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Global market indices

US Stock Indices Price Performance

Nasdaq 100 +3.99% MTD +22.93% YTD
Dow Jones Industrial Average +3.94% MTD +15.17% YTD
NYSE +2.65% MTD +17.19% YTD
S&P 500 +3.71% MTD +24.05% YTD

The S&P 500 is -1.14% over the past week, with 9 of the 11 sectors up MTD. The Equally Weighted version of the S&P 500 is -1.09% this week, its performance is +2.99% MTD and +14.92% YTD.

The S&P 500 Consumer Discretionary sector is the leading sector so far this month, up +9.71% MTD and +22.26% YTD, while Health Care is the weakest at -2.81% MTD and +4.59% YTD.

This week, Utilities outperformed within the S&P 500 at +2.56%, followed by Energy and Real Estate at +1.17% and +0.33%, respectively. Conversely, Health Care underperformed at -2.72%, followed by Industrials and Consumer Discretionary, at -2.41% and -2.20%, respectively.

US equity markets exhibited a mixed performance on Wednesday. The Dow Jones Industrial Average closed with a modest gain of 0.3%, while the S&P 500 remained relatively flat. Conversely, the technology-heavy Nasdaq Composite experienced a marginal decline of 0.1%.

Following the closing bell, big tech stocks faced downward pressure in after-hours trading, reacting to a disappointing revenue forecast from Nvidia. This news compounded the cautious sentiment that had already permeated US stock markets leading up to the earnings release, with escalating geopolitical tensions between Ukraine and Russia further weighing on investor sentiment.

In corporate news, shares of Target plummeted after the retailer announced comparable-sales growth and earnings figures that significantly missed consensus estimates. The company also revised its full-year financial forecasts downward. Consequently, Target's stock price plunged by approximately 18% in morning trading, placing it on track for its most substantial single-day decline since May 2022. The retailer's adjusted EPS of $1.85 fell nearly 20% short of Wall Street expectations.

In other news, Ford revealed plans to eliminate 4,000 jobs across Europe amidst sluggish momentum in the EV market. Campbell Soup Company shareholders approved a change to the company's official name, removing ‘Soup’ from its title. McDonald's outlined plans for value-oriented offerings in 2025, including a "buy one, add one" option. Furthermore, Muddy Waters Research, a renowned short-selling firm, accused E.l.f. Beauty of inflating its revenue figures.

Decoding market signals: analysing post-election sentiment and positioning. Sentiment and positioning metrics in the equity market are exhibiting their usual dynamism and potential for varying interpretations. The American Association of Individual Investors (AAII) bull-bear spread surged by 7.5 percentage points to 21.5% in the week ending November 13th, reaching its highest level in a month.

This surge in bullish sentiment is seemingly fueled by post-election optimism, with narratives of fear-of-missing-out (FOMO), heightened risk appetite, and a potential market melt-up gaining traction. This narrative is supported by data showing the second-largest weekly inflow into US equities since 2008 and the longest streak of S&P 500 ETF buying since 2014. Deutsche Bank also highlighted the significant post-election shift in positioning, characterising it as the most substantial weekly jump recorded since 2010.

However, JPMorgan's Positioning & Intelligence update offers a more tempered perspective, noting that US equity positioning has yet to reach its year-to-date highs and that the 4-week change in positioning remains moderate.

The Goldman Sachs Sentiment Indicator, which aggregates stock positioning across retail, institutional, and foreign investors, registered a notable jump of +1.9, surpassing the +1.5 threshold indicative of extremely stretched positioning. This represents a significant increase from the +0.8 reading just before the election. Goldman Sachs' latest positioning update further revealed that Commodity Trading Advisors (CTAs) hold long positions in global equities amounting to $56 billion, placing them at the 36th percentile. The firm's analysis projects that CTAs will remain buyers of the S&P 500 under all scenarios in the coming week.

US stocks

Mega caps: The Magnificent Seven faltered this week, with most stocks showing losses. Alphabet -1.62%, Amazon -5.24%, Apple +1.72%, Meta Platforms -2.50%, Microsoft -2.28%, Nvidia -0.26%, and Tesla +3.57%.

Nvidia Q3 earnings. In Q3, Nvidia's sales reached $35.1 billion, representing a 94% increase from the previous year and exceeding analysts' forecasts compiled by FactSet. The company's profit soared to $19.3 billion, also surpassing Wall Street expectations. This exceptional growth is attributed to the robust demand for Nvidia's GPUs, which are essential components in AI systems and high-performance computing.

