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MARKETS

On Monday, Wall Street took a swan dive straight into the plunge tank, rattled by President Trump’s latest tariff bombshell. With levies on Canada and Mexico set to kick in on Tuesday, investors hit the panic button, sending stocks into a tailspin. And as if that wasn’t enough, the bond market decided to pile on, flashing yet another ominous warning about the health of the U.S. economy.

Falling bond yields usually act as a safety net for equities—but only when expectations of looser monetary policy fuel the drop. Not this time. This latest move screamed risk-off growth concerns, not a Fed pivot, and that’s where things got ugly. Trump’s latest trade tirade wasn’t just market noise but the accelerant.

With investors already on edge, the last thing Wall Street needed was another round of economic headwinds. Risk appetite has been put in a chokehold—and it's tightening. Trump’s tariff wrecking ball isn’t just smashing into Canada, Mexico, and China—it’s now barreling straight for Europe.

Asian stocks are gearing up for a rough open as global growth fears take center stage following Donald Trump’s latest tariff grenade. Within hours of his pledge to slap levies on key trading partners, Wall Street suffered its most significant loss of the year, sending a clear message: the market is officially spooked.

The spectre of a full-blown trade war is once again looming, threatening to choke global economic growth just as investors were starting to regain confidence. With U.S. equities taking a beating and volatility on the rise, Asia is now staring down the barrel of a brutal session—and unless cooler heads prevail, this could just be the beginning.

Traders across the region are left scrambling to assess the damage. Will this spiral into another global risk-off rout, or is this just another episode of Trumpian brinkmanship? Either way, buckle up—things are about to get volatile.

Alarm bells are ringing as Donald Trump’s latest tariff salvo is seen as yet another deliberate step toward a full-blown global trade war. The stakes just got higher, and China isn’t sitting idly by.

Beijing’s Communist Party-backed Global Times wasted no time firing back, reporting that Chinese officials are weighing a fresh round of retaliatory measures—this time targeting U.S. agriculture and food products. According to the report, China's response is set to include a mix of tariffs and non-tariff barriers, dialing up the pressure on American exporters and adding yet another layer of uncertainty to an already fragile global economy.

The big question now? Will this escalate into another brutal tit-for-tat showdown that rattles markets worldwide, or is this just the opening move in another high-stakes negotiation? Either way, Asian investors are bracing for impact.

America’s Economic Mirage Is Cracking—Is a “Trumpcession” Looming?

The U.S. economic engine isn’t just sputtering—it’s blowing a gasket. The latest shocker from the Atlanta Fed's GDPNow model sent jaws dropping on Monday, slashing its growth estimate for the current quarter to a gut-wrenching -2.8% from +2.3% just last week—and let’s not forget, a month ago, this same model had the economy steaming ahead near +4.0%. That’s not a slowdown; that’s a full-scale economic faceplant.

And so, the once-mighty "U.S. exceptionalism" narrative looks less exceptional. Already queasy from a fading AI-driven rally, Wall Street is now staring down a worsening cocktail of Trump’s tariff fury, stretched equity valuations, and the cold, hard realization that the U.S. economy may be losing steam. Meanwhile, across the pond, Europe—long the ugly duckling of global markets—is suddenly the belle of the ball.

While America grapples with an economic hangover, European stocks are ripping higher, fueled by a mix of bargain-hunting, fiscal policy shifts, and the tantalizing prospect of a peace deal in Ukraine. The euro and bond yields are climbing, while the dollar and Treasuries slump—proof that global capital is rebalancing. Defence and infrastructure spending is setting the tone for a European revival, while Washington is left debating whether it's about to stumble into a self-inflicted “Trumpcession.”

But let’s not kid ourselves—the Fed “Put” is alive and well. And you can bet Team Trump has already been speed-dialling Chairman Jay Powell, gently (or not so gently) nudging him to dust off the rate-cut slasher and get to work. With the economy spiralling, it’s only a matter of time before the central bank cavalry is called in to rescue risk assets.

