Futures are lower, tracking European and Asian markets, with the dollar plunging on mounting recession fears, as the Trump trade war officially started at midnight, although according to JPMorgan it could be even worse and the "downward reaction is muted given the significant, expected impact on the economy and earnings expectations." At the same time, Canada, China, and Mexico are rolling out their retaliatory measures. As of 8:00am ET, S&P futures are down 0.5%, and near session lows, while Nasdaq futures drop 0.6%, with Mag7 names sliding premarket and NVDA tumbling another 2.4% after plunging 8.7% on Monday. Investors will also be waiting to see what Trump says in his State of the Union speech tonight (some see it as a final hope for an off-ramp). Bond yields are mixed as the curve twists steeper and USD plunges amid rising fears the tariffs will accelerate a recession. Commodities are weaker with precious outperforming while energy stocks underperform as oil prices fall further after OPEC+ announced plans to revive halted production. WTI declines 0.8% to $67.80 a barrel, the lowest since December. There are no major macro data releases today and the Fed’s Williams speaks ~2.20pm EST; Trump's State of the Union address is at 9:00pm ET.
In premarket trading, Tesla is leading premarket losses among the Magnificent Seven stocks on Tuesday. Meanwhile, shares in Nvidia whipsaw a day after a selloff in the chipmaker wiped out almost $265 billion in market value, and extend their losses down another 2%. Walgreens Boots Alliance shares rise 6.1% after Bloomberg reported that Sycamore Partners is nearing an acquisition of the drugstore operator. Here are some other notable premarket movers:
At midnight, a raft of new tariffs and countertariffs kicked in (full break down in the subsequent post), which mark Trump’s biggest push to remake global trade, and investors will be watching his address to Congress Tuesday for hints on future steps. Canada announced a sweeping package of tariffs in response and China retaliated by imposing tariffs as high as 15% on some US exports.
There's more: Trump also said Monday that the US would impose tariffs on “external” agricultural products starting on April 2, adding another layer of threats to impose trade barriers on imported goods. He didn’t detail which products would be affected, or if there would be any exceptions. Trump also ordered a pause to all military aid to Ukraine, turning up the heat on Volodymyr Zelenskiy just days after an Oval Office blowup with the Ukrainian president left the support of his country’s most important ally in doubt.
“We need to know exactly what the US plan is towards European tariffs,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International. “It’s likely to be different from Canadian and Mexican tariffs, because the interrelationships are different. It’s a big unknown for European equity outperformance to continue.”
Stocks in Europe retreated on concern the region could be next to face US tariffs after President Donald Trump imposed levies on Mexico, Canada and China. Europe’s Stoxx 600 index slumped 1.2%, weighed down by automakers and energy stocks, after closing at a record in the previous session. European defense stocks bucked the broader slump amid expectations of increased military spending in the region. A basket of European defense stocks hit a record high as Thales SA jumped 8% after its results beat expectations, while Hensoldt AG rallied as much as 18%. Here are some of the biggest movers on Tuesday:
In FX, the Bloomberg Dollar Spot Index fell for a second day. Haven assets outperform with the Swiss franc at the top of the G-10 FX leaderboard, rising 0.6% against the greenback. The yen is not far behind with a 0.5% gain. The euro rose as much as 0.3% to its highest level since Feb. 26 as the European Union proposed extending €150 billion ($158 billion) in loans to boost defense spending. Elsewhere, the Mexican peso weakened 0.9% against the greenback, while the Canadian dollar was slightly stronger after retreating for seven straight sessions.
In rates, treasuries are mixed with the curve steeper as US trading day begins, off session lows reached during Asia session as US tariffs on imports from Canada, Mexico and China drew reprisals. US front-end yields are richer by nearly 5bp near session lows with long-end yields slightly higher on the day, steepening 2s10 and 5s30s curves by ~4bp; 10-year around 4.14% is lower by 1bp, trailing yield declines of 2bp and 5bp for German and UK counterparts. Traders fully priced in three 25bp Fed rate cuts this year. US 5s30s spread touched widest level since Oct. 4, paced by German 5s30s reaching steepest level in more than two years amid steep declines for European stocks. Gilts lead a rally in European government bonds, with UK 10-year yields falling 5 bps to 4.51%.
In commodities, spot gold climbs $30 to around $2,920/oz. Bitcoin falls 2% to below $84,000.
