Possible tariff negotiations stabilise the market

General market commentary

Equity markets closed lower in a volatile session on Tuesday as new U.S. tariffs took effect, weighing on investor sentiment. The Dow Jones Industrial Average declined 1.2%, the S&P 500 fell 1.4%, and the Nasdaq Composite dropped 1.7%, with financial and industrial equities leading losses. International markets also weakened, as China imposed fresh tariffs on U.S. agricultural products, adding to trade tensions, while European automakers saw sharp declines. The U.S. dollar softened against major currencies, adding to market uncertainty, while WTI oil prices slipped due to expectations of increased OPEC output and tariffs on Canadian oil.

Despite the selloff, broader economic concerns remain mixed, with inflation showing signs of moderation and expectations growing for Federal Reserve interest rate cuts later in the year. Bond yields edged higher, with the 10-year U.S. Treasury yield at 4.21%, though the overall trend has been downward. While trade tensions and economic policy shifts continue to drive volatility, investors remain focused on how companies will navigate these challenges amid evolving market conditions.

Latest market and economic update

Asian equities rebounded on Wednesday amid hopes that U.S. President Trump may negotiate recently imposed tariffs, with major indices such as Japan’s Nikkei 225 rising 0.5% and Hong Kong’s Hang Seng jumping 1.5%. However, Australia’s S&P/ASX 200 fell 0.8% despite stronger-than-expected GDP growth, as investors assessed the impact of trade tensions on China, its largest trading partner.

US equity futures rose overnight, following comments from Commerce Secretary Howard Lutnick hinting at a possible compromise on tariffs between the US, Canada, and Mexico. Market participants are focused on the potential implications of these developments on trade relations and economic growth.

European equities fell sharply on Tuesday, with the STOXX 50 dropping 2.8% and the STOXX 600 losing 2.2%, as trade tensions between the US, Canada, Mexico, and China weighed heavily on market sentiment. Key movers included Stellantis, which plunged 10% on Mexico exposure, and banks like Santander and BBVA, which slid 6%, while defence shares such as Thales gained 2.5% amid growing military investment in Europe.

The US dollar regained some ground on Wednesday after hitting a three-month low, supported by safe-haven demand following President Trump’s renewed threats of reciprocal tariffs. However, the euro remained strong despite slipping 0.1% from its session high of $1.0637, after surging 1.3% on Tuesday due to Germany’s proposed €500 billion infrastructure fund and plans to ease borrowing rules, which bolstered growth expectations.

Oil prices edged lower in Asian trade this morning, with Brent crude falling 0.2% to $70.93 a barrel and WTI down 0.3% to $67.46, as markets remained cautious over tariff-related headwinds and rising global production. However, crude found some support from China's 5% GDP growth target and stimulus measures, along with a larger-than-expected draw in U.S. oil inventories, which raised hopes of improving demand.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Cybersecurity firm Crowdstrike forecast first-quarter revenue slightly below estimates, with a range of $1.10 billion to $1.11 billion, as enterprise clients curb spending amid economic uncertainty. Shares fell 9.3% in after-hours trading, contrasting with competitors Palo Alto Networks and Fortinet, which had projected higher-than-expected revenue.

Target warned that tariffs and consumer uncertainty would negatively impact its profit in the first quarter, with price hikes expected on seasonal produce like avocados due to new tariffs on imports from Mexico and Canada. The retailer also announced plans to shift more sourcing from China to countries like Guatemala and Honduras, while forecasting flat annual comparable sales and reduced earnings for the year.

Thales delivered strong results for the second half of 2024, with revenue of €11.08 billion and EBIT of €1.32 billion, driven by robust growth in its defence sector. While the company’s 2025 guidance appeared conservative, analysts highlighted strong cash flow, a solid order intake, and potential upside from increased defence spending, which could lead to upward revisions.

TSMC announced a $100 billion investment plan to build five new chip facilities in the U.S., including fabrication plants, advanced packaging, and R&D centres, aiming to reduce the country's reliance on Asian-made semiconductors. This expansion, which is set to create 40,000 construction jobs, follows earlier efforts to boost U.S. production, and aligns with the U.S. government's CHIPS Act to strengthen domestic semiconductor manufacturing.

