Market Mayhem: Rebound or Just a Dead Cat Bounce?

Hello and welcome to The Capital Circle, where we wrap up the week’s market action and peek at what’s on the horizon. Grab your cup of tea (or stress ball) and let’s dive in!

Last Week’s Market Recap

• Stocks & Volatility: Equity markets had a wild ride. The S&P 500 tumbled into correction territory (over 10% below its recent high) amid a weeks-long slide. In fact, by Thursday, the S&P had shed more than $4 trillion in value from its peak, with Wall Street’s high-fliers like Nvidia and Tesla getting pummeled. A relief rally on Friday helped the index claw back +2.1% (its best one-day jump since November)​, but it wasn’t enough to erase the damage – marking the fourth straight weekly loss for both the S&P 500 and Nasdaq​. London’s FTSE 100 followed a similar script, ending 1.1% higher on Friday as mining and defence stocks rallied, yet still finishing the week in the red​. The volatility was palpable: Wall Street’s “fear gauge” (the VIX) nearly doubled over the past month, spiking to its highest levels since last summer​ as traders braced for every new headline. (At this rate, the VIX is getting more of a workout than most traders’ gym memberships!)

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• Forex: In currency markets, the U.S. dollar experienced a bout of weakness against major peers. The euro gained ground for a second week, briefly nudging above $1.088 after Germany’s coalition-in-waiting agreed on a hefty fiscal stimulus plan. Hopes that Europe might open the spending taps gave the euro a boost (who knew fiscal unity could be a forex trading catalyst?). Meanwhile, the sterling touched a four-month high near $1.30 midweek before a dose of weak UK data took some wind out of its sails. A surprise 0.1% contraction in UK GDP for January – versus expected growth – knocked the pound off its perch​. On the flip side, the dollar strengthened against traditional safe-haven currencies like the Swiss franc and Japanese yen. With the U.S. government averting a shutdown at the 11th hour​ and U.S. rate-cut bets pushed back, investors rotated away from the yen and franc. Even the Canadian dollar had its moment: it rallied after former central banker Mark Carney was sworn in as Canada’s Prime Minister and struck a conciliatory tone with Washington. (Yes, you read that right – a ex-BoE Governor now Canadian PM; FX traders certainly didn’t miss the irony or the buying opportunity.)

• Gold: The gold market shone brightly amid the turmoil. The precious metal surged to an all-time high, vaulting above $3,000/oz for the first time ever​. Fears of an escalating trade war and global slowdown sent investors fleeing stocks for safe havens, and gold was the prime beneficiary. By late week, miners were laughing all the way to the vault as gold’s historic rally lifted mining shares​. It’s not every week that gold bugs get to say “I told you so,” but with bullion glittering while risk assets sputtered, they certainly earned their bragging rights. Even Treasury bonds caught a bid alongside gold – U.S. 10-year yields fell sharply as traders piled into safe assets​. In short, when the going got tough, the tough got gold (and bonds).

• Trade War & Politics: Last week’s market mayhem had a clear culprit: tariffs, tariffs, tariffs. U.S. President Donald Trump dialed the trade-war rhetoric up to 11, announcing a threat to slap a whopping 200% tariff on imports of European wine, cognac, and other spirits​. This opened a new front in the global trade war and gave traders flashbacks to 2018. Stocks fell sharply on the news as recession fears spread​ – after all, if French wine isn’t safe from tariffs, what is? Trump’s move was in response to the EU’s plan to tariff American whiskey next month (itself retaliation for U.S. metal tariffs)​. The tit-for-tat had markets on edge, fearing a full-fledged transatlantic tariff tussle. Meanwhile, tensions with Canada simmered as Trump’s earlier 25% metals tariffs prompted Canada to ready countermeasures and a WTO challenge. High-level talks between U.S. and Canadian officials on Thursday failed to reach a breakthrough, although both sides agreed to keep talking. (One Canadian official noted that the “temperature is being lowered.” Let’s hope so because traders’ blood pressure could use a break.) In Washington, Trump doubled down on his hard-line stance, insisting the U.S. has been “ripped off for years” and vowing not to back down. His administration signaled it’s even willing to stomach market pain as part of a “detox” period for the economy. No wonder investors were reaching for the paracetamol —this tariff tango is giving markets more whiplash than a volatile penny stock.

