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MARKETS

Wall Street got steamrolled Monday as risk aversion took center stage, sending US stocks tumbling, Bitcoin reeling, and the VIX—the market’s so-called “fear gauge”—spiking to its highest level of the year. The culprit? Mounting concerns that Trump’s economic shake-up could knock the US growth engine off its axis, triggering a recession, hence the widespread risk-off move.

The rout was swift and brutal—all three major indices opened deep in the red, and while there was a fleeting afternoon bounce, the selloff proved relentless into the close. Investors are waking up to the reality that a policy-induced slowdown might not be a bug—it could be the feature. With government layoffs, tariffs, and tightening financial conditions all converging, traders are left asking: just how much pain will Washington tolerate before blinking?

And if that wasn’t enough, Bitcoin—Wall Street’s favourite high-beta risk barometer—took a nosedive, adding fuel to the risk-off inferno.

The market’s message couldn’t be louder: uncertainty is rising, market maker liquidity is draining, and participation is moving to the sidelines. In this sell-everything environment, not even traditional safe havens are spared—gold was shunned, and cash and Treasuries are once again king.

This isn’t just a garden-variety pullback. This is a market scrambling for answers and coming up empty.

Monday’s market meltdown intensified what’s turning into a punishing month for equities, with all three major indices erasing their post-election gains. Trump’s tariff turmoil, coupled with a ruthless government cost-cutting blitz, has traders on edge—questioning just how much economic turbulence Washington is willing to endure before stepping in.

In a Sunday interview, Trump refused to rule out a recession, calling the current turbulence a “period of transition.” Markets didn’t take kindly to the ambiguity. Tech stocks bore the brunt of the selloff, dragging the Nasdaq into correction territory and sending the S&P 500 plunging 8.6% from its February 19 record high.

The fear factor is creeping in. With supply chains scrambling, corporate America second-guessing hiring plans, and consumers staring down potential tariff-induced price hikes, investors wonder: is this a controlled slowdown or the start of a runaway train?

One thing’s for sure—Wall Street is braced for impact.

How long this phase of investor carnage drags on hinges entirely on who flinches first—the Fed shifting to rate cuts or Washington easing off tariffs and the cost-cutting brakes. But instead of the long-awaited Trump Tax & Deregulation 2.0 playbook, markets are being force-fed what U.S. Treasury Secretary Scott Bessent dubs a "detox" period—code for a brutal government spending withdrawal. And if this is what fiscal austerity feels like, both markets and the broader economy might be staring down a world of pain before relief arrives.

The Fear Guage Is Back

Volatility is back with a vengeance, and this time, it’s got Trump’s trade war and fiscal chainsaw economics fueling the fire. Markets are on edge as the administration’s scorched-earth approach to government spending collides with protectionist uncertainty, creating a perfect storm of policy-induced turbulence.

The VIX—Wall Street’s “fear gauge”—has doubled in just a month, surging to its highest levels since the Fed’s controversial December rate cut. And Monday’s spike in the three-month VIX to its highest since August? That’s a neon warning sign flashing across financial markets.

Complacency is a sucker’s bet. When volatility smoulders like this, it only takes one spark to set the whole thing ablaze.

Fear is real out here, folks. The market is in full defence mode, with traders loading up on stock market puts at a pace we have never seen before.

The Silver Lining?

If there’s a silver lining in this bloodbath, it’s that the CTA-driven liquidation is finally over—and the script has officially flipped. After unloading a staggering $193 billion in equities over the last two weeks, CTAs (Commodity Trading Advisors) are now net short by $10 billion.

This means that the relentless mechanical selling pressure we’ve seen is done and dusted—at least for now. When CTAs go from forced liquidations to short positioning, it sets the stage for potential short-covering rallies, especially if any macro data or Fed rhetoric catches traders offside.

Does this mean the market is out of the woods? Not quite. But with systematic selling exhausted and positioning far cleaner, the downside risk from momentum-driven unwinds has faded. Now, it’s all about whether the fundamental picture justifies fresh risk-taking—or if another macro landmine forces CTAs to reload their shorts.

FOREX MARKETS

The U.S. dollar slid against the yen on Monday as investors braced for a potential U.S. economic slowdown and a relentless Wall Street selloff, both fueled by policy uncertainty surrounding Trump’s economic agenda at home and abroad. The weight of tariff fears, aggressive government cost-cutting, and Federal Reserve inaction has traders questioning just how much economic turbulence Washington is willing to endure before stepping in.

