The Morning Edge: Governments Drive Markets, HSBC Downgrades US Stocks

Reuters offers an intriguing perspective in a commentary by Mike Dolan, highlighting a significant shift in the global economic landscape. For years, central banks have been the dominant force in shaping markets and economies, but governments are now taking centre stage with bold—and often disruptive—policies. In just two months, the new US administration has unsettled the global order, triggering trade wars, straining long-standing alliances, and prompting a fundamental re-evaluation of fiscal strategies across Europe and beyond.

As Germany and China respond with stimulus measures to counter the fallout, US businesses and households find themselves navigating an environment fraught with uncertainty. Government job cuts and Wall Street volatility are adding to concerns of a downturn. Even the Federal Reserve, caught in the turbulence, concedes its inability to predict near-term market shifts. Chair Jerome Powell’s recent remarks suggest the Fed is likely to stay on pause, leaving markets to adapt to this era of government-driven economic upheaval.

Data
Investor fears over President Donald Trump’s tariffs have triggered a stock market sell-off, erasing $4 trillion from the S&P 500’s peak last month. HSBC responded by downgrading US equities to "neutral," citing rising uncertainty, while upgrading European stocks (excluding the UK) to "overweight" from "underweight," buoyed by Germany’s fiscal loosening. Meanwhile, shifting global dynamics are reshaping investor sentiment. A proposed $1.2 trillion European fiscal stimulus and China’s rise as a tech powerhouse are driving capital flows away from the US. As trade tensions escalate, Wall Street’s optimism over Trump’s economic policies is giving way to caution.

Markets
Overnight
US stocks plummeted on Monday as escalating trade tensions and fears of a federal government shutdown sparked recession worries, reigniting last week’s selloff. The S&P 500 posted its largest one-day drop since December 18, while the Nasdaq slid 4.0%, its steepest decline since September 2022. Tesla led the losses, plunging 15.4%—its biggest drop since September 2020—amid backlash over CEO Elon Musk’s controversial firings and political stances. Cryptocurrency-linked stocks Coinbase and MicroStrategy also tumbled 17.6% and 16.7%, respectively, tracking bitcoin’s weakness. The sharp declines reflect mounting investor anxiety over geopolitical and policy uncertainties, signalling potential volatility ahead.

US Treasury yields fell sharply on Monday as investors grew increasingly concerned that President Trump’s trade war rhetoric and tariff escalations could trigger an economic downturn. While the Fed is unlikely to cut rates at next week’s policy meeting, futures markets are pricing in a series of quarter-point reductions starting in June, with additional cuts expected in July and October. The 2-year note yield, which closely tracks Fed rate expectations, dropped 10.4 basis points to 3.898%, marking its largest daily decline since September. Meanwhile, the 10-year yield fell 9.3 basis points to 4.225%, and the 30-year bond yield slid 6.9 basis points to 4.548%, reflecting growing bets on aggressive Fed easing if recession fears materialise.

The US dollar faced pressure on Tuesday as investors sought safety in the yen amid growing fears of a tariff-driven slowdown in US growth, which has rattled both US stocks and the greenback. The yen surged to a five-month high of 146.625 per dollar, while the dollar weakened 0.5% against the Japanese currency to 147.29. Meanwhile, the euro edged down 0.06% to $1.0826, and sterling fell 0.45% to $1.2862, reflecting broader risk aversion and uncertainty in global markets. 

Brent crude oil prices declined on Monday as escalating trade tensions and increased OPEC+ production dampened investor sentiment. US crude fell 1.51% to settle at $66.03 per barrel, while Brent slid 1.53% to $69.28. However, potential sanctions on Iranian oil exports helped limit losses, keeping the market on edge. With tariff uncertainties and shifting supply dynamics in play, investors remain cautious about the near-term outlook for global oil prices.

Metrics

Day’s Ledger

Economy

• Japan October-December GDP
• EIA’s Short-Term Energy Outlook.
• USDA’s World Agriculture Supply and Demand Estimates.

Companies

• India Shelter Finance Corpor board to discuss fundraising plans
• BHEL Director (Industrial Systems & Products) Varma and Indian Oil Corp. Director Govil to speak at Gridcon 2025 International Conference (Day 3).

Policy

Eurogroup Meetings
NITI Aayog member Virmani to speak at IMC event

Tickers

• ADITYA BIRLA CAPITAL has made an investment of ₹3 billion on a rights basis in its subsidiary, Aditya Birla Housing Finance.
• ASHOKA BUILDCON has received a Letter of Acceptance for a project worth ₹3.12 billion from Maharashtra State Electricity Transmission Co.
• BHARAT ELECTRONICS has secured additional orders worth ₹8.43 billion since March 6. With these, total accumulated orders during the current financial year stand at ₹145.67 billion.
• CENTUM ELECTRONICS has opened its QIP issue on Monday and set a floor price at ₹1,219.65 per share.
• GENSOL ENGINEERING’s promoters have infused ₹290 million into company through the conversion of warrants into equity.
• HINDUSTAN ZINC board has approved the issuance of non-convertible debentures (NCDs) worth up to ₹5 billion.
• HITACHI ENERGY INDIA launched a Qualified Institutions Placement on Monday, the floor price has been fixed at ₹12,112.50 per share.
• INDUSIND BANK reported accounting discrepancies related to foreign exchange derivatives, with an adverse impact of approximately of around ₹15.30 billion or 2.35% of its net worth as of December 2024.
• MSTC has received a work order from Coal India for engagement as an E-auction service provider for conducting e-auctions of coal and coal products of Coal India/coal companies for two years.
• NECTAR LIFESCIENCES informed that the European Directorate for the Quality of Medicines & HealthCare (EDQM), and the Spanish Agency of Medicines and Medical Devices (AEMPS) issued seven observations, including four critical ones after inspection of the company's API manufacturing facility in Mohali.
• NTPC and it’s subsidiary NTPC Green Energy signed multiple agreements worth ₹960 billion with the Chhattisgarh government.
• SYNGENE INTERNATIONAL acquired of its first biologics site in the USA, which is equipped with multiple monoclonal antibody (mAbs) manufacturing lines.
  
  

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