Markets might be rattled, but history tells us one thing: When push comes to shove, the Fed always finds a way to grease the wheels. Buckle up—this ride is far from over.

The Fed’s rate-cutting cycle is officially on ice, but it’s not by choice. Uncertainty surrounding Trump’s trade tantrums and fiscal firebombs has policymakers stuck in a wait-and-see mode, unsure whether they’re navigating a soft landing or a full-scale nosedive.

When Powell & Co. hit the pause button, a looming "Trumpcession" probably wasn’t part of their calculus. It is now. With GDP forecasts in freefall and markets reeling, the question isn’t if the Fed will be forced back into action—it’s how soon. Because if history has taught us anything, it’s this: when the market cries, the Fed listens.

FOREX MARKETS

The euro’s fate is hanging on two major narratives—Trump’s escalating trade war threats and the precarious hope of Ukraine peace talks. But for now, the single currency is riding a honeymoon bounce, courtesy of a rare flash of fiscal unity in the EU bond markets. Yields are ripping higher as the bloc preps for a fiscal deluge to bankroll its grand ambitions—cue the EU Army brigade.

The irony? The last thing Europe needs is a backdoor tightening cycle via surging bond yields. Yet, liquidity flows have their own agenda, and fresh capital is pouring into European assets, setting off fireworks in FX markets.

Markets are already baking in three ECB rate cuts, while FX traders are flirting with the idea of three—maybe even four—Fed cuts. That should, in theory, keep the EUR/USD bounce intact heading into Friday’s U.S. payrolls report. But let’s be honest—do you really want to be long over your skis on the euro, or any European asset for that matter, with Trump dialling in the EU as his next tariff target?

Yes, the euro is catching a bid, but for how long? A fresh round of U.S. trade aggression could flip the script fast, especially if investors start re-pricing Europe’s fragile economic outlook. With the continent already on shaky ground, the last thing it needs is a protectionist punch from Washington.

How this plays out in the long run is anyone’s guess, but one thing is clear—Europe is now firmly in Trump’s tariff crosshairs, and that’s a risk that could put an early expiration date on the euro’s honeymoon rally.

As we suggested yesterday, staying long JPY remains the cleanest hedge against a U.S. recession—and the latest market moves continue to reinforce that view.

Oddly enough, EUR/JPY’s erratic moon-shot price action yesterday wasn’t about macro fundamentals—it was a pure liquidity quirk. A whale-sized buy order hit the tape in London just as Tokyo shuts down, steamrolling freshly established JPY shorts against little pushback—a Classic FX squeeze.

Looking ahead, with U.S. 10-year yields eyeing 4% as the market aggressively packs in more Fed rate cuts, the yen has room to run. But there’s a catch—NFP looms large. Expect some hesitation from traders before the jobs data clears the air.

For now, the yen trade is still alive, but don’t get caught in another late-session liquidity trap.

THOUGHT FOR THE DAY

"Turnaround Tuesday" isn’t just trader folklore—it’s a well-established pattern baked into market psychology. It’s a direct result of the fear and greed cycle, a behavioral loop that repeats week after week, even though statistically savvy investors are fully aware of it.

At its core, this phenomenon plays out because of human emotion overriding logic. When fear dominates, traders lighten their books heading into the weekend, wary of holding risk into an uncertain news cycle. Then, over the weekend, media doomscrolling kicks in—negative headlines feed anxiety, prompting another wave of selling on Monday.

By Tuesday, however, the selling often exhausts itself. Bears who piled in late start to cover, bargain hunters emerge, and before you know it, stocks are ripping higher—often forcing shorts to scramble and fueling the rally even further.

Despite its long history, Turnaround Tuesday remains surprisingly durable. Why? Because as a short-term strategy, it’s expensive to arbitrage—transaction costs and slippage make it unattractive for large institutions to systematically exploit. This means the pattern continues to show up a surprising percentage of the time, particularly during periods of market fear.

Of course, no pattern is perfect, but if you see a Friday-Monday bloodbath, don’t be shocked if Tuesday delivers an unexpected rebound. Old habits—and human nature—die hard.

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