Tumbling stock markets and rallying Treasuries steadied somewhat on Tuesday, as a modicum of calm returned to markets after the previous day’s dramatic moves when the Nasdaq saw its biggest one-day fall in over two years.
S&P500 and Nasdaq futures were both just about in positive territory heading towards the US open , though the mood was still jittery and European shares, which had opened flat, were last down 0.6 per cent. The Dublin market was down 1.3 per cent just before 2pm.
Asia Pacific-ex Japan shares, which had been down around 1.75 per cent earlier in the day were last just 0.5 per cent lower.
The uneasy calm was in stark contrast to Monday, when shares tumbled as investors’ concerns about a potential economic slowdown were exacerbated after President Donald Trump in a weekend Fox News interview talked about a “period of transition” and declined to rule out a recession.
The S&P 500 fell 2.7 per cent on Monday, its biggest one-day drop this year, while the Nasdaq slid 4.0 per cent, its biggest single-day percentage drop since September 2022.
“The speed of change in perceptions towards the new U.S. administration is marked and there is uncertainty over tariffs, government layoffs, and weakening economic data,” said Jacob Falkencrone, global head of investment strategy at Saxo Bank.
“This on-and-off tariff environment makes it very hard to plan for anything.”
Meanwhile, a rush to US Treasuries saw the yield on benchmark US 10-year notes fall 10 basis points on Monday its largest daily move in almost a month. It too was steadier on Tuesday, flat at 4.224 per cent.
The two-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell to a five-month low of 3.829 per cent and was last at 3.89 per cent, also flat on the day.
Traders are now pricing in 85 bps of easing from the Fed this year, compared to 75 bps on Monday, LSEG data showed, betting weak US growth will compel the Federal Reserve to start easing again.
“If we were to see the economy move into recession, they are going to cut a lot more,” said Idanna Appio, portfolio manager, First Eagle Investment Management.
Wednesday’s US consumer price index could scuttle those expectations if it confirms that inflation is still a problem.
Investors are mindful of last month’s hotter-than-expected data that saw inflation rise 0.5 per cent in January, its biggest monthly gain since August 2023. February’s CPI is expected to have climbed 0.3 per cent, according to a Reuters poll.
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“Near-term, inflation is sticky and tariffs are likely to lead to inflation, so are the shifts in immigration policies,” said Appio.
Elsewhere in global bond markets, German Bunds remained under pressure, with the 10-year yield up nearly 5 bps at 2.87 per cent.
Investors’ eyes are on negotiations between the Green party and the party of the likely next chancellor Friedrich Merz over a massive increase in state borrowing, but, for now, the signs are they think a deal will be done.
That has also boosted the euro, which was up 0.75 per cent at $1.0915, a four month top.
In commodities, Brent gained 1.07 per cent to $70.01 a barrel, and gold prices rose 0.7 per cent $2,910 per ounce, within touching distance of the record high hit last month. Gold is up 10 per cent so far in 2025 after climbing 27 per cent last year. .- Reuters
