of the recent unwind. Markets such as HK, China and Taiwan (Which were closed at times of last week) still seemed to be driven more by HF money which is in the earlier stages of digesting the recent tariff headlines. Although we saw historical price moves in almost all markets in Asia, the flow was orderly and there was no panic in our engagement. We saw above average selling in Industrials, Materials, Financials and Discretionary; buyers of Communication Services. In addition, although we were active trading in SPYs earlier in the session, there were no risk/bid wanted situations

China

Several indices suffered single-day loss records today including ChiNext / CSI 500 / CSI 1000 / CSI 2000 (details in below table). Besides the record single day loss, local press reported that National Team is active the market today as large cap ETFs trading volume rose significantly today: CSI 300 trading volume grew to over 52bn Rmb today while daily avg in past few weeks was only 6bn Rmb. On sector wise, almost all sectors closed below water with Exporters / TMT taking the most impact, Agribusiness and certain pharma makers closed a few bps above water.

Hong Kong (HSI -13.22%)  

This marked the second worst day in HSI price action in history (outside of 1987). In recent memory, the only day that had a worse impact on the HSI was October 27, 2008 when the index closed down 12.7%. Every single thematic sector closed in the red today with export / US exposed names bearing the brunt of the sell pressure. Leading the index lower were Chinese Exporters -19.94%, China Bio -18.14%, HK Tech -17.46% and China Data -16.32%. This was the worst day in HSTech history as the sector closed down vs. the previous 17.6% decline witnessed on October 8th of last year. The most outperforming sectors if you can call them that were Chinese domestic focused Banks -6.32%, Liquor names -6.27% and SOEs -6.60%. The move lower in the index could not be contained today even by SB investors who have been the buyers of last resort for the better part of 2-3 years. SB investors net bought +$2 bn.  

Taiwan (TWSE -9.72%):  

According to BBG data, today’s TWSE -9.72% move is the biggest percent drop ever; the second largest was August 5th 2024, -8.35% (on the back of NVIDIA GB200 delay reports driving NVIDIA -26% session prior); and the third being -8.01% on 5/1/1976. The day finished with just 4 stocks trading above limit up on the day. Amongst major sector groups, communications generally performed the best, being led up by telecoms (Taiwan Mobile 3045.TT, -3.9%; Far Eastone, 4904.TT, -5.2%; Chunghwa Telecom, 2412.TT, -5.8%).  TSMC closed the day -10.0% and also had its biggest drop ever, the second largest also being 8/5/24 with a 9.8% drop, while the third largest drop was October 11 2022, -8.3%, following increased reports at the time of further export restrictions on chips. Lastly, TWSE turnover came in @ ~147bn TWD which was the lowest since December 2022 (the driver today of course being order that could not get filled at limit down). 

Korea (KOSPI -5.57%)  

KOSPI closed down -5.6%, marking its largest one-day drop since Aug 5, 2024 (-8.8%). Foreigners net sold -$1.5bn today, which was the largest one-day selling since Aug 13, 2021. Foreigners net sold more than $1bn every day for 3 consecutive sessions since last Thursday (Apr 3), totaling net selling of -$3.7bn. This was the largest 3-day selling spree since May 11-13, 2021 when foreigners net sold more than $1bn every day & total net selling was -$4.2bn. Turnover was -2% vs YTD average.  VKOSPI surged +56% reaching its highest level since Aug 6, 2024. GS PAD: Korea pad was 3.5x better to sell with LOs more active. That said, we didn't see much panic selling flows on our pad.

Japan (NKY -7.83%)  

NKY-783bps, TPX-779bps. NKY has officially entered bear market(-20% from recent peak) while TPX still has 129bps buffer. Both NKY and TPX futures hit circuit breaker in the morning, for the first time since Aug 2024. From a thematic perspective, Semis, AI and higher rate sensitive names were the worst performers while domestic consumption, strong yen beneficiaries and low beta were relatively strong. All TSE 33 sectors ended with more than -4.5% drop with clear shifting from cyclicals to defensives. No surprise in underperformance of bank sectors again after seeing 37bps drop in JGB 10y yield over the past 4 working days.

In FX, the Bloomberg Dollar Spot Index reverses an earlier loss and adds 0.2%; the Swiss franc outperforms G-10 currencies on haven demand, rising 1% against the greenback. The Japanese yen is close behind with a 0.3% gain.

