US stock futures are in the red again this morning, with the Dow down 1.4%, the S&P 500 slipping 0.9%, and the Nasdaq sliding 1.5%. The mood soured further after China decided to up the ante, slapping US goods with tariffs of 84% in a tit-for-tat response to President Donald Trump's bold move to hike tariffs on Chinese imports to a whopping 104%. Europe just announced tariffs on €21bn of US good in metal dispute.

The tariff skirmish has sent ripples through the market, prompting investors to flee from stocks, industrial commodities, and even the once-safe haven of government bonds.

The CBOE Volatility Index, affectionately known as Wall Street's "fear gauge," soared to 54.31 points, flirting with its highest peak since August. The S&P 500 has now lost over $5.83 trillion since Trump's tariff announcement and teetering on the brink of a bear market.

As if the tariff drama wasn't enough, financial markets are also keeping a keen eye on the Federal Reserve's next moves. The yield on the 10-year US Treasury note briefly touched its highest point since February, reflecting the market's anticipation of interest-rate cuts by the Fed amid mounting recession fears. Traders are betting on more than 100 basis points of easing by December, hinting at four 25-basis-point cuts. The Federal Open Market Committee is poised to release the minutes from its latest policy meeting, which will be dissected for any clues on future monetary maneuvers.

The buzzword of the moment? The "Fed Put"—that elusive safety net investors hope the Fed will deploy when financial stress hits a certain threshold. When central banks step in, it's usually the last card in the deck for investors. It's also a clear signal that we've reached a critical juncture.

Tuesday's trading session delivered a mixed performance. European markets staged a commendable recovery, while Wall Street's attempted comeback fizzled out. The S&P 500 initially teased investors with a promising 4% gain, only to end the day with a disappointing 1.6% loss. This rollercoaster ride is emblematic of the current climate of uncertainty. Wall Street's failure to rally highlights the underlying tension gripping the market. This marks the fourth consecutive day of losses for the S&P 500, which has plummeted 12% since last Wednesday and is down 19% from its February highs.

A whole host of other tariffs are now in force between the United States and other countries. Bilateral negotiations are due to start, but some economies are resisting, such as China but also the EU, which has planned to first retaliate and then discuss, in a sort of reversal of the usual routine of the old continent.

Europe seems to be shedding its underdog status, having been overshadowed by Trump's America for some time. It's not exactly a sanctuary of stability just yet, but the outlook is certainly brighter than it was a couple of months ago. Yesterday, European markets showed a bit of resilience, even as Wall Street took a nosedive, thanks to news of a coalition agreement involving Friedrich Merz in Germany. In a typical market environment, this might not be headline material, but right now, it's making waves. And dare I say, Europe, with all its imperfections, currently seems like a safer bet for investors compared to the United States. 

This is all the more marked as a new character has just invited himself into the storytelling: the behavior of the bond market. In a basic context, US bond yields should fall because investors are selling shares to hide in less risky assets, particularly US Treasury bonds (whose yield falls when the price rises, and vice versa). A huge buying spree should bring yields down. But they are skyrocketing at an alarming rate. The US 10-year yield rose from a low of 3.86% last Friday to a high of 4.46% this morning. That may not seem like much, but in the bond market it is a sign that something huge is going on. The specialists are blaming a complex mechanism used by certain speculative funds, called the “Treasury basis trade”.

It consists of taking advantage of the price differences between bonds and financial contracts linked to these same bonds, by borrowing massively to amplify the gains. But as these strategies rely on a very large leverage effect, they become dangerous when the market becomes unstable: if prices move too fast, these funds have to sell urgently, which amplifies the shocks. This phenomenon worries experts because it makes fragile a market that is supposed to be a solid pillar of the global financial system. In 2020, this type of strategy had already almost caused a serious crisis, narrowly avoided by a massive intervention by the Federal Reserve. Among the other factors explaining the surge in yields is the usual bugbear, the disaffection for US debt, perceived as less secure than before. A hypothesis supported by an epiphenomenon, the extremely lukewarm reception given to the first of three US Treasury debt placements this week, and by the old refrain about the risk of massive sales of treasury bonds by countries that hold entire cupboards full of them. The biggest holders of US debt outside the United States are Japan (approximately $1,000 billion out of $34,000 billion) and China (approximately $760 billion).

The turmoil in the bond market, which is adding to the turmoil in the equity market, means that investors will be increasingly vigilant with the dark or risky areas of the economy. For example, high-yield corporate bonds or the private equity sector (unlisted companies financed by funds). It is not surprising to see that the leading specialists in these sectors are being buffeted: for example, the American investment giant KKR Capital Partners has lost 20% in four days and more than a third of its value in 2025. Other segments to watch include US commercial real estate (-12% in four sessions) and US regional banks (-14% in four sessions).

