European stock market volatility index hits seven-month high
An index of fear in Europe’s financial markets has hits its highest level since last August.
The Euro Stoxx Volatility index, which uses options pricing to measure market expectations of future volatility, has risen by almost 5% this morning to 23.8 points, a seven-month high.
The index has almost doubled since mid-December, when it dipped below 14 points, as investors have grown more nervous about the economic outlook.
China’s decision to impose retaliatory tariffs on US agricultural imports today (see earlier post) has highlighted the risks of a global trade war.
Analysts at Principal Asset Management have warned that escalating trade tensions are injecting fresh volatility into markets, adding:
The U.S. trade deficit, which remains sizable with key partners like China, Mexico, and Europe, underscores the stakes in ongoing trade disputes. However, while tariffs could increase costs and disrupt supply chains, history suggests that markets adapt over time.
A well-diversified portfolio remains the best defense against short-term uncertainty. Investors should avoid overreacting to short-term swings and instead focus on economic resilience, corporate earnings strength, and broader market trends.
Last week the VIX index, which tracks fear levels on Wall Street, hit its highest level since last December, as the early market enthusiasm following Donald Trump’s election victory subsided.
Vishwanath Tirupattur, global head of quantitative research at Morgan Stanley, says the mood has changed rapidly, telling clients:
Market sentiment has shifted quickly from post-election euphoria and animal spirits to increasingly serious concern about downside risks, driven by ongoing policy uncertainty and a spate of uninspiring ‘soft’ data. The macro markets now expect the Fed to pivot from fretting about inflation to worrying about growth. Market pricing of rate cuts in 2025 has swung from about one cut a few weeks ago to three cuts today.
he pricing of the terminal rate has also moved notably lower, with its arrival much sooner. After reaching an all-time high just a few weeks ago, the S&P 500 has given up all its gains since the election and then some, in line with our US equity strategy team’s outlook for a tougher first half and a 5,500-6,100 trading range due to slower growth.
Key events
David Morrison, senior market analyst at fintech and financial services provider Trade Nation, says there are several possible factors for this morning’s sell-off:
First up, uncertainty surrounding Trump’s tariffs. The President appears to be taking a scatter-gun approach in terms of targets, while teasing the markets with last minute reprieves, delays or softening in scope. All-in-all, it’s proving difficult to price all this in. Federal Reserve Chair Jerome Powell alluded to this in a speech on Friday. But he repeated his view that the Fed should remain patient and be in no rush to cut rates further until they had more clarity over inflation and other economic indicators.
Aside from this, there are some concerns over the US economy. Recent data, particularly those numbers which attempt to measure confidence, have deteriorated.
There’s also been some mixed jobs data, although Friday’s Non-Farm Payrolls were relatively benign. Nevertheless, inflation remains well above target, yet bond yields have fallen and forecasts for US growth have been downgraded sharply for the rest of the year.
Banks and technology companies are among the Wall Street fallers, such as Goldman Sachs (-3.75%) and Apple (-3.7%).
Jim Reid of Deutsche Bank suggests that comments last weekend, by US treasury secretary Scott Bessent and president Trump, could be a signal to the markets to expect changes.
Reid told clients this morning:
Although the weekend was relatively quiet we did hear from both Bessent and Trump and they seem to be telling us that they are prepared for some pain to reorientate the economy.
Bessent said, “Could we be seeing that this economy that we inherited starting to roll a bit? Sure. And look, there’s going to be a natural adjustment as we move away from public spending to private spending,” “The market and the economy have just become hooked. We’ve become addicted to this government spending, and there’s going to be a detox period.”
Meanwhile Trump told Fox that “There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing.” “What I have to do is build a strong country. You can’t really watch the stock market,” “If you look at China they have a hundred-year perspective”.
So taken at face value these quote suggest that their pain level is higher than most would have believed a few weeks ago.
Wall Street falls as tariff fears grip markets
Boom! The US stock market has opened sharply lower, as fears that a trade war could spark an American recession sweep Wall Street.
The Dow Jones industrial average, which tracks 30 major US companies, has dropped by 0.9% – shedding 383 points to trade around 42,418.
The broader S&P 500 index is down 1.4%, while the tech-focused Nasdaq has slumped by 2%.
This follows last week’s selloff, in which the S&P 500 fell by over 3%, its worst run since early September.
Stocks are sliding today after China today imposed reciprical tariffs on US imports, targeting agricultural products, in response to the 10% tariff imposed by the US on Chinese imports.
Beijing’s tariffs will make American goods, such as soyabeans, pork, beef, chicken and cotton more expensive for Chinese consumers, and may lead importers to buy goods from elsewhere instead, hitting sales for US farmers.
Hopes that Donald Trump’s more erratic actions could be reined in by the markets appear to be being eroded, after the US president failed to rule out a recession in his weekend interview with Fox.
Instead, Trump spoke about how there would be “a period of transition”, implying the White House was relaxed about economic damage, expecting it to be short-term.