In rates, treasuries rally, led by shorter-dated maturities as traders ramp up their bets on Federal Reserve interest-rate cuts this year, nearly pricing in five quarter-point reductions earlier. US 10-year yields reverse all overnight gains (having dropped as low as 3.86%), as yields rise briefly above 4.0% before settling around 3.98% amid speculation foreign nations are selling US paper. Markets also see more easing from the ECB and Bank of England which has underpinned gains in European government bonds, led by German debt. 

In commodities, US crude futures fall another 4% to a four-year low near $59.60 a barrel. Spot gold is shockingly unchanged to trade around $3,035/oz. Bitcoin tumbles 3% to the lowest since November.

US economic calendar includes February consumer credit at 3pm; March CPI and PPI are ahead this week. Fed speaker slate includes Kugler at 10:30am. Daly, Barkin, Logan, Schmid, Goolsbee, Harker, Musalem and Williams speak later this week

Market Snapshot

S&P 500 down -2.0%

Nasdaq 100 mini -3.0%

Russell 2000 mini -4.0%

Stoxx Europe 600 -5.9%

DAX -6.4%, CAC 40 -6%

10-year Treasury yield -4 basis points at 3.96%

VIX +8.9 points at 54.2

Bloomberg Dollar Index -0.2% at 1262.64, 

euro flat at $1.0949

WTI crude -3.4% at $59.88/barrel

Top Overnight News

The carnage in financial markets unleashed by President Donald Trump’s tariffs is continuing unabated as equities get pummeled and US stock futures show that last week’s $5 trillion wipeout isn’t over.

China’s policymakers discussed measures over the weekend to stabilize the economy and the markets in the face of US President Donald Trump’s tariff onslaught, including whether to accelerate plans to unleash stimulus to bolster consumption, according to people familiar with the matter.

Japan’s nominal wages rose more than expected in a positive sign for the domestic economy just as external headwinds related to trade are clouding the outlook.

Shell-shocked investors are piling into US Treasuries on concern that Donald Trump’s trade war will trigger a worldwide recession — ignoring for now, at least, the risk that the same punitive tariffs may unleash another bout of inflation.

Bill Ackman and Stanley Druckenmiller slammed President Donald Trump’s decision to launch expansive global tariffs, which have plunged markets into chaos.

Tariffs/Trade

US Treasury Secretary Bessent sees no reason to anticipate a recession based on Trump tariffs and downplayed the stock market drop which he said was a short-term reaction: NBC

US Senate passed the budget blueprint for US President Trump’s tax cuts and border agenda, sending the measure to the House.

JP Morgan now expects real US GDP to contract under the weight of the tariffs, and for the full year (4Q/4Q), JPM now looks for real GDP growth of -0.3%, down from 1.3% previously. The recession in economic activity is projected to push the unemployment rate up to 5.3%.

Goldman Sachs expects the Federal Reserve to begin a series of interest rate cuts in June (previously, it saw cuts in July, September, November). Under its base case, which assumes the US avoids a recession, GS now sees the Fed delivering three consecutive 25bps cuts, bringing the federal funds rate down to a range of 3.5-3.75%. GS also lifted its probability of a US recession to 45% from 35%

US President Trump said China has been hit much harder than the US and that it is not even close, while he told Americans to ‘hang tough’ and it won’t be easy, but the end result will be historic. Trump separately commented that unless they solve the trade deficit with China, he is not making a deal, while he noted the Chinese trade surplus is unsustainable and he was not intentionally engineering a market selloff. Furthermore, he said he has spoken to European and Asian leaders on tariffs.

US President Trump posted on Truth "We have massive Financial Deficits with China, the European Union, and many others. The only way this problem can be cured is with TARIFFS, which are now bringing Tens of Billions of Dollars into the U.S.A. They are already in effect, and a beautiful thing to behold. The Surplus with these Countries has grown during the “Presidency” of Sleepy Joe Biden. We are going to reverse it, and reverse it QUICKLY. Some day people will realize that Tariffs, for the United States of America, are a very beautiful thing!"

US Commerce Secretary Lutnick said there is no postponing tariffs and April 9th tariffs are coming, while he stated tariffs are going to stay in place for days and weeks, according to CBS News.

