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CHART OF THE WEEK: US recession probabilities are RISING
US 5-year government bonds are pricing in a 52% chance of a recession within 12 months. Interestingly, the Russell 2000 index of small-cap stocks is pricing in 48% probability, up from just 1% in November 2024.
WEEKLY SUMMARY: Stocks sold off amid tariffs and stagflation fears
Stocks suffered their worst week in six months as an avalanche of geopolitical and macro-economic headlines crossed paths with an ugly technical situation. The S&P 500, Nasdaq and Russell 2000 indices all fell by over 3%, while the Dow Jones shed 2.37%, erasing most of its year-to-date gains. Ongoing uncertainty around trade policy remained a focal point throughout the week. Macro data shows manufacturing growth slowing while services activity is accelerating. The U.S. economy added 151,000 jobs in February, slightly below expectations but ahead of January’s reading of 125,000. In Europe, the STOXX Europe 600 Index ended 0.69% lower, snapping 10 weeks of gains. Uncertainty about U.S. trade policy weighed on investor sentiment. Still, the prospect of increased spending on defense and infrastructure by Germany and the EU helped to moderate losses. In Germany, Friedrich Merz’s conservative alliance and the SDP agreed to create an off-balance sheet EUR 500 billion infrastructure fund, exempt defense spending above 1% of GDP from the constitutional borrowing limit and loosen debt rules for states. Germany’s 10-year Bund yield posted its biggest daily increase since just after the Berlin Wall fell in 1990 while the euro soared despite the ECB cutting its key deposit rate by 25 basis points to 2.5%, as expected. Mainland Chinese stock markets advanced after Beijing signaled more stimulus later this year amid an escalating U.S. trade war. Gold was the best performing asset of the week.
Have a great week-end
Charles for the team