In Asia Pacific, the indices resumed their fall. Tokyo collapsed by almost 5% after having risen sharply the previous day. The other markets, which had rebounded less yesterday, fell to a greater or lesser extent, with declines of around 0.6% in India and 1.8% in South Korea and Australia. Mainland China limited its decline to a few points, while Hong Kong gained 0.6%. The Euro Stoxx 600 is down 3.0%.

Today's economic highlights:

No major indicators are scheduled today. The minutes of the Fed's last meeting are expected at 2pm ET.

  • Dollar index: 101,953
  • Gold: $3,061
  • Crude Oil (BRENT): $59.44 (WTI): $55.94
  • United States 10 years: 4.46%
  • BITCOIN: $76,132

In corporate news:

  • Microsoft dethrones Apple Inc. to become the largest company by market capitalization in the United States.
  • Kohlberg Kravis Roberts is preparing to buy Karo Healthcare for more than 2.5 billion euros, according to Bloomberg.
  • KKR is buying Assura for 49.4 GBX per share.
  • Constellation Energy defended its proposed acquisition of Calpine to regulatory authorities in the US on Tuesday.
  • Universal Studios (Comcast) is to open its first European theme park near London.
  • Tesla launched car sales in Saudi Arabia, facing challenges like limited charging infrastructure and high temperatures.
  • Cal-Maine Foods is cooperating with U.S. Justice Department investigations into price-fixing and supply manipulation in the egg market.
  • Janus Henderson has been appointed by Guardian Life Insurance to manage a $45 billion investment-grade public fixed-income portfolio.
  • Walmart reaffirmed its annual sales forecast, maintaining a 3-4% growth target for the year.
  • Peabody Energy is evaluating financing options for a potential $3.78 billion acquisition of steelmaking coal assets from Anglo American.
  • Google launched a new AI chip called Ironwood and settled a German antitrust investigation by modifying its Maps and Automotive Services.
  • Delta Air lines reported a slight increase in Q1 earnings despite a drop in operating margin and withdrew its financial forecast.
  • South Bow Corp shut down its Keystone pipeline after a leak near Fort Ransom, North Dakota.
  • Verizon's implementation of AI has significantly increased its sales.

Today's main earnings reports: Constellation Brands, Delta Air Lines, etc.

Analyst Recommendations:

  • Agco Corporation: Citi upgrades to buy from neutral with a price target reduced from USD 98 to USD 90.
  • Americold Realty Trust, Inc.: Barclays upgrades to overweight from equalweight with a price target reduced from USD 26 to USD 21.
  • Apple Inc.: Jefferies upgrades to hold from underperform with a price target reduced from USD 202.33 to USD 167.88.
  • Bath & Body Works, Inc.: Piper Sandler & Co downgrades to overweight from neutral with a price target reduced from USD 38 to USD 35.
  • Bio-Techne Corporation: KeyBanc Capital Markets downgrades to sector weight from overweight.
  • Constellation Energy Corporation: Citi upgrades to buy from neutral with a price target reduced from USD 334 to USD 232.
  • Credo Technology Group Holding Ltd: Baptista Research upgrades to buy from hold with a price target reduced from USD 77 to USD 55.
  • Eastman Chemical Company: RBC Capital upgrades to outperform from sector perform with a price target reduced from USD 103 to USD 91.
  • Extra Space Storage Inc.: Scotiabank upgrades to sector outperform from sector perform with a price target reduced from USD 165 to USD 149.
  • Lyondellbasell Industries N.v.: RBC Capital downgrades to sector perform from outperform with a price target reduced from USD 90 to USD 62.
  • Ptc Inc.: JP Morgan downgrades to neutral from overweight with a target price reduced from USD 210 to USD 160.
  • Public Storage: Scotiabank upgrades to sector outperform from sector perform with a target price reduced from USD 333 to USD 305.
  • Simon Property Group, Inc.: Stifel upgrades to buy from hold with a price target reduced from USD 178 to USD 168.50.
  • Sirius Xm Holdings Inc.: Seaport Global upgrades to buy from neutral with a target price of USD 27.
  • The Travelers Companies, Inc.: Wells Fargo upgrades to equalweight from underweight with a target price raised from USD 225 to USD 247.
  • W.r. Berkley Corporation: Wells Fargo downgrades to equalweight from overweight with a target price reduced from USD 70 to USD 69.