US NEC Director Hassett said he would expect that job numbers are going to go up back and forth now that tariffs are in place, while he added that more than 50 countries have reached out to the White House to begin trade negotiations. Hassett also stated that President Trump decided not to apply tariffs to Russia due to continuing negotiations over the war in Ukraine, according to ABC News.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks resumed last week's heavy selling as the trade war and growth concerns continued to unhinge investor sentiment, while Chinese markets slumped as the broad selling pressure rolled over into Greater China following the extended weekend and Beijing's tariff retaliation. ASX 200 declined heavily amid notable losses across all sectors with energy and mining stocks the worst hit owing to demand and growth-related concerns. Nikkei 225 slumped after futures triggered circuit breakers heading into the Tokyo open although the index was slightly off today's worst levels amid currency moves. Hang Seng and Shanghai Comp were hit on return from the long weekend with the former suffering double-digit losses as participants reacted to Beijing's retaliation against Trump's reciprocal tariffs in which China announced to impose tariffs of 34% on all US goods from April 10th.

Top Asian News

Central Huijin, a Chinese Sovereign Fund, has added to ETF holdings and vows to increase them, via Bloomberg citing a statement.

Japan's Keidanren Chair says they need to examine if reducing rates could be effective with real interest rates remaining still far from neutral.

Taiwan’s financial regulator announced limits on the number of short-selling of stocks and will raise the minimum short-selling margin ratio to 130% from 90%.

BoJ Osaka branch manager says they must scrutinise the impact of each nation's trade policy, and impact on the global economy a well as markets. Firms int he region plan solid wage hikes, proceeding with cost pass-through, hard to say how tariffs impact.

Japanese PM Ishiba is to speak with US President Trump today at approximately 13:00BST/08:00ET.

European bourses (STOXX 600 -5.8%) are entirely in the red as risk sentiment continues to get hammered, with focus still on Trump’s tariffs, China’s retaliatory measures and the associated economic growth woes. Indices have  managed to improve a touch off worst levels, but still remain firmly in negative territory. European sectors are entirely in the red, in-fitting with the broader risk tone; as it stands, every sector is lower by more than 4%. Tech is unsurprisingly the laggard today, given the risk tone; Industrials, Energy and Consumer Products follow closely behind.

Top European News

French PM Bayrou warned that Trump tariffs could cut France’s GDP growth by 0.5 percentage points.

German Chancellor-in-waiting Merz’s key ally voiced optimism regarding talks with the SPD on forming the next government.

ECB’s Schnabel said some people had the view that ‘Liberation Day” could be the day of peak uncertainty although she is not entirely sure that is the case and noted that they face a dramatic surge in uncertainty.

ECB's Stournaras said Trump tariffs risk large Euro-area demand shock and warned the looming global trade war was likely to weigh heavily on Europe's economic growth, while he added the negative impact on Euro-area growth could be anything between 0.5 and 1ppt, according to FT.

FX

USD is net softer vs. the majors but showing a mixed performance vs. peers (weaker vs. havens but stronger vs. activity currencies). Trump's tariff agenda very much remains the key driving force in the market with the President not looking to back down from the measures announced last week. Agenda today is relatively light aside from US Employment Trends and some appearances from US President Trump. DXY has picked up in recent trade and is towards the top end of Friday's 101.54-103.18 range.

EUR is firmer vs. the broadly softer USD and remains underpinned despite the current risk environment. ING attributes the support to the EUR's "role as a liquid alternative to the dollar and the fact that the euro runs a 3% current account surplus". However, the open and trade-focused nature of the Eurozone economy clearly remains a risk. EUR/USD has ventured as high as 1.1050 but failed to sustain a move above the 1.10 mark.

JPY is firmer vs. the USD and one of the best performers across the G10 complex. Support for JPY has been provided by the risk-aversion across the market with Japanese stocks hit particularly hard overnight (Nikkei 225 -7.7%). Elsewhere, commentary out of Japan has seen PM Ishiba is to speak with President Trump at 08:00ET, whilst Kyodo News reported that the PM is reportedly instructing the compilation of an extra budget as soon as this month. Furthermore, the Japanese business lobby chair has stated that it needs to be examined whether reducing rates could be effective with real interest rates remaining still far from neutral.