That said, the greenback didn’t go down without a fight. As risk sentiment soured, it caught a safe-haven bid against major peers, with Treasury demand soaring once again. The takeaway? Without the U.S. consumer running in high gear, it’s not just America that’s in trouble—the entire global economy could be in for a rough ride.

Still, the forward view is murky as hell. Too many uncertainties loom large, clouding the market’s ability to price risk:

• Tariffs – Just how aggressive will the White House go against the EU, and will this trade war spiral even further?
• The “mini-recession” strategy – Is Washington deliberately engineering a slowdown to pressure the Fed into cutting rates?
• US-EU tensions – With bad blood brewing between Washington and Berlin, will the entire continent be forced to pay the price?

Meanwhile, the USDJPY short trade from yesterday has yet to fully deliver, as the move sub-147 has lacked conviction. This reflects broader concerns that external factors—like global trade risk—could weigh just as much on the BoJ’s decision-making as domestic inflation trends.

But the real trade to watch right now is Japanese repatriation flows. The GPIF and major Japanese financial institutions are quietly repositioning their capital allocations, and this could become a significant market driver. There are already signs that this shift is picking up pace, or at least being front run to a degree:

• The GPIF’s five-year portfolio review (expected by March-end) could shake things up further, potentially reversing its prior moves into foreign bonds in favor of domestic equities and JGBs. A

• While many expect a broader repatriation into JGBs, there’s little concrete evidence of a massive foreign bond unwind—yet.

With Japan’s capital flows in flux, U.S. economic risks mounting, and the BoJ’s next steps under scrutiny, the yen trade is setting up for major volatility. Timing will be everything.

THE VIEW

For weeks, Wall Street options traders have been buzzing about whether Doge’s chainsaw approach to slashing government largesse was more than just tough talk—whether the stock market was being set up as the sacrificial lamb to force the Fed’s hand into aggressive rate cuts aimed at helping Main Street at Wall Street’s expense. The grand experiment? Engineering an economic slowdown that stops short of a full-blown recession. Well, the theory is rapidly becoming a reality, and markets are now scrambling to price in just how much pain Washington is willing to inflict before policymakers blink.

The stock market is badly rattled to kick off the week, staring down a high-stakes question: Is this a controlled economic slowdown, or are we careening toward a runaway recession?

For those who assumed Donald Trump would cave at the first whiff of market distress, think again. The administration isn’t just trimming fat—it’s taking a chainsaw to the Washington bureaucracy, slashing government payrolls, and sending a clear message to the Fed: Cut rates, or we’ll make you.

But here’s the catch—can the White House pull off a delicate slowdown, or does this "mini-recession" gambit morph into a full-blown market meltdown? With trade war fears, tariff whiplash, and corporate America scrambling to recalibrate, traders are now on edge for a scenario where the economic tightening spins out of control.

If the Fed blinks first, this could be the mother of all buy-the-dip opportunities—but if the White House miscalculates, risk assets could be staring down a recession freight train with no brakes. Buckle up.

If we take the Fed at face value, they’re in no rush to act—perfectly content to sit tight, sift through the noise, and let the data do the talking. But let’s be real—eyebrows have to be raised behind closed doors.

History tells us that once headline payrolls dip near negative territory, the Fed’s hand gets forced. But until then? It’s a high-stakes game of chicken between Trump and Powell, with investors caught in the crossfire—dodging policy whiplash, tariff shocks, and bracing for a potential trainwreck.

And reading the incoming data? That’s become a full-blown minefield.

This week’s CPI report will be dissected to oblivion, but last month’s inflation print won’t reveal a thing about the potential price shock from incoming tariffs. Last Friday’s jobs report? That didn’t even fully capture the Doge-driven government layoffs, leaving the Fed to connect the dots and guess at the fallout.

Markets are itching for clarity, but Powell & Co. are sticking to their waiting game. And with the White House doubling down on economic chaos, don’t hold your breath for a quick Fed pivot—they’re not ready to pull the trigger just yet.

THOUGHT FOR THE DAY

When it comes to trading, the more obvious the conclusion, the more likely it’s already priced in—and the more likely your trade gets steamrolled. Markets thrive on uncertainty and forward-looking expectations, so if everyone sees it, it’s probably already been traded to exhaustion.

A simple but crucial check when analyzing data? Compare the average to the median. If they’re similar, you’re probably on solid ground. If there’s a big difference, something’s lurking beneath the surface that needs closer inspection.

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