Financial markets are grappling with uncertainty as President Trump's tariff threats continue to loom over global trade. On Monday, the Vix volatility index fell to 15.81, dipping below its 12-month average of 15.92. Investors are displaying signs of "tariff fatigue," indicating that it might take another catalyst, such as inflation concerns, to significantly impact equity markets. Amidst this backdrop, the EUR/USD pair is experiencing initial support at 1.0250, with the first upside barrier at 1.0406.
The ambiguity surrounding President Trump's tariff policy has posed challenges for financial markets in terms of pricing in potential impacts. Trump announced on Monday that tariffs on metals could rise further, with additional tariffs potentially being unveiled later this week. This uncertainty has contributed to a cautious tone in financial markets, with the S&P 500 and Eurostoxx 50 index anticipated to open lower today.
Despite the ongoing tariff threats, the 50 largest stocks in the US have witnessed a decline in their implied correlations. This indicates a nuanced market reaction, where investors are weighing individual stock performances against broader economic uncertainties. Hedge funds have been active net buyers of US equities, particularly focusing on tech stocks.
In contrast to US market dynamics, several currencies, including the JPY, CAD, NZD, and AUD, have appreciated against the USD this year. This trend highlights shifting investor sentiment and a potential reevaluation of currency strategies in light of evolving global trade policies.
The EUR/USD pair maintains a negative outlook below the 100-day EMA, coupled with a bearish RSI indicator. The JP Morgan G10 FX volatility gauge has seen a sharp increase since Trump's inauguration, reflecting heightened market sensitivity to geopolitical developments.
In corporate news, Nvidia experienced a notable rise of more than 2.8% on Monday and has surged 14% over the past five trading sessions. The tech giant's performance underscores investor confidence in its growth prospects amidst broader market volatility. Meanwhile, BP reported better EBIT results than expected and confirmed its commitment to issuing $1.75 billion in buybacks, signaling strength in the energy sector.
Conversely, Gucci owner Kering posted weaker-than-expected results, potentially impacting Europe's luxury houses. This development may prompt investors to reassess the resilience of luxury brands amid shifting consumer preferences and economic conditions.
Federal Reserve Chairman Jerome Powell is set to testify before Congress this week, beginning this afternoon at 1500 GMT. His testimony will be closely monitored by investors for insights into the central bank's policy stance and its implications for financial markets.