• Key Data & Economy: It wasn’t all about politics; a slew of economic data added to the mix. In the U.S., inflation offered a mixed blessing. Headline price gains for February came in softer than expected, giving the Fed a bit of breathing room​. But underneath the hood, core price pressures remained stubbornly sticky, and new import tariffs threaten to nudge inflation northward in coming months​. In other words, the inflation dragon isn’t slain yet – it’s just catching its breath. On the consumer front, the mood turned dour: the University of Michigan’s survey showed sentiment plunged to multi-year lows​ as Americans fretted over rising prices and tariff drama. One glaring detail: short-term inflation expectations among consumers jumped to 4.9%, the highest in over a decade, thanks to talk of higher import costs​. Over in the UK, as mentioned, GDP unexpectedly shrank 0.1% in January​, underlining the fragility of Britain’s economy. That hiccup, combined with the slowest UK housing market in over a year​, had traders betting the Bank of England will tread carefully. Across the channel, a bright spot emerged: Germany’s likely next chancellor secured support for a €500 billion infrastructure and defense fund, signaling fiscal stimulus ahead​. This prospect of German spending (finally!) helped buoy European sentiment and the euro​. Even China chimed in with news, though not the good kind – data out of Beijing showed deflationary pressures intensifying in the world’s second-largest economy​, sparking global growth worries. All told, it was a week of cross-currents: solid inflation relief on one hand, softer growth signals on the other, and policy uncertainty looming over all. No wonder markets were so indecisive – they were trying to drink from a firehose of news.

This Week’s Outlook

• Central Bank Spotlight: Buckle up for a central bank bonanza. Three major central banks meet this week – the U.S. Federal Reserve, the Bank of England, and the Bank of Japan – and while none are expected to change rates, their decisions (and words) will be crucial​. The Fed convenes on Wednesday, and traders worldwide will hang on Jerome Powell’s every syllable. Markets overwhelmingly expect the Fed to hold rates steady at 4.25–4.5%​, especially with first-quarter growth slowing and recent banking jitters still in mind. However, there’s intense interest in the Fed’s tone and projections: Will Powell hint at future rate cuts later in 2025, or emphasise that sticky inflation and tariff-driven price spikes could “tie the Fed’s hands” on easing​? The Fed will also release fresh economic forecasts (the infamous “dot plot”), which could jolt markets if they diverge from what investors have priced in. A dovish tilt might weaken the dollar and spur a relief rally in stocks, while a resolute anti-inflation stance could do the opposite. Across the pond, the Bank of England announces its decision on Thursday. After a surprise rate cut in February, the BoE is widely expected to pause at 4.5% this time​. UK policymakers face a quandary: inflation is easing modestly, but growth is sputtering and business confidence is shaky amid global trade frictions​. Any hints from Governor Andrew Bailey about future cuts (or not) will move the pound and UK equities. Not to be outdone, the Bank of Japan meets as well (likely wrapping up Wednesday in Tokyo time). The BOJ is also set to stand pat, as it monitors the impact of higher wages and global uncertainty​. With a new BOJ governor taking the helm in April, markets expect no big policy shifts yet – but any surprise tweak to its ultra-easy policy would send the yen on a rollercoaster. Finally, let’s not forget the Swiss National Bank (SNB) on Thursday – the SNB could also hold fire, keeping its rate at 1.75% while it watches the franc’s strength. For investors, this central bank trifecta means one thing: potential volatility. Each press conference could be a minefield of market-moving clues. Keep your ears open and your stop-losses tight.

• Market Trends – Stocks, FX, Volatility: The big question: can markets find their footing after weeks of declines? Stocks enter the week nursing their wounds but hopeful that central bankers might play Santa Claus. If the Fed comes off as dovish or at least not overly hawkish, we could see a relief rally in equities – traders jokingly call it the “Powell Put,” the idea that the Fed will step in if things get too ugly. However, officials have made it clear there’s no “Trump Put” for markets​ – the White House isn’t exactly rushing to rescue stock prices during this tariff tussle. So, equity bulls shouldn’t get complacent. Expect continued choppiness: tariff news, data surprises, or a stray tweet could quickly flip sentiment. Key U.S. indexes like the S&P 500 and Dow will be testing technical support levels, while in London the FTSE 100 will eye the 7,000 mark as a barometer of confidence. Volatility is likely to stay elevated; the VIX might not sustain last week’s peaks if central banks manage to calm nerves, but it’s certainly not likely to snooze in the teens either. One strategist noted that the “onslaught of headlines” out of Washington isn’t about to stop​ – meaning traders might sleep with one eye on their news feeds. In other words, don’t be surprised if markets remain a bit bi-polar, reacting sharply to each new development. As for forex, the U.S. dollar could continue its recent soft patch if the Fed hints at rate cuts down the road. Conversely, any Fed pushback against easing (or any surge in safe-haven demand) could give the dollar a boost. The euro looks to extend its recent rally, buoyed by Europe’s fiscal optimism – but it will also be sensitive to the Fed/ECB policy gap. The British pound will take its cues from the BoE and UK data; any hint that the BoE’s February cut was one-and-done might support sterling, whereas dovish signals could see it retreat from $1.30. Currency traders will also watch the yen – a steady BOJ and any improvement in risk appetite could weaken the yen further, unless global angst sends investors running back to it. All told, the coming days may feel like navigating a ship in choppy waters: central bank forward guidance will be our North Star, but we’ll still be tossed around by each wave of news. (At least it shouldn’t be boring – volatility is a trader’s best friend, as they say!)

