The S&P 500 Index ($SPX) (SPY) closed down -0.23% on Monday, while the Dow Jones Industrials Index ($DOWI) (DIA) fell by -0.91%. In contrast, the Nasdaq 100 Index ($IUXX) (QQQ) managed a small gain, closing up +0.19%. Meanwhile, June E-mini S&P futures (ESM25) rose by +0.30%, and June E-mini Nasdaq futures (NQM25) increased by +0.71%.

Stock indexes concluded trading mixed on Monday, with the S&P 500 dropping to a 14-month low and the Dow Jones falling to a 15-month low. A worldwide decline in equity markets stemmed from rising concerns about a potential trade war leading the global economy into recession. Over the weekend, President Trump downplayed the market turmoil, urging to “forget the markets for a second” while reaffirming his tariff policies. Treasury Secretary Bessent also dismissed fears over slowing economic growth and inflation, insisting that an economic boom is on the horizon.

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Monday’s trading was characterized by volatility, with several attempts to recover losses. Recently underperforming chip stocks found their footing, helping to stabilize the broader market. Additionally, gains in major technology companies like Amazon.com and Meta Platforms—each up more than +2%—as well as a +1% rise in Alphabet provided further uplift. Market optimism surrounding the possibility of the Federal Reserve cutting interest rates was also a contributing factor, with expectations for a -25 bp rate cut post the May 6-7 FOMC meeting increasing from 30% last week to 45%.

As markets adjusted to comments from President Trump asserting, “We’re not looking at a tariff pause,” uncertainty persisted. He noted that if China does not retract its 34% tariff on U.S. goods by Tuesday, an additional 50% tariff would be imposed. In another troubling indicator, U.S. consumer credit unexpectedly fell by -$0.810 billion in February, falling short of forecasts that had anticipated an increase of +$15 billion.

Inflation is becoming a more significant concern, according to Fed Governor Kugler, who stated that tariffs are having a more pronounced effect on inflation than on economic growth.

The selloff in equity markets began Wednesday when President Trump announced tariffs that exceeded many investors’ expectations. Concerns over U.S. trade policies potentially inducing both U.S. and global economic downturns further deepened losses on Friday when China responded with a 34% tariff on all imports from the U.S., effective April 10.

This escalation in trade tensions has spurred a risk-off sentiment, leading many investors to seek the relative safety of government bonds. Consequently, commodity prices have suffered, with WTI crude oil dipping to a four-year low and COMEX copper dropping to a three-month low.

Last week, Trump stated the U.S. would impose at least a 10% tariff on virtually all countries, with additional reciprocal rates affecting approximately 60 nations. These new tariffs took effect on imports from nearly all countries, with specific exemptions for the steel and automotive industries—including Canada and Mexico, which will face previously announced 25% tariffs. China faces a staggering 34% reciprocal tariff, bringing its total tariffs to 67%, while the EU will experience a 20% reciprocal tariff for a total of 39%, and Japan will see a 24% tariff for a total of 46%.

Investor confidence has waned over fears that these tariffs will hamper economic growth and corporate earnings. Earlier this month, Trump enacted 25% tariffs on Canadian and Mexican goods and doubled tariffs on Chinese imports from 10% to 20%. Additionally, he signed a proclamation enforcing a 25% tariff on U.S. auto imports, starting with vehicles fully assembled outside the country and extending to parts made abroad by May 3. Trump emphasized that these tariffs would be “permanent” and that he sought no exceptions.

This week, a close watch will be kept on U.S. trade policies and any potential retaliation by other nations. Investors will also focus on the upcoming release of the March 18-19 FOMC meeting minutes. Thursday’s CPI for March is anticipated to ease to +2.6% y/y from 2.8% y/y in February, while March PPI final demand is expected to rise to +3.3% y/y from +3.2% y/y.

Internationally, stock markets experienced steep declines. The Euro Stoxx 50 fell to an eight-month low, down -4.55%. China’s Shanghai Composite Index dropped to a six-and-a-quarter month low, closing at -7.34%. Japan’s Nikkei Stock 225 plummeted, reaching a 17-month low with a -7.83% decline.

Interest Rates

On Monday, June 10-year T-notes (ZNM25) closed down -31.5 ticks, with the 10-year T-note yield climbing +14.2 bp to 4.142%. Following a retreat from a six-and-a-quarter month high, T-notes settled moderately lower due to ongoing tariff uncertainties prompting foreign investors to divest dollar assets amidst concerns of a U.S. recession and resulting confidence crisis in the dollar. Hawkish comments from Fed Governor Kugler, particularly regarding inflation implications tied to tariffs, added downward pressure on T-notes. Furthermore, T-notes faced headwinds from recent remarks by Fed Chair Powell, indicating no urgency to alter monetary policy.

Supply pressures also weigh heavily on T-notes as the Treasury prepares to auction $119 billion in T-notes and T-bonds this week, beginning with a $58 billion auction of three-year T-notes on Tuesday.

Despite these challenges, T-notes benefited from a flight to safety amid concerns that a trade war may tip the U.S. and possibly the global economy into recession. Additionally, the selloff in global equity markets has heightened demand for government debt securities. T-notes also received support from a drop in crude oil prices, reducing inflation expectations as the 10-year breakeven inflation rate fell to a six-and-a-half month low of 2.131%.

In Europe, bond yields bounced back from early losses. The yield on the 10-year German bund recovered from a one-month low of 2.430%, closing up +3.5 bp to 2.613%. The 10-year UK gilt yield rebounded from a three-and-three-quarter month low of 4.363%, finishing up +16.7 bp to 4.615%.

In economic updates, Eurozone retail sales for February rose by +0.3% m/m, falling short of expectations of +0.5% m/m.

Investor confidence in the Eurozone took a hit with the April Sentix investor confidence index dropping -16.6 to a one-and-a-half-year low of -19.5, worse than anticipated numbers of -9.0. Additionally, German industrial production for February fell by -1.3% m/m, more than the expected decline of -1.0% m/m.

Swaps are currently pricing in an 85% chance of a -25 bp rate cut from the ECB in the upcoming April 17 policy meeting.

US Economic Outlook Continues to Trend During Turbulent Times