Stellantis warned its U.S. dealers that the 25% tariffs on products from Mexico and Canada would put its brands, including Chrysler, Dodge, Jeep, and Ram, at a competitive disadvantage compared to Asian and European manufacturers. The company is engaging with the Trump administration to mitigate the impact of the tariffs, which threaten to disrupt North America's long-established integrated supply chain.

The U.S. Navy has excluded Lockheed Martin from the competition to develop its next-generation carrier-based stealth fighter, the F/A-XX, opting to proceed with designs from Boeing and Northrop Grumman. The new jet is set to replace the aging F/A-18E/F Super Hornet fleet, with a contract for Engineering and Manufacturing Development expected to be awarded to the remaining two competitors.

Google recently met with President Trump’s government to argue against the U.S. Department of Justice’s push to break up the company, citing concerns over potential harm to the economy and national security. The DOJ is pursuing antitrust cases related to Google’s dominance in search and advertising, with a trial scheduled for April and a ruling expected by August.

A U.S. court has denied Elon Musk’s request for a preliminary injunction to block OpenAI’s transition from a nonprofit to a for-profit entity, with the judge stating Musk did not meet the necessary legal requirements. However, the judge agreed to expedite a trial later this year, with Musk’s legal team seeking a jury to address claims that OpenAI’s shift undermines its original charitable mission.

Porsche has acquired a 70% majority stake in Varta's car battery subsidiary, V4Drive, which will be rebranded as V4Smart to focus on high-performance cylindrical cells for various applications. The partnership aims to enhance Porsche's 911 GTS models with advanced battery technology, while Porsche also plans to support Varta AG's restructuring and continue acquiring a stake in the company.

Bernstein analysts maintain a positive outlook on Nvidia, stating that concerns about the end of the AI trade are premature, as the stock’s valuation is becoming increasingly attractive. Despite a recent pullback, they believe catalysts such as rising spending intentions, a new product cycle, and the upcoming GTC event will drive future growth, with Nvidia's stock still offering potential returns at 25x earnings.

Bank of America upgraded Vistra to "Buy" from "Neutral," citing an attractive valuation and the company’s strong positioning in tightening power markets, despite a recent underperformance. The firm believes Vistra's disciplined approach to capital spending and cost reductions makes its growth target more achievable.

UBS downgraded Erste Group Bank to "Neutral" from "Buy," citing concerns over capital distribution, profitability sustainability, and limited short-term upside potential compared to its sector peers. The bank’s strong capital position and growth prospects in Central and Eastern Europe were overshadowed by lower earnings projections and a focus on inorganic growth opportunities, leading UBS to set a modest 12-month price target of €65.

Barclays upgraded HSBC to "Overweight" and raised its price target to 1,200p, citing a strong earnings outlook driven by cost efficiency, strategic realignments, and favorable conditions in Hong Kong. The bank is expected to achieve higher sustainable returns on tangible equity, with projected capital return yields rising to 12% by 2027, although risks such as geopolitical tensions and restructuring challenges remain.

Morgan Stanley upgraded Lloyds Banking Group to "Overweight" and raised its price target to 90p, citing strong net interest income growth, better-than-expected performance in other income segments, and reduced risks around motor finance litigation. The analysts forecast continued growth in interest income and other revenue streams, with improved earnings visibility, and project a 10% total yield from dividends and buybacks in 2025.

Berenberg analysts upgraded Dassault Systèmes to "buy" and raised their price target to €44.40, citing strong growth drivers such as the recovery of Medidata Solutions and continued momentum in its 3DEXPERIENCE platform. Despite a challenging 2024, the analysts believe Dassault is poised for a turnaround, with lower revenue expectations creating room for outperformance and potential re-rating of the stock.

Upcoming data and events

Key economic releases and speeches today include U.S. President Trump’s address, ADP Nonfarm Employment Change, Services PMI, ISM Non-Manufacturing PMI, and EIA Crude Oil Inventories, all of which could influence market trends. Earnings reports from companies like Marvell Technology, Veeva Systems, MongoDB, Victoria’s Secret, and Campbell Soup will offer insights into sectors such as tech, retail, and consumer goods.

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