The start of the week saw market jitters, initially triggered by a sharp decline in U.S. futures during Asian trading hours. Concerns stemmed from President Trump’s response in a Fox News interview, where he avoided confirming whether his trade policies could potentially lead to a U.S. recession. This ambiguity fueled market anxieties, with analysts interpreting his non-answer as a tacit acknowledgment of the risk.
The “R-word” – recession – has become increasingly prevalent in discussions among traders and analysts. A recent Reuters poll indicated that 91% of economists believe the likelihood of a downturn has risen under the current trade policies. This sentiment initially pushed S&P 500 futures down over 1%.
However, by midday in Asia, the pessimism had somewhat abated. S&P 500 futures recovered, cutting their losses in half. Japan’s Nikkei index reversed its early losses, gaining 0.6% and overcoming the strengthening yen, typically a safe-haven asset in times of uncertainty. Taiwan’s benchmark index also saw a reduction in losses.
Figure 1: Nikkei Index Performance
Conversely, China’s markets continued to struggle. Weekend data revealed growing deflationary pressures, adding to the complexities faced by policymakers during the ongoing National People’s Congress. Hong Kong’s Hang Seng index plummeted more than 2%, while mainland Chinese blue chips fell 0.8%.
One factor contributing to the rebound in several markets was the already depressed levels reached last week. The S&P 500 had touched a near six-month low on Friday before a slight recovery. The Nikkei also ended last week at a six-month low, highlighting the vulnerability of these markets. Notably, beaten-down chip-sector shares led the gains in Japan on Monday.
Figure 2: S&P 500 Index Performance
While the U.S. and China grapple with economic challenges, Europe has emerged as a potential beneficiary. Investors are anticipating a significant shift in German fiscal policy, moving towards increased government spending. Pan-European STOXX 50 futures showed early gains of 0.8%, and the euro held near its four-month high.
Europe’s economic calendar is relatively light, featuring German trade and industrial output data for January as key releases. Additionally, the Eurogroup meeting in Brussels, with the participation of European Central Bank President Christine Lagarde, will be closely watched.
Key Economic Events for Monday:
- Eurogroup meeting in Brussels
- Germany: Industrial output and trade figures
- Italy: Producer prices
- Sweden: GDP
- Norway and Denmark: CPI data
In conclusion, global markets remain sensitive to trade tensions and economic uncertainties. While initial panic subsided, underlying concerns persist. Investors will continue to monitor developments in U.S.-China trade relations, economic data releases, and policy decisions for further direction. The divergence in performance between European and Asian markets underscores the complex interplay of global economic forces.
