Hedge funds have significantly reduced their holdings in equities. Oil fell to $66 per barrel

At the end of Monday, the Dow Jones Index (US30) fell by 2.08%. The S&P 500 Index (US500) was down 2.70%. The Nasdaq Technology Index (US100) decreased by 4.00%. The US market had its worst day of the year yesterday as fears that President Donald Trump’s tariff policies could lead the US economy into recession dampened investor sentiment. Sentiment deteriorated further after President Trump did not rule out the possibility of a US recession this year and noted short-term economic shocks associated with his trade and fiscal agenda in an interview Sunday Morning Futures on Fox News Channel. Trump imposed 25% tariffs on Mexico and Canada last week, but then exempted most goods for a month, creating uncertainty around his trade policy. The US president also raised tariffs on Chinese goods, prompting retaliatory duties from China. He is set to impose retaliatory tariffs globally from April 2, which could further undermine sentiment in the markets. Shares of major technology companies including Tesla (-15.4%), Nvidia (-5%), and Meta (-4.4%) were among the hardest hit, contributing to the broader market’s decline. Tariffs imposed by the Trump administration have raised fears that inflation could rise and make it harder for the Federal Reserve to cut interest rates.

The Goldman Sachs note provides insight into the recent behavior of hedge funds in the stock market, indicating a significant reduction in their exposure to equities. Hedge funds significantly reduced their holdings in stocks last Friday, the largest such move in two years. The size of the moves made by some hedge funds on Friday can be compared to those seen in March 2020, during the first COVID pandemic outbreak, and January 2021. During those periods, hedge funds were forced to wind down their short positions in stocks favored by retail investors.

The Canadian dollar weakened to US $1.44, nearing a one-month low amid sharp policy changes, escalating tariff threats from the US, and disappointing economic data. In a landmark election, former Central Bank official Mark Carney became Canada’s new Prime Minister, taking a hard-line stance and promising to maintain tariffs on US goods until “Americans show us respect,” which, combined with his relative inexperience, increased uncertainty about future trade negotiations and domestic policy direction. In addition, the February jobs report showed that the Canadian economy only added about 1,000 positions versus the expected 20,000, adding to concerns about the economy’s momentum. Given current economic concerns, including trade tensions and a weakening labor market, the Bank of Canada is expected to cut interest rates from 3.00% to 2.75% at its March 12 meeting.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) fell by 1.69%, France’s CAC 40 (FR 40) closed down 0.90%, Spain’s IBEX 35 (ES35) fell 1.32%, and the UK’s FTSE 100 (UK100) closed down 0.92%. In Europe, traders overlooked a stronger-than-expected recovery in German industrial production in January.

WTI crude oil prices fell to $66 a barrel on Monday amid expectations of weaker demand and ample supply. US President Donald Trump and Treasury Secretary Scott Bessent have signaled that the US could face economic difficulties in the medium term due to trade wars with Canada, China, and Mexico, in addition to promises of aggressive government spending cuts. In China, fresh data showed that consumer and producer prices fell more than expected in February, raising concerns that goods consumption is not being affected by credit growth. This increased the impact of the OPEC+ agreement to raise oil production as early as April after the organization’s members struggled to meet their commitments to cut output.

Asian markets were flat yesterday. Japan’s Nikkei 225 (JP225) rose by 0.38%, China’s FTSE China A50 (CHA50) declined 0.53%, Hong Kong’s Hang Seng (HK50) fell by 1.85%, and Australia’s ASX 200 (AU200) was positive 0.18%. Traders continue to sell stocks amid persistent deflationary pressures in China in February, driven by weakening seasonal demand and cautious household spending due to job and income concerns. In addition, the US is set to inspect China-made chip models used in consumer electronics, which could lead to the imposition of additional tariffs on Chinese products. Meanwhile, China will conclude two sessions today and some traders expect new measures to stimulate the sluggish economy.

Australian consumer sentiment rose to a three-year high in March, helped by the Reserve Bank of Australia’s interest rate cut in February and easing cost-of-living pressures. However, business confidence readings turned negative in February, indicating continued economic concerns. The Australian dollar hovered at $0.627 on Tuesday after three consecutive sessions of declines, hurt by widespread risk aversion in financial markets amid growing fears of a US recession. The Aussie was also hampered by lingering economic uncertainty and lingering deflationary pressures in China, its biggest trading partner, as traders awaited policy announcements after a key meeting in Beijing.