GBP is steady vs. the broadly softer USD with UK-specific newsflow on the light side aside from weekend calls between PM Starmer are other world leaders over the trade situation.

Antipodeans are both softer vs. the USD and at the bottom of the G10 leaderboard alongside the risk-off price action in the market. AUD/USD has extended on the downside seen on Friday in the wake of China's retaliation to the US tariff measures, which sank the pair to its lowest level since April 2020. AUD has been unable to materially benefit from a Bloomberg report that China is considering frontloading stimulus in order to counter the tariff hit.

Fixed Income

USTs are firmer, at best have been above the 114-00 handle to a 114-10 peak, a high that printed just after the re-opening of trade when the selling in Asia was at its most pronounced and saw the Nikkei 225 hit circuit breakers. The main development this morning came from China, with reports via Bloomberg sources that they are considering frontloading stimulus. An update which prompted a bit of a pullback from highs for fixed, though only modest at the time. Thereafter, as the risk tone came off worst levels, USTs pulled back to a 113-12+ low. Though, still firmer on the session with the 10yr yield still just below 4%; Friday’s base was 3.86%.

Bunds are in-fitting with USTs, notched a 132.02 peak around the European cash equity open when sentiment for the morning was at its worst. Since, as the tone improves, a pullback has occurred with Bunds down to 131.35 though still markedly clear of Friday’s close. Markets are still awaiting the EU's response; the Industrial Commissioner Sejourne reaffirmed that the EU response to the US will be united and proportionate, Sejourne also indicated that we should hear the response in the next few days. The 132.02 high in Bunds is just a tick shy of the peak from the week of Germany’s fiscal reform and is a significant bounce from the 126.53 low that printed in the days after. EZ Sentix Index printed below the forecast range and at its lowest since October 2023 - no impact on German paper.

Gilts are in-fitting with the above, opened higher by 69 ticks and then extended further to a 94.50 peak before pulling back from best in-fitting with EGBs and USTs. However, the pullback has been more pronounced with Gilts slipping into the red.

JGBs opened higher given the risk tone and continued to climb to a 142.61 peak with the odds of tightening by the BoJ trimmed further with just 5bps of tightening implied for the remainder of 2025.

Commodities

Crude is on the backfoot continuing last week's hefty downside as Trump's tariff woes continues to weigh on sentiment; further fuelling downside is Saudi Arabia cutting its oil prices to Asia to their lowest in four months. Price action in the European morning has been fairly rangebound, given the lack of recent energy-specific updates and despite a slight pick up in risk tone across markets.

WTI and Brent lower by in excess of 4% at worst, but as the tone improves from lows this has moderated to downside of just over 3%.

Spot gold remains subdued, but is off overnight lows which saw the yellow-metal slip below the USD 3k mark to a USD 2,970/oz low. Trade throughout the European morning has been fairly lacklustre; currently trading around USD 3035/oz in a USD 2,972.94-3,055.22/oz range.

Base metals are broadly lower given the risk tone; 3M LME Copper is incrementally lower/flat and currently trades in a USD 8,153.85-9,074.25/oz range.

OPEC+ JMMC meeting made no changes to oil output policy and stressed the need to ensure full compliance.

Saudi Arabia cut oil prices to Asia to their lowest in four months with May Arab Light Crude set at a premium of USD 1.20/bbl vs Oman/Dubai, while it set May Arab Light Crude official selling price NW Europe at + USD 2.55/bbl vs ICE Brent and to US at + USD 3.60/bbl vs ASCI

Qatar set May marine crude OSP at a premium of USD 0.60/bbl vs Oman/Dubai and set land crude at a premium of USD 0.50/bbl vs Oman/Dubai.

Chile’s government plans to cut the 2025 estimated average price of copper to USD 3.90-4.00/lb from the current USD 4.25/lb projection. It was also reported that the Chilean Mining Minister said copper could reach a technical support price at USD 3.90/lb amid uncertainty.

US is reportedly closing in on a critical mineral deal with the Democratic Republic of the Congo.

Morgan Stanley cuts its Brent forecast to USD 65/bbl (prev. 70/bbl) for Q2.

Citi has cut its 0-3 month Brent forecast to USD 60/bbl.

Citi has cut its 0-3 month copper and aluminium forecasts to USD 8k/tonne and USD 2.2k/tonne respectively.

