The VIX “fear index” Doubled...
- Marc Bentin
- Apr 6
- 6 min read
Updated: Apr 14
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US tariffs announced on Wednesday, in addition to two rounds of import taxes the president already imposed since January, sank the SP500 by more than 9% last week precipitating the biggest selloff since the Covid crisis outbreak in March 2020 as recession odds soared. The VIX “fear index” doubled to 45% with junk bonds also suffering their worst rout since 2020. US High yield Credit default swap levels surged to 339 bps, ending the week with the largest gain (+67bps) since the March 2023 banking crisis.
Commodities were slammed, as deleveraging, and rising recession sparked liquidations. In two sessions, crude, silver and copper sank about 13%.
US government bonds rallied (by 28bps on 10Y yields) despite a rout in HY corporate bonds, while the dollar dropped by 1%. Expectations for Fed Funds at year end dropped to 3.20% (from 4.25% currently) and by 50bps in a week.
Hedge funds were reportedly hit by the biggest margin calls since the Covid shut down, underscoring global markets’ intense turbulence on Thursday and Friday as Trump’s tariffs announcement was followed by retaliatory duties from China (of 34%) while other countries readied their own responses with the Fed remaining adamant to act against pressure as inflation remains unanchored.
Fed Chair Powell made clear in a speech on Friday that the US central bank would not rush to react to D. Trump’s tariffs, still noting they are likely to have a significant impact on the US economy with slower growth and higher inflation. Powell said the Fed will wait to gain more clarity on those policies before lowering rates, emphasizing that with inflation still elevated, the Fed needs to ensure that the temporary price boost from tariffs doesn’t turn into something more persistent.
That said, the Fed is certainly looking at the latest market developments with utmost discomfort and although it won’t like to be pushed around and forced into action by D. Trump, as it was 2018, it likely ultimately will be…
Trump advisers said the President remains unbowed by negative headlines or criticism by foreign leaders, having long argued that import duties are necessary to revive the US economy and correct chronic economic fiscal and trade imbalances.
ECB President C. Lagarde said the moment represented a unique opportunity for Europe to take our destiny into our own hands and that it should not lie down in front of the U.S. onslaught, adding it applies to the fields of finance, IT, as much as to defense and energy. EU President Ursula von der Leyen vowed to respond to U.S. President Trump’s latest round of levies on foreign imports, calling them ‘a major blow to the world economy’. ‘Uncertainty will spiral and trigger the rise of further protectionism. The consequences will be dire.’”, she said.
French President E. Macron urged businesses in the world’s largest trading bloc to halt spending on the US. ‘We must have collective solidarity’, he said.
The barrage of tariffs unleashed by US President D. Trump even sparked a discussion among NATO members on whether the move breaches the military alliance’s treaty.
Over the week end L. Summers called for the markets to keep falling until D. Trump reverses his policies. We would advise against listening to him too closely about markets or the economy as so many of his calls are simply politically tainted and binary.
Still, banks will have to recalibrate estimates for GDP and earnings with the earnings season starting this week. Goldman which said “tariffs exceeded all expectations on the crazy front”, also estimated the current probability of a recession at 35%, noting that the S&P 500 currently trades at 20x forward P/E (vs. the average recession forward P/E multiple being closer to 16x for the 30-y average).
In reaction to lower stocks prices, D. Trump said “Sometimes you have to take your medicine”.
US equity futures are opening around 3.5% lower, slightly off the overnight lows.
Over the past week, the S&P500 sold off by -9,1% (-13,8% YTD, Z-score -3,6) while the Nasdaq100 sold off by -9,9% (-17,3% YTD, Z-score -3,5). The US small cap index sold off by -9,6% (-18,0% YTD, Z-score -3,3). AAPL sold off by -13,5% (-24,8%, Z-score -3,3).
The Equally Weighed SP500 sold off by -8,5% (-10,3% YTD, Z-score -3,7), outperforming the S&P500 by 0,6%. The median SP500 YTD return closed the week at -9,8%.
Cboe Volatility Index rallied 109,3% (161,2% YTD, Z-score 3,6) to 45,31.
The Eurostoxx50 sold off by -8,5% (-0,2%, Z-score -3,4), outperforming the S&P500 by 0,6%.
Diversified EM equities (VWO) sold off by -7,0% (-4,3%, Z-score -3,5), underperforming the S&P500 by 2,0%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,9% (-3,9%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped 0,0% (1,7%).
10Y US Treasuries rallied -26bps (-57bps, Z-score -2,6) to 3,99%. 10Y Bunds dropped -15bps (21bps, Z-score -2,6) to 2,58%. 10Y Italian BTPs rallied -8bps (25bps) to 3,77%, underperforming Bunds by 7bps.
US High Yield (HY) Average Spread over Treasuries climbed 87bps (140bps, Z-score 3,3) to 4,27%. US Investment Grade Average OAS climbed 18bps (32bps, Z-score 3,3) to 1,19%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 16bps (20bps, Z-score 3,3) to 0,84%.
Gold dropped -1,5% (15,8%) while Silver sold off by -13,3% (2,4%, Z-score -3,5). Major Gold Mines (GDX) sold off by -8,5% (22,9%).
Goldman Sachs Commodity Index sold off by -5,6% (-2,0%, Z-score -3,3). WTI Crude sold off by -10,6% (-13,6%, Z-score -2,8).
Overnight in Asia…
S&P future -179 points; Hong Kong -9%; Nikkei -6.5%; China -5.4%.
MSCI Asia suffered its largest drop since 2008 overnight, dropping by 7.8%.
China said it has room to ease borrowing costs and reserve ratios if needed to defend its economy against US President Donald Trump’s latest tariffs. “There is still room for further expansion of the fiscal deficit, special treasury bonds and special debts.”, Chinese government said.
China's objections to new US tariffs stalled a deal to sell off TikTok and keep it operating in the US. Trump’s order calls for another 34% tariff on China, building on the 20% he’d already imposed on the country earlier this year.
China is tightening controls on exports of seven types of rare earths, threatening to disrupt the global supply of key materials used in high-tech manufacturing. The move is part of China's retaliation to President Donald Trump's tariffs on imported Chinese goods, and could further tighten global supply, Bloomberg reported.
Late on Friday Trump announced that he had a "very productive" call with the head of the Vietnamese communist party, adding that if Vietnam wants to cut their tariffs to "ZERO"(currently at 46%), all they have to do is "make an agreement with the US"...Bloomberg reported overnight that Vietnam offered to remove all tariffs this week end.
Bill Ackman and Stanley Druckenmiller criticized D. Trump's decision to launch global tariffs, which have caused market chaos. Ackman called the tariffs a "mistake" and said a 90-day pause is needed to resolve the US's "historically unfair global trading position".
UK Prime Minister K. Starmer said he’ll announce measures this week to support Britain’s economy and businesses amid the threat posed by D. Trump’s tariffs.
A key ally of German Chancellor-in-waiting Friedrich Merz said he’s optimistic talks with Social Democrats on forming the next government can conclude before Easter. “We need a coalition agreement and a government capable of taking action quickly,” Frei said.
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