Today's economic data calendar is blank, while Fed speaker slate includes New York Fed’s Williams at 2:20pm
Market Snapshot
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Tariffs
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were pressured following the sell-off on Wall St where the S&P suffered its worst day of the year so far amid tech selling, weak ISM data and tariff confirmation. ASX 200 declined with nearly all sectors in the red and underperformance in energy after the recent drop in oil prices, while mixed data releases provided little to spur risk appetite. Nikkei 225 briefly retreated to beneath the 37,000 level amid the early broad risk-off mood and recent currency strength with Seven & I Holdings the worst hit after reports it is to reject Couche-Tard’s buyout proposal. Hang Seng and Shanghai Comp were initially pressured after US President Trump signed an order to raise tariffs on China to 20% from 10% and threatened to penalise countries weakening currencies with China also mentioned when talking about weak currencies, while China's MOFCOM later responded that China will take countermeasures to firmly safeguard its rights and interests in response to US tariffs. Nonetheless, the downside in the mainland was limited as China’s annual “Two sessions” gathering began in Beijing with participants anticipating China to outline stimulus plans, while confirmation of the tariffs and China's immediate retaliation did little to derail the resilience in the mainland.
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European bourses (STOXX 600 -0.9%) opened in the red and have continued to trundle lower, as markets digest the latest tinderbox of uncertainty, which include; Trump tariff updates, the US stock market rout and increased EU defence spending. European sectors hold a strong negative bias, with most of the cyclical industries populating the bottom of the pile, given the risk tone. Food Beverage and Tobacco is buoyed by post-earning upside in Lindt (+5.3%). Energy and Autos are by far the clear underperformers in today’s session. The former hit by the sink in oil prices (OPEC+ confirmed oil hike) and Autos hampered on Trump tariff fears.
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FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
US Event Calendar
DB's Jim Reid concludes the overnight wrap
As I've said a few times over the last 2-3 weeks it feels like decades are happening over days. Ever since the Munich Security Conference in mid February a light switch flicked in European capitals and this has been turbo charged by events since the German election. A big prize to the person who entered 2025 short Nvidia (-15.1% YTD) and long German defence firm Rheinmetall (+86% YTD). You would have returned just over 100% so far in only two months. Even with tech slumping and defence surging, in the background the US administration is continuing to cause even more global upheaval and overnight by far the broadest set of tariffs yet has come into effect.
The 25% tariffs on Mexico and Canada that had been delayed a month ago took effect in the last couple of hours, with a lower 10% rate on Canadian energy. US imports from the two countries totalled over $900bn in 2024. And additional tariffs on China have been doubled to 20%, with Trump yesterday signing an executive order confirming the move he had signaled last week. There is still some market doubt as to whether all these tariffs will persist for a prolonged period of time. For instance, the Canadian dollar is trading at around 1.45 to the US dollar, well below the nearly 1.48 peak we saw when Trump first announced the 25% tariffs in early February. But we are clearly into unprecedented territory.
In response to the new US tariffs, the Canadian government has announced a retaliatory package that includes 25% tariffs on about 30bn Canadian dollars of US exports, with a second round of tariffs on 125bn of goods due in three weeks. Canada is also considering non-tariff measures, while Ontario’s premier yesterday said that he would pause nickel shipments to the US. On China’s side, its Commerce department announced countermeasures including tariffs of up to 15% on US goods including chicken, soybeans and cotton. These countermeasures are still hitting the wire as I type but Asian markets are relieved they haven't gone further so far.
Risk assets took a sharp turn lower during the US session yesterday (after a soft early session on weak data) as prospects of another late-hour delay to the tariffs dwindled, most notably with Trump telling reporters that there was “No room left for Mexico or for Canada”. The S&P 500 (-1.76%) fell from being near flat around lunchtime to post its worst day of 2025 so far. Both the small cap Russell 2000 (-2.81%) and the tech heavy NASDAQ (-2.64%) underperformed, while the Mag-7 (-3.09%) is now down more than 10% in the past two weeks, with yesterday’s decline again led by Nvidia (-8.69%).
The increased volatility saw the VIX post its biggest spike and highest year to date close (+3.15pts to 22.78). Other risk assets also suffered, with US high yield credit spreads (+8bps to 288bps) rising to their highest level since October, while Brent crude oil (-2.13% to $71.62/bbl) fell to a new 2025 low. And in the crypto space, Bitcoin (-9.53%) gave up the +9.59% gain it saw on Sunday after Trump’s announcement of a new strategic crypto reserve and is trading another -1.40% lower this morning. And in a turnaround from some of the earlier tariff headline, the dollar index fell -0.81% yesterday, its largest decline in four weeks.
This changing reaction of the dollar comes amid an apparent broader shift in market perspectives on tariffs over the past few weeks, with the focus moving from the potential boost to inflation to the negative implications for growth. In turn, this has driven a continued rally in US rates. This morning fed funds futures are pricing in a full 75bps of cuts by the December meeting. 2yr Treasury yields (-3.9bps) fell to 3.95% yesterday, their lowest since October, while the 10yr yield (-5.3bps to 4.16%) posted its ninth decline in ten sessions, with a near 40bp retreat over the past two weeks. And perhaps the best example of the dramatic market narrative shift is the 2yr real Treasury yield, which is down to below 0.70% this morning, more than halving from its 1.47% peak on January 22, just after Trump took office.