Geopolitics: Middle East

Israel and UAE foreign ministers met in Abu Dhabi and discussed efforts to achieve a ceasefire in Gaza and secure the release of hostages.

White House official said Israeli PM Netanyahu is visiting Washington on Monday.

Geopolitics: Ukraine

Ukraine's team will reportedly travel to the US this week to discuss the minerals deal, via Reuters citing a Ukrainian source

Russia reportedly launched its biggest attack on Kyiv in weeks. It was separately reported that Russian troops were pushing into Ukraine’s Sumy region and troops captured Basivka in Eastern Ukraine. Furthermore, Russia's Defence Ministry said Ukraine attacked Russian energy infrastructure.

Poland scrambled an aircraft to ensure airspace security after Russia launched strikes over Ukraine.

Russian court cut the sentence of a jailed US soldier to three years and two months from nearly four years, according to RIA.

Geopolitics: Other

G7 Foreign Ministers expressed deep concern about China’s provocative actions, particularly recent large military drills around Taiwan.

US Event Calendar

3:00 pm: Feb Consumer Credit, est. 15b, prior 18.08b

DB's Jim Reid concludes the overnight wrap

As we go to press this morning, markets are still reeling from the announcement of US reciprocal tariffs last Wednesday, which has seen investors price in a growing probability of a US recession. In fact, S&P 500 futures are currently down another -3.55% overnight, which if realised would see the index fall into bear market territory today, down more than -20% from its closing peak in mid-February. In light of these seismic developments, Jim has just published a note with our economists overnight called “The cause and the aftermath of Liberation Day” (link here). The report runs through various factors to consider over the days ahead, the main one being whether the US administration tries to find an off-ramp from the tariffs, potentially moving to negotiations, or whether they double down. This is crucial as it will impact not just trade, but the whole geopolitical relationship between the US and the rest of the world.

As it stands, all the rhetoric so far from the administration has shown no sign of backing down. For instance, Trump said on Air Force One yesterday, “Forget markets for a second — we have all the advantages”, and he also said that “I don’t want anything to go down, but sometimes you have to take medicine to fix something”. Meanwhile on Saturday, the 10% baseline tariffs came into effect, and those tariffs are set to escalate this week, because on Wednesday we’ll then see the higher reciprocal tariffs imposed on top of that 10% baseline. Then on Thursday, China will be imposing the 34% retaliatory tariffs they announced on Friday. That retaliation from China sparked a fresh wave of selling pressure at the end of last week, with futures on the S&P 500 moving sharply lower at that point, before the index fell to its worst-daily performance (-5.97%) since March 2020, at the height of the initial pandemic wave.

In terms of where things are this morning, the major equity indices in Asia are all sharply lower. That includes the Nikkei (-6.69%), which is on course for its worst daily performance since the turmoil last summer, whilst the Hang Seng is down -10.70% as it reopened after Friday’s holiday, which would be its worst daily performance since October 2008. Over in South Korea, the KOSPI is also down -5.05%, and Australia’s S&P/ASX 200 is down -4.38%. When it comes to other asset classes, investors have continued to move into sovereign bonds, with the 2yr Treasury yield plummeting another -14.8bps to 3.50%, whilst the 10yr yield is down -6.7bps to 3.93%. Oil prices have lost further ground as well, with Brent crude (-2.65%) down to $63.84/bbl, which would be its lowest closing level in almost four years. So as we go to press, there’s no sign yet that markets are finding a bottom and beginning to stabilise.

Those overnight movements follow an incredibly aggressive selloff last week. In fact, over Thursday and Friday, the S&P 500 fell by a massive -10.53% in total, making it the 5th-worst two-day performance since WWII. Indeed, the only other times we’ve seen a double-digit loss over two sessions were during Covid-19, the height of the GFC, and Black Monday 1987. And if you want to look at the scale of these moves in chart form, I published a note this morning (link here) with 10 charts on how last week’s selloff compares to other periods in history. In a particularly notable turnaround, Europe’s STOXX 600 is even negative on a YTD basis now, moving into technical correction territory with the moves on Friday.
The selloff now leaves the S&P 500 down -17.4% relative to its peak on February 19 (just over 6 weeks ago). And as mentioned at the top, if the index moves in line with futures this morning, that would leave it down more than -20% relative to its peak, putting it into bear market territory for the first time since 2022. So the scale of the selloff is now coming into line with some of the most aggressive drawdowns of the last decade. For instance, the current moves would be roughly around the level of the late-2018 selloff, when a growth slowdown and trade tensions saw the S&P 500 fall -19.8% peak-to-trough. But so far at least, it’s not quite reached the levels of the 2022 selloff, when the Fed’s rate hikes and recession fears led to a -25.4% drawdown over the course of the year. Meanwhile, the biggest drawdown of the last decade came with the pandemic, when the S&P 500 fell -33.9% in just over a month (marking the quickest decline for the index since the Great Depression).