Nvidia projected revenue of approximately $37.5 billion for Q4, exceeding market predictions and signalling strong customer demand for its next-generation AI chips, known as Blackwell. These chips are eagerly anticipated by major technology companies such as Microsoft, Google, and Meta Platforms, who are rapidly expanding their AI infrastructure.

Despite these positive developments, Nvidia's shares experienced a modest decline of approximately 1% in after-hours trading. This reaction suggests that the company's results, while impressive, may have fallen short of some investors' heightened expectations following several quarters of exceptional financial performance.

During the recent earnings call, CFO Colette Kress confirmed that the company had successfully addressed the design challenges related to Blackwell, leading to improved manufacturing yields. Production shipments are expected to commence in the current quarter, with demand projected to outstrip supply for several quarters into the next fiscal year.

Nvidia CEO Jensen Huang emphasised the ‘incredible’ demand for both the company's current generation of chips and the forthcoming Blackwell architecture, driven by the rapid expansion of AI computing infrastructure among leading technology companies.

Energy stocks had a positive week, as the Energy sector itself was +1.17% due to concerns regarding oil supply, as the Johan Sverdrup oilfield in the North Sea faced a power outage earlier in the week. WTI and Brent prices are up more than 1% this week. The Energy sector’s YTD performance is +14.36%. Over the week Energy Fuels +8.49%, Halliburton +3.28%, Hess +3.27%, BP +3.11%, Baker Hughes +2.88%, Chevron +1.64%, ConocoPhillips +1.44%, Phillips 66 +1.19%, Shell +1.03%, Apa +0.50%, Marathon Petroleum +0.17%, while Occidental Petroleum -0.41%, and ExxonMobil -0.95%.

ExxonMobil divests Suriname offshore stake, Petronas assumes full control. Suriname's state-owned oil company, Staatsolie, announced on Wednesday that ExxonMobil has relinquished its 50% stake in offshore block 52, according to a Reuters report. Effective 14th November, the withdrawal will see block operator, Petronas Suriname E&P, assume full ownership. Staatsolie confirmed that this transition will not impact ongoing operations with Petronas Suriname E&P, a subsidiary of Malaysia's Petronas oil and gas company.

Initial gas discovery in block 52, located off Suriname's northern coast, occurred in 2020. Exploration efforts continued with the drilling of a second well earlier this year.

Materials and Mining stocks had a negative week, as the Materials sector itself was -0.32%, bringing the sector’s YTD performance to +7.58%. CF Industries +5.52%, Newmont Corporation +4.27%, Sibanye Stillwater +2.41%, Yara International +2.06%, Freeport-McMoRan +1.35%, Albemarle +1.26%, while Mosaic -2.60%, and Nucor -2.65%.

Newmont divests Musselwhite gold mine, exceeding $2 billion divestiture target. Orla Mining announced on Monday that it has entered into a definitive agreement to acquire the Musselwhite Gold Mine in Ontario from Newmont. The acquisition will involve an upfront cash consideration of $810 million and a gold-price linked contingent consideration of $40 million. Orla Mining plans to finance the acquisition through a combination of existing cash reserves, undrawn debt capacity, new debt arrangements, a gold pre-pay facility, and convertible notes with participation from its existing cornerstone investors.

The transaction is anticipated to close in Q1 2025, pending the fulfilment of customary closing conditions.

Upon completion of the acquisition, Newmont will have exceeded its objective of generating over $2 billion in gross proceeds from the divestiture of non-core assets.

Sell-side analysts perceive the transaction favourably, noting the advantageous pricing and its alignment with Newmont's ongoing strategy to optimise its asset portfolio and concentrate on Tier 1 operations.

With this latest transaction, total gross proceeds from divestitures announced in 2024 are projected to reach $2.9 billion. This figure encompasses $2.3 billion from non-core asset sales and $527 million from the divestment of other investments.

Newmont remains committed to utilising FCF generated from its operations and proceeds from divestitures to enhance shareholder value through a consistent share repurchase program. The company currently has a $3 billion share repurchase program authorised for execution through October 2026. Since the program's inception, the company has repurchased 22.4 million shares, representing a total investment of $1.1 billion.

European Stock Indices Price Performance

Stoxx 600 -0.97% MTD +4.49% YTD
DAX -0.38% MTD +13.45% YTD
CAC 40 -2.07% MTD -4.57% YTD
IBEX 35 -0.71% MTD +14.72% YTD
FTSE MIB -3.07% MTD +9.48% YTD
FTSE 100 -0.31% MTD +4.55% YTD

This week, the pan-European Stoxx Europe 600 index was -0.22%. It was -0.02% on Wednesday, closing at 500.49.