Rupert Thompson, chief economist at asset manager IBOSS, explains:
The hope had been that Trump’s bark on tariffs would be worse than his bite but recent actions suggest this is not the case. A 20% tariff hike has been imposed on China, along with 25% tariffs on Canada and Mexico although their scope has changed by the day. And more tariffs are on the way. 25% tariffs on steel and aluminium imports are due to start this week and hefty tariffs on Europe, as well as ‘reciprocal’ tariffs on countries more generally, are set to be announced on 2 April.
The problem is that these plans, along with all the uncertainty caused by the constant changes, is slowing activity in the US as well as elsewhere. Government lay-offs resulting from the efficiency drive of Musk’s DOGE are also now becoming a drag.
Far from US growth picking up, as had been expected, the concern now is that growth could slow sharply. It had been thought that a decline in US stocks would reign in Trump’s more damaging policy inclinations but he seemed to accept last week that some economic pain might be needed to achieve longer term gain.
European stock markets have sunk deeper into the red, as traders brace for fresh falls on Wall Street today.
In London, the FTSE 100 is now down 80 points, or almost 1%, at 8,600 points.
Germany’s DAX has lost 1.25%, with stocks also hit by the news that the country’s Green party opposes plans to increase borrowing to fund higher defense and infrastructure spending.
Pound hits four-month high against the dollar
The British pound has nudged a four-month high against the US dollar today, as investors fret over a possible US economic slowdown.
Sterling traded as high as $1.2946, just above its highest levels last week, which is its strongest position against the dollar since early November.
Fawad Razaqzada, market analyst at City Index says the ‘turbulence’ created by Donald Trupm has weighed on the dollar:
Last week was anything but dull for the markets, with the ebb and flow of trade tensions keeping investors on their toes. Risk assets took a sharp tumble as Trump slapped tariffs on Canada and Mexico, only to stage a midweek rebound before slipping once more—then bouncing back yet again on Friday after the US President dramatically widened the list of goods exempt from the very tariffs he had imposed just two days prior.
Adding to the turbulence, Trump later rattled markets with the prospect of fresh tariffs on Canada, triggering further intraday volatility on Friday. He also announced he was “strongly considering” sweeping sanctions and tariffs on Russia, contingent on a ceasefire in Ukraine. Yet, in characteristic fashion, he soon shifted tone, suggesting that dealing with Ukraine was proving “more difficult, frankly, than Russia” in efforts to broker peace, before declaring that US relations with Moscow were “doing very well.”
This is the sort of an environment we are at right now, so expect lots of headline-driven moves this week. But on the whole, the FX markets have favoured a weaker US dollar and I don’t see that changing in the near-term outlook.
Lloyd’s of London forecasts $2.3bn losses from LA wildfires
Insurance market Lloyd’s of London has estimated that the Californian wildfires that ravaged Los Angeles in January will cost it aroudn $2.3bn.
Lloyds has released the estimate alongside its a trading update for 2024, which show it made an underwriting profit of £5.3bn last year, down from £5.9bn in 2023, while pre-tax profits fell to £9.6bn from £10.7bn.
Burkhard Keese, Lloyd’s CFO, says:
“2024 saw us maintain our focus on strong profitability and disciplined growth. Our market has delivered another excellent underwriting year for our investors, while providing best in class solutions for our customers to protect their business flows and balance sheets.
“We would like to extend our deepest sympathies to those affected by the California fires earlier this year. Although we are still assessing the full impact, we do not expect this to be a capital event.”
The total cost of the wildfires will be much higher, though – there were estimates in January that the total insured losses could exceed $20bn, with the total losses forecast to exceed $135bn.
After a shaky start to the year, UK consumer confidence bounced back in February, reports polling company YouGov.
The YouGov/Centre for Economics and Business Research consumer confidence index, just released, increases by 1.4 points in February, up from 111.1 to 112.5.
That takes it back to levels set in December:
YouGov reports:
-
However, Britons were less optimistic about household finances for the year ahead (-1.4), and workers more worried about job security (-0.5) compared to January 2025
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Business activity measures for past 30 days (+2.0) and next 12 months (+1.2) rise
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Outlook for house prices rises (+5.2), as do retrospective measures (+1.6)
Sam Miley, managing economist and forecasting lead at Cebr, says:
“Despite the headline YouGov/Cebr Confidence Index improving, consumers also reported some areas of concern. Notably, households’ views of their financial situation over the coming year have returned to negative territory.
This is likely a driver of the weak consumption levels we are seeing across the economy, despite ongoing improvements in real wage growth. Instead, consumers are opting to save at a higher rate and act more cautiously.”
Wall Street futures signal more losses ahead today
Wall Street is on track to fall when trading begins, in under twothree and a half hour’s time.
Investors may be in a less cheerful mood, after Donald Trump failed to rule out his trade policies causing either a recession or higher inflation in the US.
The Dow Jones industrial average is on track for a 0.95% fall, acccording to the futures market, with the S&P 500 being called down 1.2%.
Wall Street patience with the White House may be running thin, after Trump told Fox News yesterday that there will be “a period of transition” as his policies kick in.
