Stock exchanges, tariff war increases traders' pessimism. 32% see declines in coming months

(Il Sole 24 Ore Radiocor) - The US tariffs cyclone is fuelling uncertainty and pessimism about stock market performance in the coming months. This is the sentiment that emerges from the survey conducted in March by Assiom Forex among its members, in collaboration with Il Sole 24 Ore Radiocor.

Last month - when the duties were still only a threat - the share of traders expecting a drop in prices between now and September virtually doubled to 32% from 17% in February. Consequently, the percentage of those who do not expect a fall is reduced (from 83% to 68%). More specifically, one in three respondents expect stable indices (with 3% fluctuations in either direction) and another 33% expect rises (between +3% and +10%), while only 2% indicate gains of over 10%. "In March, traders showed signs of concern about the future performance of stock markets, partly as a result of the new US administration's announcements and the consequent reduction in growth prospects," commented Massimo Mocio, president of Assiom Forex. "The percentage of traders predicting a drop in stock markets over the next six months has consequently increased to one third of the total number of respondents".

In March, the number of traders expecting a strengthening of the single currency against the greenback increased: the percentage rose from 20% in February to 38% last month. A relative majority (43%), however, expects current valuations to remain stable until the autumn (up from 40% previously), while the share of bets on a strengthening dollar is halved. Only for 19% of respondents (down from 40%) will the euro/dollar exchange rate fall. Overall for 81% of respondents (up from 60%) the exchange rate between the two currencies will not fall between now and September.

If in February almost all traders (93%) did not expect an increase in the spread in March this percentage drops by ten points (to 83%). In detail, 73% (down from 82% previously) indicate that the spread - which today opened higher at 130 points - will remain stable in the current range, between 100 and 150 points, over the next six months. However, the percentage of those expecting an increase in the spread between 150 and 200 points jumped to 17% from 6% the previous month. The share of those who indicate a narrowing (50-100 points) remains stable at 10% (from 11%). "Despite a deterioration in the global economic picture, expectations on the Btp-Bund spread remain stable: 73% of traders believe it will remain within the current range," Mocio commented.

Fears about the impact of tariffs on the resilience of the global economy lead financial market participants to believe that the ECB will continue on its path of easing the cost of money. Ahead of the 17 April meeting, 42% of respondents indicate that economic weakness and the continuation of the disinflationary process may justify another 25 basis point cut. Considering that the survey was conducted in March, 'this percentage is estimated to have risen as a result of recent market volatility'. The Governor of the Bank of France and member of the ECB Governing Council, François Villeroy de GalhauI, pointed out that 'the changes that have taken place on the macroeconomic front since the announcement of new punitive tariffs by the White House on 2 April justify a new rate cut in the short term'. In an interview with Le Monde, Villeroy de Galhau argues that the trade war will have a 'non-negligible' direct impact on the economy, taking about 0.25 percentage points off growth this year. However, while the US is likely to suffer an 'inflationary shock', in Europe the trend towards disinflation is well underway and the appreciation of the euro after the announcement of the duties will help to contain upward pressure on prices.