The recent narrative of US data weakness continued with yesterday’s ISM manufacturing print. The headline index was down to just 50.3 (vs. 50.7 expected), ending a run of 3 consecutive monthly gains. And other activity details saw a bigger decline, with the new orders (48.6 vs 54.6 expected) and employment (47.6 vs 50.1 expected) components concerningly weak. At the same time, the prices paid indicator surged to 62.4. That’s the highest since June 2022, at the height of the recent inflation surge, and adds to other indicators including the PMIs and consumer surveys that have painted a more stagflationary picture. To be fair, yesterday’s final S&P US PMI was actually stronger than expected at 52.7 (51.6 expected) but the longer standing ISM seemed to dominate.
Yesterday’s other major headlines came around Ukraine, with the White House confirming late yesterday that Trump had paused all existing military aid to Ukraine (that had been drawn down by the outgoing Biden administration), in a setback for hopes that relations between Kyiv and Washington can recover from the ill-fated Oval Office meeting last Friday. In other related news, the FT reported last night that French officials were putting forward a proposal to European capitals that would see around EUR 200bn of Russian reserves that are frozen in Europe seized outright if Moscow were to violate a future ceasefire deal.
Prior to all that, the main story in Europe had actually been a huge risk-on move, as investors reacted to the weekend reports that Germany was considering special funds for defence and infrastructure. That pushed the STOXX 600 (+1.07%) to yet another all-time high, building on its run of 10 consecutive weekly gains. And if we get an 11th weekly advance this week, it would be the first time that’s happened since summer 2012, back when Mario Draghi said the ECB would do “whatever it takes” to save the Euro. So purely from a market standpoint, the sentiment around Europe is phenomenally positive right now. That might be tested this morning though given the tariff news.
Understandably, it was defence stocks that witnessed the strongest gains, as investors adapted to a new paradigm of significantly higher defence spending. For instance, the STOXX Aerospace & Defense Index (+7.70%) put in its strongest daily performance since November 2020, the day that the Pfizer vaccine announcement offered a path out of the pandemic. Germany’s Rheinmetall (+13.71%) remained at the forefront of that surge, extending its YTD gains to +86%, whilst BAE Systems were up +14.58% as well. The moves saw the German DAX rise +2.64%, marking its strongest daily performance since November 2022. And there might be further news over the coming days, as CDU leader Friedrich Merz has said that he wants to reach a deal on defence before the summit of EU leaders on Thursday.
As our chief German economist Robin Winkler writes (link here), if these reports are realised, then it would be a fiscal regime shift of historic proportions. Indeed, he points out that even if it’s spent over a decade, it would be about as much money as the country has invested in East Germany since reunification. And assuming they were spent and smoothed out over 10 years, the fiscal impulse would be worth up to 2% of GDP, kicking in from 2026 onwards. In turn, the fiscal impact had a clear effect on European rates yesterday. For instance, 10yr bund yields (+8.5bps) saw their biggest daily jump since October, putting them back up to 2.49%. Moreover, there was a significant curve steepening, with the German 2s10s curve moving up to 42bps, which is its steepest since late-2022, back when the ECB were hiking rates by 75bps per meeting. Elsewhere in Europe there was a similar pattern, with yields on 10yr OATs (+7.1bps), BTPs (+6.3bps) and gilts (+7.3bps) all moving higher as well. Much of this could be reversed this morning after the late US news and moves.
The rate moves higher yesterday though got a further boost from the latest Euro Area CPI print yesterday. It came in a bit higher than expected, with the flash release for February only falling to +2.4% (vs. +2.3% expected). Core CPI was also a tenth above expectations at +2.6%. So that continues the global theme whereby inflation is still lingering above target.
Asian markets are extending the US sell-off with the Nikkei (-1.89%) the biggest underperformer but with Chinese risk recovering from a weak opening as the Chinese retaliation has been seen to be measured so far but headline are still coming through as I type on this. The Hang Seng (-0.07%) has recovered well and the Shanghai Comp is actually now +0.15%. Elsewhere, the KOSPI (-0.08%) is flat after being on holiday yesterday and missing a rally. S&P 500 (+0.27%) and NASDAQ 100 (+0.46%) futures are rebounding a bit from yesterday's slump.
Early morning data showed that Japan’s jobless rate unexpectedly edged higher to +2.5% in January (v/s +2.4% expected). It followed a revised +2.5% in December, thus keeping January’s rate unchanged for the fourth straight month. Meanwhile, Japan’s corporate spending dropped - 0.2% y/y in the fourth quarter (v/s +5.0% expected; +8.1% previous quarter), marking the first quarterly fall in nearly four years amid growing uncertainties over the global economy. Corporate sales rose +2.5% in the fourth quarter from a year earlier, less than the expected +3.0%. Elsewhere, South Korea's manufacturing PMI fell to 49.9 in February, the fourth time in six months it's been below 50.
To the day ahead now, and a key highlight will be President Trump’s speech to a joint session of Congress. Central bank speakers include New York Fed President Williams. And data releases include the Euro Area unemployment rate for January.