RBC Capital Markets’ head of U.S. equity strategy research, Lori Calvasina, says:
“Strong postelection vibes were an important part of the bullish consensus on 2025 for U.S. equities which hasn’t panned out.”
After years battling deflation, policymakers in Japan are starting to worry that inflation may be a growing problem.
Private-sector members of a key Japanese government panel called for vigilance to the risks of rising inflation hurting the economy today, as the country’s long-term government bond yields surged to 16-year highs.
The Council on Economic and Fiscal Policy (CEFP) said that policymakers should watch out for the risks of food inflation dampening private consumption and of a potential surge in interest rates hurting the outlook for investment, adding:
“Vigilance is required that such risks could potentially reverse the ongoing economic recovery.”
They should also be mindful of how increasing interest payments on government debt would affect public finances, they added.
AJ Bell: $1.57trn wiped off value of the Magnificent Seven so far this year
Concerns that Donald Trump may damage the US economy have hurt US mega-tech companies this year.
Since the start of 2025, $1.57trn has been wiped off the value of the “Magnificent Seven” tech stocks so far this year, reports brokerage AJ Bell.
Nvidia, Tesla, Amazon, Microsoft, Apple and Alphabet have all fallen in value, leaving Meta as the only company worth more than at the end of last December.
Dan Coatsworth, investment analyst at AJ Bell, says:
“Tech stocks rallied when Donald Trump won the 2024 US presidential election on hopes of less stringent regulation. The euphoria around his return to the White House has now fizzled away, with all the S&P 500’s gains wiped out. That’s dampened investor sentiment in general.
“The dollar, as benchmarked by the trade-weighted DXY index, is down 5.4% from January’s peak, to erase the gains forged after the presidential poll.
“Investors are beginning to realise that Trump’s policies might have negative consequences, even for people in the US where the prospect of recession is now being talked up. A trade war is unsettling and there are far-reaching consequences if it blows up.
“We’ve seen a rotation into other areas such as cheap(er) stocks in the UK and Europe, and more defensive areas in the US like healthcare are getting their moment in the sun. Even China is attracting more attention as investors keep their fingers crossed for more government stimulus measures to prop up the economy.
“Investors have been sitting uncomfortably when it comes to the US and that’s made them look closer at their portfolios to consider if changes are needed. It’s natural to look at the areas that have previously done well and consider if it is time to lock in gains.”
The US dollar is slipping today, down 0.15% against a basket of major currencies.
That takes it close to the four-month low touched during trading on Friday.
The “Trump Bump” risks becoming the “Trump Slump” across financial markets. Dollar index dropped to the lowest since US elections due to recession fear. pic.twitter.com/NRS1G04ixT
— Holger Zschaepitz (@Schuldensuehner) March 10, 2025
In happpier news, investor morale across the eurozone has brightened substantially this month.
The monthly index of eurozone investor confidence from the Sentix research institute has risen this month, to -2.9 in March from -12.7 in February
Economic expectations have hit their highest reading since July 2021, as investors are cheered by Germany’s plan to issue more debt to fund defence spending.
As Sentix puts it:
“For Germany, investors are downright euphoric.”
European stock market volatility index hits seven-month high
An index of fear in Europe’s financial markets has hits its highest level since last August.
The Euro Stoxx Volatility index, which uses options pricing to measure market expectations of future volatility, has risen by almost 5% this morning to 23.8 points, a seven-month high.
The index has almost doubled since mid-December, when it dipped below 14 points, as investors have grown more nervous about the economic outlook.
China’s decision to impose retaliatory tariffs on US agricultural imports today (see earlier post) has highlighted the risks of a global trade war.
Analysts at Principal Asset Management have warned that escalating trade tensions are injecting fresh volatility into markets, adding:
The U.S. trade deficit, which remains sizable with key partners like China, Mexico, and Europe, underscores the stakes in ongoing trade disputes. However, while tariffs could increase costs and disrupt supply chains, history suggests that markets adapt over time.
A well-diversified portfolio remains the best defense against short-term uncertainty. Investors should avoid overreacting to short-term swings and instead focus on economic resilience, corporate earnings strength, and broader market trends.
Last week the VIX index, which tracks fear levels on Wall Street, hit its highest level since last December, as the early market enthusiasm following Donald Trump’s election victory subsided.
Vishwanath Tirupattur, global head of quantitative research at Morgan Stanley, says the mood has changed rapidly, telling clients:
Market sentiment has shifted quickly from post-election euphoria and animal spirits to increasingly serious concern about downside risks, driven by ongoing policy uncertainty and a spate of uninspiring ‘soft’ data. The macro markets now expect the Fed to pivot from fretting about inflation to worrying about growth. Market pricing of rate cuts in 2025 has swung from about one cut a few weeks ago to three cuts today.
he pricing of the terminal rate has also moved notably lower, with its arrival much sooner. After reaching an all-time high just a few weeks ago, the S&P 500 has given up all its gains since the election and then some, in line with our US equity strategy team’s outlook for a tougher first half and a 5,500-6,100 trading range due to slower growth.
