Markets try to find their footing after a risk-off session

Trump casts a shadow over risk sentiment

With the March 4 deadline for the imposition of tariffs on both Canada and Mexico approaching, US President Trump has upped his rhetoric. While both Canadian and Mexican leaders are trying to secure another extension or even accept Trump’s current demands, their task appears to be colossal. Bolstered by the US House of Representatives' approval of his budget plan, Trump could adopt an even more aggressive stance towards his neighbors.

Meanwhile, the silent battle with China continues, as Trump has shifted his focus from the technology sector to copper. He has signed an executive order to examine the imposition of tariffs, with his closest advisors openly targeting China. Interestingly, a 25% tariff on both steel and aluminum imports is set to take effect on March 12. In this context, Ukraine’s President Zelensky has apparently signed a rare earth minerals deal with the US, and he is heading to Washington on Friday to rubberstamp the agreement.

A weak day for US stock indices 

With the weak US Consumer Confidence survey reminding the markets that US consumers are not thriving at this stage, investors felt uneasy about the outlook. US stock indices suffered, with the Nasdaq 100 index leading the selloff. This was the fourth consecutive negative daily session for the technology-heavy index, and the first time since the end of 2024 when liquidity is usually scarce.

Futures point to a small recovery in stocks, with the S&P 500 index expected to rise above the 6,000 level again. However, the real market test will come later today when Nvidia will announce its Q4 2024 earnings. While revenue is forecast to climb again, a less aggressive outlook, partly due to Trump’s effort to limit China’s access to chips, could prove pivotal for the current fragile risk appetite.

Markets are pricing in more Fed rate cuts

Amidst these developments, markets are now pricing in 55bps of Fed easing in 2025, which is 15bps more than last Friday. The two rate cuts are now expected at the July and December meetings, respectively. Interestingly, yesterday’s stock correction has contributed to these inflated Fed expectations, as market participants might believe that, in the unlikely scenario of a market crash, the “Fed put” axiom would prompt the Fed to aggressively ease its monetary policy stance.

Dollar and gold fail to benefit from risk-off

Safe-haven assets also suffered during Tuesday's session. Specifically, compared to both the yen and the Swiss franc, the US dollar did not gain during yesterday's market rout, potentially revealing a dented market appetite to gain exposure to Trump’s world. Similarly, gold tanked by $50 and, at the time of writing, is trying to stay above the $2,910 mark.

Outlook for oil and cryptos remains clouded

The recent price-negative news has pushed WTI below the $70 threshold and very close to the $67 level, which has repeatedly acted a turning point since September 2024. Tariff talk and weaker US data could continue to act as headwinds for oil, with the focus shifting to the OPEC+ alliance. Most members are dependent on oil revenue to fund their budget deficits and, hence, are unwilling to see oil prices slide further.

Finally, the cryptocurrency market is attempting to recover from a dreadful day. Last weekend’s Bybit exchange hack and yesterday’s weak risk appetite have forced Ethereum to surrender its significant post-US election gains. Bitcoin is desperately trying to climb above the $90k level, with the remaining major alternatives feeling the pressure.