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MARKETS

Irish eyes were smiling on Wall Street this St. Patrick’s Day as a broad-based rally extended into a second day, clawing back some lost ground from the brutal 10% selloff. Industrial and energy stocks led the charge, buoyed by economic data that, while soft in spots, was solid enough to push back against the market’s deep-seated recession fears.

It’s the classic bad news, good news trade—consumer spending is undeniably on track for a sharp slowdown this quarter. Still, the latest retail sales data suggests the deceleration won’t be as severe as the market had feared. While the broader trend still points to a cooling consumer, the print provided enough reassurance to prevent full-blown recession panic, keeping the risk-on mood intact for the day.

Luck of the Irish? Maybe. But Monday’s market action had a distinct green tint as stocks defied the ongoing tariff turmoil. The writing was already on the wall—volatility had been steadily retreating, with the VIX tumbling from its recent peaks. Meanwhile, hedge funds were spotted aggressively buying the dip, capitalizing on extreme negative sentiment, which, in hindsight, was a textbook contrarian buy signal.

Risk assets kicked off the week with a cautious bid as markets continued to shake off last week’s tariff-fueled turbulence. Over the weekend, US Treasury Secretary Scott Bessent played cheerleader, assuring investors that “corrections are healthy”—which is true in theory, but less reassuring when your portfolio just got steamrolled.

Still, the Friday bounce had legs. The Dow climbed 0.9%, the S&P 500 added 0.6%, and the Nasdaq eked out a 0.3% gain, extending Friday’s recovery. Meanwhile, volatility continued to deflate, with the VIX sliding 6% to just under 21, signaling that last week’s fear-driven positioning is unwinding. But whether this is a genuine inflection point or just another dead-cat bounce remains to be seen—markets are still walking a tightrope.

So yes, Irish eyes were smiling, but don’t get too comfortable—nervous eyes remain locked on Washington’s tariff tumult. The storm is far from over, and with the next escalation looming, the market is still walking a fine line between optimism and another sharp reality check.

The real question on every investor’s mind: How far is Washington willing to go with its reset agenda—and how much collateral damage is it willing to accept? Markets have been rocked by signals that the administration is fully prepared to endure a slowdown—or even an outright recession—to force a seismic shift in global trade and security alignments. That’s a brutal headwind for risk assets, and with a fresh wave of tariffs set to slam into Europe and Asia in early April, the pressure isn’t letting up anytime soon.

Trade war D-Day is approaching, and the markets are stuck between wishful thinking and reality. The latest tariff threats have thrown a wrench into global supply chains, forcing investors to recalibrate for a world where protectionism isn’t just a negotiating tactic—it’s policy. Hopes for last-minute diplomacy? That’s a fool’s bet.

FOREX MARKETS

Risk sentiment also modestly lifted as traders gear up for Tuesday’s high-stakes call between President Trump and President Putin. Any hint of progress on Ukraine ceasefire talks could send more relief through global markets, breathing fresh life into risk assets while tempering the dollar’s appeal. In other words, the market hopes that the geopolitical light at the end of the tunnel shines bright, and any modest diplomatic breakthrough could give the euro an extra gust of tailwind.

On the economic front, a tepid 0.2% rise in U.S. retail sales helped dial down some of the more extreme US recession anxieties, but it was far from the ignition switch needed to put the dollar back in the driver’s seat. As a result, EUR/USD remains well-supported in the short term, with traders keeping one eye on event risk.

For euro bulls, the week ahead packs a few potential catalysts that could shape the next leg of price action. First, the Trump-Putin negotiations—any diplomatic thaw would be a net positive for Europe, injecting optimism into risk-sensitive assets. Second, Germany’s fiscal stimulus push—the lower house is expected to pass debt brake reforms, unleashing a sizable spending package that could provide an additional economic cushion. Lastly, all ears will be on ECB President Christine Lagarde when she speaks on Thursday. Should she hint at a possible pause in the ECB’s easing cycle come April, it could be another tailwind for the single currency.

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