Investors take a breather as global stock market sell-off pauses

According to Zhitong Finance APP, on Tuesday, after experiencing significant turbulence in the previous trading day, market sentiment in Europe slightly calmed, with the decline in stock markets slowing and the upward momentum in bond prices stabilizing. Previously, the Nasdaq faced its largest single-day drop in over two years.

On that day, the broad Stoxx 600 index in Europe was basically flat during morning trading. Stock markets in the Asia-Pacific region (excluding Japan) had initially dropped about 1.75% in the morning but ended the day down only 0.5%. Futures prices for the U.S. stock market rose about 0.3%.

This situation contrasts sharply with Monday. On Monday, investor concerns about a potential economic slowdown intensified, especially after President Trump discussed a "transition period" in an interview with Fox News and refused to rule out the possibility of a recession. The S&P 500 index fell 2.7% that day, marking the largest single-day drop of the year, while the Nasdaq index dropped 4.0%, the largest single-day percentage decline since September 2022.

Parashant Nuanah, a senior Asia-Pacific rates strategist at TD Securities, stated that most traders previously believed that Trump would back down if the stock market crashed. However, the market has now realized that the government is determined to take a tough stance, even if it risks tariffs and an economic recession, to achieve the goals of reducing inflation and lowering the 10-year Treasury yield. Currently, this appears to be a controlled market adjustment.

Meanwhile, investors flocked to U.S. Treasuries, causing the benchmark 10-year Treasury yield to drop by 10 basis points on Monday, the largest single-day fluctuation in nearly a month. On Tuesday, the yield fell another 2 basis points to 4.12%. The two-year Treasury yield also dropped to a five-month low, recently reported at 3.88%, down 1.5 basis points.

Traders currently expect the Federal Reserve to cut interest rates by 85 basis points this year, higher than the 75 basis points expected on Monday. LSEG data shows that the market anticipates that a slowdown in U.S. economic growth will force the Fed to resume easing monetary policy. "If the economy really falls into recession, they will cut rates significantly," said Idana Apio, a portfolio manager at First Eagle Investment Management.

However, the U.S. Consumer Price Index (CPI) to be released on Wednesday may change these expectations if the index confirms that inflation remains an issue. Investors still remember last month's higher-than-expected inflation data, when inflation rose 0.5% in January, the largest monthly increase since August 2023. According to surveys, the CPI for February is expected to rise by 0.3%.

Apio also noted, "In the short term, inflation remains stubborn, tariffs may lead to rising inflation, and changes in immigration policy may have a similar effect."

In the foreign exchange market, safe-haven currencies remain favored, but market volatility is not as severe as the previous day. The yen reached a five-month high against the dollar in the morning but then retraced its gains, ultimately flat at 147.2. Nevertheless, the yen has risen 7% against the dollar in 2025. The euro also strengthened, rising 0.6% to $1.10898.

In the commodities market, oil prices remained stable as investors weighed concerns that U.S. tariffs could slow global economic growth and energy demand, while OPEC+ is increasing supply. Gold prices rose to $2,908 per ounce, nearing the historical high set last month As of 2025, gold prices have risen by 10%, continuing to climb after a 27% increase last year