European Markets Steady After Monday's Plunge, Fed Easing Bets Rise

Stock Markets Steady After Monday's Plunge

European markets saw a return to calm on Tuesday, following the dramatic sell-off on Monday that saw the Nasdaq experience its biggest one-day drop in over two years. The broad Stoxx 600 index remained flat in early trading, while Asia Pacific ex Japan shares recovered from earlier losses to close just 0.5% lower. U.S. share futures also pointed towards a positive opening.

Monday's market turmoil was triggered by concerns about a potential economic slowdown, exacerbated by President Donald Trump's comments in a Fox News interview. Trump spoke about a "period of transition" and declined to rule out a recession, causing investors to worry.

The S&P 500 fell 2.7% on Monday, its biggest one-day drop this year, while the Nasdaq slid 4.0%, its biggest single-day percentage drop since September 2022.

Analysts believe that the market has now accepted that the Trump administration is serious about its trade policies, even if they lead to a recession. This view is supported by the rush to U.S. Treasury bonds, which saw the yield on benchmark 10-year notes fall 10 basis points on Monday, its largest daily move in almost a month.

Traders are now pricing in 85 basis points of easing from the Fed this year, compared with 75 basis points on Monday, betting that weak U.S. growth will compel the Federal Reserve to start easing again. However, Wednesday's U.S. consumer price index could change these expectations if it confirms that inflation remains a problem.

In currency markets, safe havens remained in demand, with the Japanese yen reaching its strongest level in five months against the dollar before giving up gains. The euro also strengthened against the dollar.

Oil prices were steady as investors weighed concerns about the impact of U.S. tariffs on global economic growth against OPEC+ increasing its supply. Gold prices rose to $2,908 per ounce, close to the record high hit last month.