This month so far in the STOXX Europe 600, Travel & Leisure is the leading sector, +3.10% MTD and +9.74% YTD, while Autos & Parts is the weakest at -5.46% MTD and -16.81% YTD.

This week, Basic Resources outperformed within the STOXX Europe 600 with a +2.67% gain, followed by Oil & Gas and Telecom at +2.16% and +2.07%, respectively. Conversely, Health Care underperformed at -2.44%, followed by Industrial Goods and Retail, -1.40% and -1.11%, respectively.

Germany's DAX index was -0.29% on Wednesday and closed at 19,004.78. It was +0.01% for the week. France's CAC 40 index was -0.43% on Wednesday, closing at 7,198.45. It was -0.25% for the week.

The UK's FTSE 100 index was +0.68% this week to 8,005.07. It was -0.17% on Wednesday.

On Wednesday, the Stoxx Europe 600’s Technology sector led the market, driven by strong Q3 earnings results. STMicroelectronics reaffirmed its $20 billion revenue goal by 2030 at its Capital Markets Day, while Sage Group exceeded fiscal year EPS estimates, raised dividends, and announced a £400 million buyback.

Basic Resources also saw gains, buoyed by a mild rebound in metal prices. The Construction & Materials sector followed suit, with NRC Group issuing positive fiscal year 2024/25 guidance and initiating a NOK 5 million buyback.

On the downside, Real Estate suffered the most significant losses. British Land Company declined after posting only a marginal half-year profit increase, and Crest Nicholson disappointed with its fiscal year 2024 results, indicating that profit before tax is expected to land at the lower end of its £22-29 million guidance. The Autos & Parts sector also lagged, with Stellantis facing pressure after a Bloomberg report revealed that the company's auto inventory days have surged by nearly 50% over the past year and has led to delays in key product launches.

Other Global Stock Indices Price Performance

MSCI World Index +2.35% MTD +17.78% YTD
Hang Seng -3.16% MTD +15.41% YTD

This week, the Hang Seng Index was -0.74%, while the MSCI World Index was -0.91%.

Currencies

EUR -3.07% MTD -4.40% YTD to $1.0542.
GBP -1.88% MTD -0.60% YTD to $1.2650.

The euro was -0.20% against the USD over the past week, while the British pound was -0.47%. The Dollar Index was +0.06% this week, +2.48% MTD, and +5.15% YTD, settling at 106.59.

The US dollar rebounded on Wednesday, resuming its post-election rally after a brief three-session decline. This increase came as investors sought further clarity on the Fed's monetary policy trajectory and the potential implications of the US President-elect's proposed fiscal and trade policies.

Despite the recent pause, the dollar index has surged approximately 3% since the US election, fueled by growing expectations that the Fed may moderate its easing measures due to concerns that the President-elect's policies could reignite inflationary pressures. The dollar index advanced +0.39% to 106.59, while the euro weakened -0.50% to $1.0542.

Divergent perspectives on the future direction of US monetary policy emerged on Wednesday, with Fed Governors Michelle Bowman and Lisa Cook offering contrasting views. Governor Bowman emphasised ongoing concerns about inflation, while Governor Cook expressed confidence in the continued easing of price pressures.

In the UK, sterling depreciated -0.22% to $1.2650 by the end of Wednesday's trading session. Sterling initially moved higher following data that revealed a faster-than-anticipated acceleration in UK consumer inflation in October, reinforcing the view that the BoE will pursue a gradual approach to lowering interest rates in the coming months.

According to official figures, an anticipated surge in energy bills last month propelled the annual inflation rate to 2.3%, up from 1.7% in September. Core inflation, excluding food and energy prices, rose to 3.3% from 3.1% in September, while services inflation, a key focus for the BoE, increased to 5% from 4.9% in the previous month.

Current market expectations indicate an 82.8% probability that the BoE will maintain its current interest rate at its upcoming policy meeting next month. Against the euro, the pound strengthened +0.28% to 88.43 pence.

The dollar also strengthened against the Japanese yen, appreciating +0.39% to ¥155.35. Since early October, the dollar has gained as much as 9.0% against the yen, reaching a peak of ¥156.74. Last week, it surpassed the ¥156 mark for the first time since July, raising the prospect of potential intervention by Japanese authorities to support their currency.

