Fed-Obsessed Bond Traders Look Past Europe Swings: Markets Wrap

(Bloomberg) — Reverberations from global politics shook markets anew, landing on Wednesday on the German bond market where plans for a massive expansion of defense spending spurred the worst selloff in years. American assets were docile by the standards of recent weeks. Oil hit a three-year low.

Short-term Treasuries extended gains fueled by bets  the Federal Reserve will cut rates to prevent an economic slowdown. While the latest batch of data was mixed, concerns over the impact of a trade war and geopolitical risks bolstered the allure of US bonds. That’s a stark contrast to the moves in their European counterparts. German bunds saw their worst day since the months following the fall of the Berlin Wall. Equities fell. The dollar got hit.

US service providers expanded in February at a faster pace as resilient demand helped drive a measure of employment to a more than three-year high. A measure of costs paid for materials and services increased to one of the firmest readings since early 2023. Separate data showed hiring at US companies slowed in February to the lowest pace since July.

“The ugly ‘stagflation’ word has been swirling in recent weeks as consumers and traders alike are still feeling the sting of inflation from the past five years,” said Will Compernolle at FHN Financial. “Tariff policy could change as soon as this afternoon, with the White House floating the idea of tariff exemptions for specific items, the biggest one being autos.”

President Donald Trump is set to announce changes to the tariffs on Canada and Mexico he slapped on earlier this week, Commerce Secretary Howard Lutnick said Wednesday.

The S&P 500 fell 0.4%. The Nasdaq 100 fell 0.6%. The Dow Jones Industrial Average slid 0.2%.

The yield on 10-year Treasuries slid one basis point to 4.23%. The dollar fell against most major currencies, with the euro up 1.3%.

The market has been on a wild ride, and options traders expect more of that to come as traders assess the latest tariff developments and brace for Friday’s monthly payrolls figures. After months of muted activity, the S&P 500 has busted out of a tight range moving 1% or more in either direction during 12 out of the 41 trading sessions in 2025, according to data compiled by Bloomberg.

Volatility will likely pick up further on Friday: options traders expect the S&P 500 to move 1.3% in either direction, in what would be the most for any jobs day since the regional bank turmoil in March 2023.

Systematic funds, which follow the market direction rather than fundamentals, are expected to sell US stocks by the most since August, according to Goldman Sachs trading desk. 

“Our model currently estimates CTAs, to sell around $36.5 billion of US equities as a baseline over the next week, a 4 standard deviation sell estimate” Goldman’s traders wrote in a note to clients Tuesday. This is the largest sell forecast since Aug. 5 of last year when they modeled CTAs would sell around $40.5 billion of US equities.

Corporate Highlights:

• CrowdStrike Holding Inc., a cybersecurity company, issued a worse-than-expected earnings outlook, signaling that it’s still recovering from a flawed software update that crashed millions of computers globally last year.
• Apple Inc. rolled out updated MacBook Air laptops and Mac Studio desktops, seeking to maintain a sales resurgence for the company’s computer line.
• Mars Inc. is selling investment-grade bonds on Wednesday to help fund its purchase of fellow food maker Kellanova, according to a person with knowledge of the matter, in what will likely be the biggest corporate note sale so far this year.
• Novo Nordisk A/S is following in rival Eli Lilly & Co.’s footsteps by selling its hit weight-loss drug Wegovy directly to US patients at a discount.
• Microsoft Corp.’s $13 billion investment into OpenAI Inc. was cleared by the UK’s antitrust watchdog, ending months of uncertainty over the tie-up.
• Abercrombie & Fitch Co. is struggling to meet investors’ lofty expectations. The retailer said revenue this year would grow 3% to 5%. Wall Street projected an average of $5.2 billion in annual sales, which would be a gain of about 5.5%.
• Foot Locker Inc. forecast earnings below Wall Street’s expectations as it struggles to lure budget-conscious consumers who continue to curb spending.
• Oil refiner Phillips 66 is fighting back against activist investor Elliott Investment Management in a letter to shareholders Wednesday.
• Bayer AG forecast a third straight year of falling profit as the German company struggles with mass litigation in the US, slumping prices for agriculture products and fresh competition for one of its best-selling medicines.

Key events this week:

• Eurozone retail sales, ECB rate decision, Thursday
• US trade, initial jobless claims, wholesale inventories, Thursday
• US Treasury Secretary Scott Bessent speaks, Thursday
• Fed’s Christopher Waller and Raphael Bostic speak, Thursday
• Eurozone GDP, Friday
• US jobs report, Friday
• Fed Chair Jerome Powell gives keynote speech at an event in New York hosted by University of Chicago Booth School of Business, Friday
• Fed’s John Williams, Michelle Bowman and Adriana Kugler speak, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.4% as of 11:38 a.m. New York time
• The Nasdaq 100 fell 0.6%
• The Dow Jones Industrial Average was little changed
• The Stoxx Europe 600 rose 0.9%
• The MSCI World Index rose 0.3%
• Bloomberg Magnificent 7 Total Return Index fell 0.4%
• The Russell 2000 Index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.8%
• The euro rose 1.3% to $1.0769
• The British pound rose 0.5% to $1.2863
• The Japanese yen rose 0.7% to 148.69 per dollar

Cryptocurrencies

• Bitcoin rose 0.7% to $88,151.21
• Ether fell 0.2% to $2,173.78

Bonds

• The yield on 10-year Treasuries declined one basis point to 4.23%
• Germany’s 10-year yield advanced 30 basis points to 2.79%
• Britain’s 10-year yield advanced 14 basis points to 4.68%

Commodities

• West Texas Intermediate crude fell 4.4% to $65.24 a barrel
• Spot gold rose 0.3% to $2,927.55 an ounce

This story was produced with the assistance of Bloomberg Automation.

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