• Key Data & Events to Watch: A raft of important economic reports is on tap that could sway market sentiment in real time. Monday kicks off with critical data from China – industrial production, fixed-asset investment, and retail sales for January-February. Given recent deflation worries, signs that China’s economy is perking up (or not) will set the tone for commodity markets and Asian stocks early in the week.

  Also on Monday, the U.S. reports February retail sales, a key check-up on the American consumer’s health. Recall that U.S. consumer sentiment just hit the skids​; if retail spending shows a big drop after January’s strength, recession murmurs could grow louder.

  On Tuesday, Germany’s ZEW survey will gauge investor morale in Europe’s largest economy, and Canada’s CPI arrives – notable after Canada’s political shake-up and with the Bank of Canada on pause.

  Moving to Wednesday, it’s all about the Fed decision in the evening (with U.S. housing starts and industrial production as appetizers earlier that day). Keep an eye on the Fed’s statement at 2pm Washington time, followed by Powell’s press conference – both have high potential to whipsaw markets. Late Wednesday (or early Thursday in Asia) we’ll get the BOJ outcome, though any surprise there would be the real shock.

  Thursday is a heavyweight on data: the UK reports its latest employment figures (wages and jobless rate) in the morning, just hours before the BoE meeting – a strong jobs report could put the BoE in a tight spot if they’re inclined to ease further. Also Thursday, Switzerland’s SNB gives its rate decision (important for CHF traders), and the U.S. will have its usual jobless claims plus the Philadelphia Fed survey, which is a bellwether for manufacturing sentiment.

  Friday brings Japan’s CPI for February, which could influence expectations around the BOJ’s future policy (a hot inflation read might stir speculation of policy tweak later this year). We’ll also see Canadian retail sales on Friday, rounding out the week. Beyond scheduled data, don’t underestimate the impact of unscheduled news – especially on the political front. That brings us to…

• Political & Trade Developments: Traders will be glued to the trade war narrative as it evolves. The coming week could prove decisive in the U.S.-EU tariff spat. Will President Trump follow through on his threat to impose reciprocal tariffs on “all trading partners” starting April 2nd if he doesn’t get concessions?​ The clock is ticking, and any new pronouncements from the White House could jolt markets (for better or worse). Investors will be watching for signs of negotiation or compromise – perhaps behind-the-scenes talks to dial down the 200% tariff threat before it officially hits the books. Europe has signaled it will retaliate in kind if attacked (they’ve got a whiskey tariff in the works as a countermeasure​), so this could escalate fast if no one blinks. Similarly, keep an eye on U.S.-Canada trade talks. Officials hinted at progress after last week’s meetings, even agreeing to meet again next week​. If we hear of a deal to remove or soften metal tariffs with Canada (or at least no new salvos from either side), it would remove a layer of uncertainty hanging over the North American markets. On the geopolitical front, any developments in the Russia-Ukraine situation could sway European sentiment – last week’s chatter about a potential ceasefire gave a fleeting boost to risk assets​. Traders will monitor if those diplomatic efforts gain traction or fizzle. And although the U.S. government shutdown threat has receded for now (thanks to a stopgap funding deal)​, Washington isn’t exactly drama-free: debates over budget cuts and debt ceiling will be brewing in the background, which could surface as market issues in coming weeks.

  Bottom line: political headlines remain a wild card. A positive breakthrough on trade could spark a relief rally (and be a punchline to the months-long trade joke), while any surprise blows – be it a new tariff tweet or other geopolitical shock – could send everyone rushing back to safe havens. As one market wit quipped, “Trading on Trump headlines is like riding a see-saw in a hurricane.” Expect the unexpected, and don’t get too comfortable.

In sum, we’re entering the week with guarded optimism but no shortage of caution. Markets are eager for some good news after a rough patch. Will central banks deliver a soothing message? Will cooler heads prevail in the trade disputes? Stay tuned – The Capital Circle will be back next week to recap all the action. Until then, may your trades be green and your drawdowns small. Happy trading!