The recent weakening of the yen to a three-month low has fueled expectations of a potential hawkish shift by the BoJ, particularly as the currency approaches levels that triggered intervention in July. However, comments this week from BoJ Governor Kazuo Ueda did not provide any new insights into the central bank's policy leanings.

Pound's outlook remains positive amidst market turbulence. Despite recently losing its status as the sole G10 currency outperforming the USD year-to-date, the outlook for sterling remains positive heading into 2025. While the pound has been caught in the recent volatility surrounding the ‘Trump trade’ and stretched long positions, sell-side analysts maintain that its underlying fundamentals remain strong.

Bank of America in a recent note reaffirmed its bullish stance on sterling, highlighting that the pound's trade-weighted index remains at post-Brexit referendum highs. The broker dismissed concerns about the impact of the UK's recent budget, finding no evidence of increased risk premiums in credit default swap spreads or volatility metrics.

Goldman Sachs also expressed optimism, describing sterling as ‘a diamond in the rough’ and anticipating that it will keep pace with the broader dollar strength. The broker cited continued arguments for GBP outperformance against other G10 currencies in the coming months.

Further bolstering the positive outlook, Berenberg recently forecasted a relatively hawkish BoE policy, projecting only two more rate cuts before holding rates steady at 4.25%. This projection is less aggressive than the market consensus, which anticipates cuts to 3.5% by the end of 2025, suggesting sustained interest rate support for sterling.

However, some sell-side reports suggest that sterling's strength might be better capitalised on through crosses rather than directly against the USD. This approach could offer more favourable opportunities to leverage the pound's underlying strength while mitigating potential risks associated with USD fluctuations.

Note: As of 5:15 pm EST 20 November 2024

Cryptocurrencies

Bitcoin +34.27% MTD +124.86% YTD to $94,259.00.
Ethereum +21.09% MTD +32.70% YTD to $3,076.90.

Cryptocurrencies have continued to surge this week, with Bitcoin up 40% since the US election.

Bitcoin soars to new heights as ETF options debut ignites bullish frenzy. The cryptocurrency market is abuzz with the recent introduction of options on Bitcoin ETFs. This development has injected fresh excitement and propelled Bitcoin to a new record high of nearly $95,000 on Wednesday.

The debut of these options contracts, particularly on BlackRock's popular iShares Bitcoin Trust ETF, has witnessed significant trading activity. On Tuesday alone, approximately $1.9 billion worth of options on this ETF changed hands, with a majority concentrated in bullish call options, according to Bloomberg Intelligence data. These call options will yield profits for investors if Bitcoin's price continues its upward trajectory.

Following regulatory approval, options have also been launched on Bitcoin ETFs from other prominent asset managers, including Fidelity Investments and ARK Invest.

Interestingly, trading data reveals that some investors are harbouring exceptionally bullish expectations for Bitcoin's future. Galaxy Digital, a crypto-trading firm, observed approximately $100 million worth of trades in call options that will only generate returns if the BlackRock ETF surpasses $100 per share in 2026 or 2027. This price target translates to a Bitcoin price of roughly $174,000, underscoring the optimistic outlook held by certain market participants. 

Note: As of 5:15 pm EST 20 November 2024

Fixed Income

US 10-year yield +11.9 bps MTD +52.8 bps YTD to 4.409%.
German 10-year yield -3.6 bps MTD +34.5 bps YTD to 2.354%.
UK 10-year yield +4.3 bps MTD +93.5 bps YTD to 4.474%.

US Treasury 10-year bond yields are -5.9 bps this week. US Treasury yields ascended on Wednesday, propelled by a confluence of factors. The Treasury Department encountered subdued demand in a 20-year bond auction, resulting in a high yield of 4.68%, 3 bps above pre-sale trading levels. The bid-to-cover ratio registered at 2.34x, marking its weakest performance since August 2022. This tepid reception underscored investor hesitancy amidst ongoing uncertainty regarding the Fed's monetary policy trajectory.

Adding to the upward pressure on yields, market participants continue to evaluate the potential timing of a pause in the Fed's interest rate reduction cycle. Despite robust US economic growth that has surpassed expectations, the CME Group's FedWatch Tool reveals that traders currently assign a 55.5% probability to a 25 bps rate cut in December. However, the likelihood of a subsequent 25 bps reduction in January is significantly lower, at 15.4%.

The yield on the 10-year US Treasury note climbed +1.8 bps to 4.409%, building upon Tuesday's closing rate of 4.391%. This upward movement follows a recent peak of 4.505% reached last Friday, representing the highest yield since 31st May.