Looking to the week ahead, tariffs are clearly set to dominate the agenda, but the big question is also how other countries might retaliate. That’s something markets are watching for closely, as it was China’s retaliation that led to the fresh selloff on Friday. Moreover, if other countries retaliate, then that also raises the risk that the US might raise tariffs even further, which is something they’ve warned about. So any signs of an escalatory spiral would pose an obvious downside risk over the coming days. On the other hand, if we begin to see signs of negotiations emerging, or an openness to the tariffs coming down over time, then that would start to open upside risks relative to the existing baseline. For a big-picture perspective on tariffs, Peter Sidorov published a note on Friday (link here) looking at how the tariffs compare historically, as well as the implications for fiscal policy, supply chains and capital flows.

Of course, one of the main consequences of the tariffs will be inflation, which is an issue that will also remain in focus this week. Last week saw a big jump in inflation expectations, with the US 1yr inflation swap up +22.6bps to 3.39%. And this week, we’ve got the US CPI release coming out for March, which should show some of the initial tariff impacts from February, given that higher tariffs came into place on China. So one to keep an eye on. Our US economists expect headline CPI to come in at +0.13%, taking the year-on-year measure down to +2.6%. And they see core CPI at a stronger +0.26% on the month, taking the year-on-year rate down to +3.0%. On Friday, we’ll also get the University of Michigan’s preliminary consumer sentiment index for April, where the inflation print will be closely followed. Last month the long-term inflation expectations measure jumped up to +4.1%, the highest since 1993, so all eyes will be on that for signs of expectations become unanchored.

Doing our usual recap of last week, as you’ll be aware President Trump on April 2 announced a baseline tariff of 10% on imports from all countries, along with reciprocal tariffs ranging from 10-50%. That featured a 20% tariff imposed on EU and a 34% tariff on China (on top of an earlier 20%). Following Trump’s announcement, risk assets saw their worst two-day run since the Covid shock, with the S&P 500 down -4.84% in Thursday, followed by an even larger -5.97% slump on Friday. Outside the US, many European indices slid into correction territory on Friday, with the STOXX 600 (-5.70%), DAX (-4.95%) and FTSE MIB (-6.53%) all down sharply the close. European bond yields also fell lower across the board, with those on 10yr bunds (-7.7bps) and OATs (-4.6bps) moving lower.

Cyclical and internationally-exposed stocks saw the worst decline, with the S&P 500 Banks index down over -15% in two days. Friday’s other notable moves included a sharp spike in the VIX (+15.29pts to 45.31) to its highest closing level since April 2020. Credit markets suffered too, with US HY spreads seeing their biggest 2-day widening since the Covid-19 pandemic (+93bps over Thursday and Friday). Otherwise, Brent crude oil prices fell to their lowest since August 2021, at $65.58/bbl.

It feels like ancient history now, but the US payrolls data on Friday was better than expected, with payrolls up +228k in March (vs. +140k expected). So that continues the pattern (so far at least) where the hard data has held up a lot better than the surveys, which have pointed in a more negative direction. The unemployment rate did tick up a tenth to 4.2%, but at the second decimal place it only went from 4.14% to 4.15%, so there was little change there either. 

After the release, we heard from Fed Chair Powell, who sounded more concerned about inflation than before. He warned that the tariffs were “significantly larger than expected”, and that the Fed had an “obligation” to keep long-term inflation expectations anchored. The comments meant Treasury yields pared back their declines, with the 10yr yield only closing -3.3bps lower on Friday at 4.00%, having fallen as low as 3.86% intraday. Nevertheless, the overall risk-off tone meant markets priced in more Fed rate cuts, with 99.9bps of cuts now priced in by the December meeting, up +26.7bps on the week.

Source link