European stock markets are rallying this morning after Wall Street’s mixed session on Tuesday. The FTSE 100 is up 0.6 per cent with shares in Frankfurt and Paris rising 1.3 and 1 per cent respectively. Stellantis eyed revenue growth after a 70 per cent drop in profits in 2024 – a reset-type year it seems. Brewer ABInBev shares rallied on better-than-expected sales. On Tuesday, the S&P 500 fell 0.5 per cent for a fourth straight loss, the Nasdaq 100 dipped another 1.2 per cent, while small caps were also weaker amid an advance for the Dow Jones.
The yield on the 10-year US government bond went below 4.30 per cent, down 50 bps in just over a month, as investors sought shelter Bitcoin fell to a three-month low and gold sold off as the selloff in stocks tightened financial conditions. Tech sold off, too. But Tesla’s decline was entirely self-inflicted as it came on some pretty dreadful European sales figures for the EV maker. The 8 per cent decline took the market cap back below $1tn.
“Pessimism about the future returned.” That was the headline from the Conference Board consumer confidence report yesterday. Which just about sums it up. Falling sentiment came with the old pal of rising inflation. Average 12-month US inflation expectations surged from 5.2 per cent to 6 per cent in February. The increase reflected a mix of factors, including sticky inflation but also the recent jump in prices of key household staples like eggs and the expected impact of tariffs, said the CB. This came after the UoM consumer sentiment survey fell 10 per cent and inflation expectations rose to a 30-year high.
There seem to be dislocations everywhere. On the one hand in Europe, investors have some kind of peace dividend. On the other, everyone’s nervous about Donald Trump’s tariffs and a looming trade war. In the US, everyone’s optimistic about deregulation and a general Trump trade boost to markets. But at the same time, the consumer is wobbling because of tariffs, rates and inflation. And layoffs –not least Federal layoffs as Musk swings his so-called Department of Government Efficiency axe…hey maybe all that US exceptionalism was just a big Biden scam based on pumping money into the system? And Walmart – the bellwether stock was out with weak guidance last week. When Walmart speaks you listen.
It all suggests that strong consumer spending and a strong labour market – the two pillars of the US story of growth in the last couple of years – are in question, just as the market is teetering on some very stretched valuations. There are a lot of dislocations right now – low volatility despite big events, and Europe’s rally in the face of tariffs.
Meanwhile, Donald Trump has done a mineral rights deal with Ukraine, it seems. This is getting into some pretty shady territory in terms of diplomacy and the art of the deal. I don’t like to presume anything anymore. But it could lead to some gains for some of the mid-cap uranium, rare earth and lithium miners in the US. Iron ore producer Ferrexpo rallied 7 per cent after the announcement, though has fallen 26 per cent year-to-date.
By Neil Wilson, an analyst at TipRanks