On the shorter end of the curve, the yield on 2-year notes exhibited a more pronounced increase, rising +3.6 bps to 4.308%, from 4.272% on Tuesday.

Looking ahead, the Treasury Department is scheduled to conduct an auction of $17 billion in 10-year Treasury Inflation-Protected Securities (TIPS) today, which will likely provide further insights into investor sentiment and demand dynamics within the fixed-income market.

The German 10-year yield was -4.1 bps this week, while the UK 10-year yield was -4.9 bps this week. The spread between US 10-year Treasuries and German Bunds currently stands at 205.5 bps, 1.8 bps lower than last week.

Italian bond yields, a benchmark for the eurozone periphery, were -5.1 bps this week to 3.577%. Consequently, the spread between Italian and German 10-year yields is 122.3 bps, 1.0 bps lower than last week.

Eurozone bond yields fluctuated on Wednesday amidst heightened geopolitical tensions stemming from the ongoing conflict between Russia and Ukraine. Investor sentiment was particularly sensitive to reports of Ukraine utilising UK-made long-range missiles to strike targets within Russian territory, a development that initially propelled yields higher before triggering a subsequent retreat as investors sought safe-haven assets. 

This volatility followed a previous decline in yields on Tuesday, prompted by Ukraine's use of US ATACMS missiles against Russia and President Putin's authorisation of a new nuclear doctrine, interpreted as a strategic warning to the West. These events fueled investor anxieties, driving demand for safer assets like government bonds.

Further influencing market dynamics was the release of ECB data revealing accelerated wage growth within the eurozone during Q3. This data point potentially reinforces the ECB's cautious stance on rapid interest rate reductions, as policymakers grapple with inflationary pressures.

Reflecting these uncertainties, Germany's 10-year bond yield settled at 2.354%, a +0.9 bps increase, while the 2-year yield remained stable at 2.138%. 

Italy's 10-year yield, a barometer for the eurozone periphery, rose by +1.2 bps to 3.577%.

Market focus is now shifting towards Friday's release of the PMI survey data, widely regarded as a crucial indicator of eurozone economic health and a key factor for future ECB policy decisions. Current market expectations are firmly aligned with a 25 bps rate cut at the ECB's December meeting, with a minor probability assigned to a more aggressive 50 bps reduction.

Commodities

Gold spot -3.29% MTD +28.40% YTD to $2,648.28 per ounce.
Silver spot -4.97% MTD +29.39% YTD to $30.85 per ounce.
West Texas Intermediate crude -0.20% MTD -3.41% YTD to $69.04 a barrel.
Brent crude +0.40% MTD -5.14% YTD to $73.10 a barrel.

Gold prices are +2.94% up this week. 

Gold prices ascended for a third straight session on Wednesday, reaching a one-week high as investors sought the safe-haven asset amid heightened geopolitical anxieties stemming from escalating tensions between Russia and Ukraine. 

Spot gold climbed +0.64% to $2,648.28 per ounce, having touched its highest point since 11th November earlier in the trading session.

This week, WTI and Brent, both registered significant gains, +1.40% and +1.49%, respectively.

Oil prices experienced a modest decline on Wednesday following a larger-than-anticipated increase in US crude and gasoline inventories, as reported by the Energy Information Administration (EIA). However, the extent of the decline was tempered by concerns surrounding the escalating conflict between Russia, a major oil producer, and Ukraine.

Adding to the supply surplus, Norway's Equinor announced the complete restoration of production capacity at its Johan Sverdrup oilfield in the North Sea, following a previous power outage.

Despite recent stimulus measures, demand from China, the world's leading crude importer, remained subdued, failing to generate a significant short-term boost in oil consumption. Nevertheless, the ongoing conflict between Russia and Ukraine, coupled with anxieties over potential supply disruptions, provided price support, reintroducing a significant geopolitical risk element to the market.

Interestingly, despite this heightened geopolitical risk, data indicates a considerable reduction in long positions in WTI crude, according to the CFTC, hedge funds currently hold only 50% of their summer position levels.

Looking ahead, the potential for further tightening of global supply looms, with OPEC+ possibly considering a postponement of planned output increases at its 1st December meeting, citing subdued global oil demand as the primary reason.

EIA reports mixed inventory data: crude and gasoline build, while distillates decline. The EIA reported on Wednesday that US crude oil and gasoline inventories surpassed expectations for the week ending 15th November, while distillate stockpiles experienced a larger-than-anticipated drawdown.

