SceneSetter: Holiday Calm after a Volatile Fortnight

Wall Street ended Thursday in stasis—the S&P 500 squeaked out a 0.1 % gain while the Nasdaq slipped by a similar margin—as traders squared books ahead of Easter. The dollar recovered modestly and 10year Treasuries added five basis points to 4.33 %, marking a tentative reversal from last week’s panic lows.

The 25 bp Cut that Spoke Volumes

The ECB lowered its deposit facility rate to 2.25 %, its seventh trim in a year, citing “exceptional uncertainty” from U.S. tariff policy and fading domestic momentum. Crucially, President Lagarde shifted the focus from upside inflation risk to downside growth risk, paving the way for an additional 5075 bp of easing priced into Euribor futures.

BondMarket Verdict: Divergence, Not Decoupling

Euroarea sovereign yields lurched lower; BTPBund spreads tightened 8 bp as carry hunters resurfaced. In contrast, U.S. yields edged higher after Powell reiterated that the Fed needs “more evidence” before acting but acknowledged that tariffs could derail both mandates. The widening 2year EURUSD spread (107 bp) helps explain the euro’s 0.25 % slide to $1.137, despite the dollar’s broader softness.

Equity Rotation: Defensive Bid, Tech Pain

U.S. sector leadership flipped again:

• Healthcare carnage—UnitedHealth’s 22 % rout after an earnings miss erased ~$120 bn in market cap and dragged the Dow 1.3 % lower.
• Chipsector blues—Nvidia warned of a $5.5 bn revenue hit from AIchip export curbs, and the SOX slipped 4 %.
• Energy resilience—Brent’s 3 % jump on fresh Iran sanctions buoyed integrated majors, offsetting some of the tech wreck.

Currency CrossCurrents: Why EUR/USD Bulls Should Worry

Lagarde’s dovish tilt against Powell’s inflation focus implies a slower decline in the USD cost of carry than many macro funds anticipated. Meanwhile, the BOJ still hints at rate hikes, making yendip buying attractive even after Thursday’s USD/JPY bounce to 142.6.

GBP/USD remains hemmed in by 1.32 support; domestic fiscal tightening tempers sterling enthusiasm despite the weakdollar narrative. The nearterm risk skew therefore favours rangebound trading rather than a decisive topside break above 1.3292.

Commodities Pulse: Gold, Oil, Copper

Gold’s slight pullback to $3,320 reflects profittaking, not a fundamental shift, while Brent’s rally underscores the stagflationary tint of tariff politics—higher import costs and tighter supply. Copper’s 1.5 % slide signals lingering demand anxiety, a headwind for cyclicals. ReutersReuters

Volatility Optics: MOVE vs. VIX

The Treasuryvol MOVE index has fallen sharply since its April 8 spike, tracking a modest recovery in bondmarket liquidity. That drop historically correlates with a firmer dollar, complicating the consensus eurobullish trade. Equity VIX remains elevated near 27, consistent with the tugofwar between softlanding hopes and tariffinduced earnings downgrades.

Scenario Matrix for Q2

Investment Takeaways

1. Stay relativevalue. Longenergy/shorttech keeps exposure to tarifflinked inflation while hedging earningsrisk concentration.
2. Neutralduration bias. U.S. 10s at 4.34.4 % offer balanced convexity; volatility compression makes selling 4.5/4.15 strangles attractive.
3. Carry in FX. With the BOJ inching toward hikes and the ECB cutting, shortEUR/JPY via forwards earns positive carry and hedges global riskoff episodes.
4. Stagflation hedges. Maintain a 57 % portfolio allocation to gold; use Brent call spreads financed by copper puts to capture asymmetric energy shocks.

Bottom line: The ECB cut has not unleashed a riskon stampede; instead, it has sharpened policy divergence and underlined stagflation concerns. Until tariff clarity emerges, expect choppy rangetrading—punctuated by sector rotations—as investors juggle growth risks against inflation hedges.