The recession bets are rising by the day, the companies are giving murkier forecasts due to tariffs, the US’ biggest trading partners respond. Ontario in Canada for example asked its grid operator to increase its prices on US exports by 25%. China imposed 10-15% tariffs on US agricultural imports, Delta headlines yesterday joined its peers in slashing its Q1 revenue forecast pointing at weak consumer and corporate travel, and all major US indices from small to big caps are making big moves to the downside.

The Trump optimism is far gone. The S&P500 has now wiped out all the post-election gains. The index made a second and sharp dip below the 200-DMA and closed the session . Nasdaq 100 dropped 3.80% yesterday, extended losses below its own 200-DMA, below the 20’000 psychological mark, having tested the minor 23.6% Fibonacci retracement on the AI rally that started in 2023 and having lost more than 10% since its February ATH peak. It means that Nasdaq is officially in the correction zone.

Tesla has lost more than 15% just yesterday, wiped out all the post-election gains and is down by more than 50% since the December peak on expectation that Musk’s involvement in world’s politics will have an ugly impact on its sales. Then, the most popular ‘America First’ indices, the mid and small caps are also hammered. The US mid cap index has now fallen below the major 38.2% Fibonacci retracement on last October-to-now rally and stepped into the bearish consolidation zone. And the small cap index, the Russell 2000, has already stepped below its own major 38.2% Fibonacci retracement at the start of the month and has now given back more than half of the Trump-led gains.

All indices are now close or in the oversold condition territory, but the fact that we are coming from a very high optimism peak for the US equities and strong global long positioning, the pullback has room to deepen. The diving US yields on recession bets and the rising safe haven demand is no consolation. It tells a lot about how investors feel about what’s cascading from the White House: it’s the worst market sentiment since Covid. A softer-than-expected CPI update from the US tomorrow could eventually slow down the selloff on the thinking that the Federal Reserve (Fed) could - maybe - help soothing investors’ nerves. But a stronger-than-expected figure would be very bad news.

Now, the White House disaster has been a boon for the European stocks. The US’ decision to pull back its military support from under the feet of the Europeans unleased the European beast. The European countries led by Germany threw their budget discipline out of the window and pledged to spend hundreds of billions of euros to strengthen their defense budgets and the latter sent the DAX some 18% higher since the beginning of January, while the S&P500 lost more than 5% during the same period and almost 10% since its February peak.

But even the DAX index looked sorry yesterday as the Greens in Germany rejected a debt-financed package because their green demands weren’t well responded in Merz’ plans. And Merz needs the Greens - as it needs a two-thirds majority - to pass a constitutional amendment to ease borrowing restrictions. But hey, German Greens’ co-leader said on Bloomberg TV this morning that there could be a deal on budget as early as this week and the EU is making the same moves to let the member states borrow more to throw at defense. As such, the European stocks will likely continue to outperform their US peers, although gains could become vulnerable if the global market sentiment gets worse from here.

The goodnews is that the selloff seems to have moderated in Asia and the futures are in the positive in Europe at the time of writing. The risks remain skewed to the downside for the US equities, cautiously to the upside for the European peers. Conversely, appetite for US sovereign bonds is rising on the expectation that the Fed can’t let the US economy collapse, while the European sovereign bonds are offered on the sudden end of the budget discipline on the old continent. Gold remains a popular hedge for investors seeking refuge from the agitated international waters, while Bitcoin has so far failed to give that sort of ‘safe haven’ comfort to investors.

In the traditional currency space, the USD selloff has somewhat slowed yesterday, but the dovish shift in Fed expectations and hawkish shift in other central bank expectations - like the European Central Bank (ECB) expectations for example on the thinking that the ECB must slow down rate cuts to temper the impact of massive government spending - continue to keep the outlook for the US dollar negative compared to major peers.

In energy, US crude is testing the $65pb level to the downside on waning growth expectations. The outlook remains skewed to the downside.