Specifically, crude inventories increased by 545,000 barrels, reaching a total of 430.3 million barrels. Conversely, crude stocks at the Cushing, Oklahoma delivery hub decreased by 140,000 barrels.

Net US crude imports for the week exhibited a notable increase, rising by 237,000 barrels per day (bpd) to reach 3.3 million bpd. Imports to the Gulf Coast were particularly strong, reaching 2 million bpd, a level not seen since July 2020.

Refinery operations showed a decline, with crude runs falling by 281,000 bpd and refinery utilisation rates decreasing by 1.2 percentage points.

Gasoline stocks reported an increase of 2.1 million barrels, resulting in a total of 208.9 million barrels.

In contrast, distillate stockpiles, which encompass diesel and heating oil, experienced a decline of 100,000 barrels, bringing the total to 114.3 million barrels. Notably, Midwest distillate fuel stockpiles dwindled to 25.3 million barrels, marking their lowest point since November 2023.

Note: As of 5:15 pm EST 20 November 2024

Key data to move markets

EUROPE

Thursday: Eurozone Consumer Confidence, and speeches by ECB Chief Economist Philip Lane, and Executive Board Members Piero Cipollone and Frank Elderson.
Friday: German HCOB Composite, Manufacturing, and Services PMIs and GDP, French HCOB Composite, Manufacturing, and Services PMIs, and speeches by ECB President Christine Lagarde, ECB’s Executive Board Member Isabel Schnabel and Vice President Luis de Guindos, Banque de France Governor François Villeroy, and Bundesbank President Joachim Nagel.
Monday: IFO Business climate, Current Assessment and Expectations Surveys.
Wednesday: German GfK Consumer Confidence Survey.

UK

Thursday: GfK Consumer Confidence, and a speech by Monetary Policy Committee member Catherine Mann.
Friday: Retail Sales, S&P Global/CIPS Composite, Manufacturing, and Services PMIs, and a speech by Monetary Policy Committee member Megan Greene.
Monday: A speech by BoE Monetary Policy Committee member Swati Dhingra.

US

Thursday: Initial and Continuing Jobless Claims, Philadelphia Fed Manufacturing Survey, Existing Home Sales, and speeches by Chicago Fed President Austan Golsbee, Cleveland Fed President Beth Hammack, Kansas City Fed President Jeffrey Schmid, and Board Member Michael Barr.
Friday: S&P Global, Manufacturing, and Services PMIs, Michigan Consumer Sentiment Index, UoM 5-year Consumer Inflation Expectation, and a speech by Board Member Michelle Bowman.
Tuesday: FOMC Minutes, Housing Price Index, Consumer Confidence, and New Home Sales.
Wednesday: Personal Consumption Expenditures (PCE) Index, Core PCE Index, Durable Goods Orders, Nondefense Capital Good Orders, GDP, Initial Jobless Claims, Personal Income, Personal Spending, and Chicago Purchasing Managers’ Index.

JAPAN

Thursday: National CPI, and Core CPI.

Global Macro Updates

Stretched valuations, sovereign debt, and trade wars: a trifecta of risk for the eurozone. The ECB's latest Financial Stability Review raises significant concerns about the potential repercussions of escalating trade tensions on the financial system. The report highlights that rising trade frictions not only pose a direct threat to economic growth but also amplify existing vulnerabilities within the eurozone's financial infrastructure. This warning echoes recent statements from several ECB officials who have expressed concerns about the detrimental impact of tariffs on both economic expansion and inflation.

The review identifies several key areas of vulnerability. Firstly, it points to stretched asset valuations and concentrated risk, which increase the likelihood of market volatility. The ECB anticipates further equity market corrections and warns of potential liquidity mismatches and excessive leverage within non-bank financial institutions. These factors could trigger forced asset sales, further exacerbating market instability.

Secondly, the report flags heightened sovereign vulnerabilities stemming from high levels of debt and persistent deficits. This precarious fiscal situation could lead to a repricing of sovereign risk by the market, with potential spillover effects impacting other sectors, particularly given the role of sovereign bonds in benchmark pricing.

Additionally, the ECB expresses concern about pockets of vulnerability within the corporate sector, particularly among small and medium-sized enterprises (SMEs) grappling with weak cyclical conditions. The review also reiterates its cautionary stance on the commercial real estate sector, citing persistent weakness. Furthermore, it emphasises the potential erosion of households' debt servicing capacity should weaker economic growth lead to a deterioration in the labour market.

While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.