Risk sentiment falters as Trump weighs on markets, and ASML declines

By Kathleen Brooks, research director at XTB

·         ASML is one of the weakest performers in Europe as Trump tries to limit China access to European and US AI technology.

·         All eyes on Nvidia’s earnings on Wednesday to see if it can spur some life into the Magnificent 7.

·         Unilever’s changing of the guard fails to boost the share price.

·         BP in focus as strategy day looms.

·         Bitcoin drops below $90,000 as high volatility weighs on crypto.

Risk sentiment is mixed as we progress through this week. Stocks have opened lower across in Europe and bitcoin and other cryptocurrencies are slumping. Everywhere you look volatility and uncertainty are rising: the Vix index, Wall Street’s fear gauge, is at its highest level since Mid-January, the volatility of volatility measure is also elevated and FX market volatility is also rising, particularly for USD/JPY. What does this surge in volatility mean? Things could get interesting for financial markets from here, as volatility usually rises when trends are changing, and when the future path of price action is less certain. So, the rise in volatility could be a precursor to some bigger market moves down the line.

Trump weighs on markets once again

European stocks are lower across the board on Tuesday, although the Dax and the FTSE 100 are both bucking this trend and eking out a gains. ASML, the Dutch maker of chip making equipment, is the weakest stock in Europe this morning and is leading the Eurostoxx 50 index lower. The reason for ASML’s decline is Trump. The US President said late on Monday that it wants to extend Joe Biden’s curbs on China’s access to the most advanced chip technology. Whether or not this will hinder China, who has been adept at finding alternatives and doing more with less, a la DeepSeek, remains to be seen.  However, China stocks were lower across the board on Tuesday, suggesting that Trump’s actions are weighing on sentiment.

The 1.7% decline in ASML’s share price is worth noting, since Trump’s team apparently met with their Dutch counterparts to discuss restricting ASML’s ability to service its equipment based in China. ASML is a crucial component to the chip making industry, and without its machines it’s almost impossible to make the most advanced chips. It is hard to know at this stage how this could weigh on ASML’s bottom line, but political interference in ASML’s business model is not going to be welcomed by investors.

The future of big tech in the US

This is one way the Trump administration can respond to China’s AI threat to US dominance. It will be worth watching whether these developments can stem the sell off in US tech. Nvidia plunged more than 3% on Monday, and it is seen as being the most at risk to what DeepSeek represents: the possibility to create AI models with cheaper, less advanced chips. The Magnificent 7 has fallen sharply and has underperformed the rest of the global stock market so far this year. As a group, the Magnificent 7’s share price is back at levels last seen in early December 2024, which shows the extent of the sell off.

The question now is, can Trump’s team 1, sabotage China’s AI efforts and return the US to a dominant position in the AI space, and 2, boost the value of the Magnificent 7 in the process? Although the US stock market rally is broadening out, big tech is still a very important component to the S&P 500. Meta is the top performer in the Magnificent 7 so far this year, however, it also fell more than 2% on Monday and is down nearly 10% in the past 5 days. Nvidia is down 4% YTD, and Tesla, the weakest performer in the Magnificent 7 this year, could come under more pressure after it reported that sales fell 45% in Europe last month, although demand for EVs actually rose on the continent. The problems for the Magnificent 7 are stacking up as we lead up to Nvidia’s earnings results on Wednesday. Although a monster earnings report is expected, the market reaction to these results will hinge on the forward outlook. The market expects big things, otherwise the Magnificent 7 could come under even more pressure later this week.

Energy price cap won’t deter BOE rate cuts

Closer to home, the market reaction to news that the energy price cap will rise by more than expected has, so far, had a minimal impact on financial markets. Bond yields are lower today, as the market trades with a risk off tone and sovereign debt catches a bid. Energy bills in the UK will rise by 6.4% in April, or by £100 a year for the average household, which is more than expected. The UK’s inflation figures have been exacerbated by the UK’s energy price cap in recent years. For example, the cap comes at the same time as the oil price has fallen sharply and Nat gas and electricity prices are also lower thanks to hopes that Russian energy supplies could come back online if the war in Ukraine comes to an end. However, this has not been reflected in the cap. The market is still pricing in a 75% chance of a rate cut in May, which suggests that any bumps in the CPI rate caused by the energy price cap will not stop the BOE from cutting rates. It is also having a minimal impact on stocks, consumer discretionary prices are neutral so far, although rising bills could weigh on  consumption, and thus economic growth, down the line.

Changing of the guard at Unilever fails to boost the share price

The weakest stocks in the FTSE 100 include Rio Tinto, Unilever, and Ashtead. Unilever announced that its CEO is stepping down and the CFO would take over. This news has not had a positive impact on the stock price, and it is lower by more than 2% so far. This comes at a delicate time for Unilever, it is spinning off its ice cream arm, and consumer sentiment is weak, especially in the US and China. Although the stock price had risen under the CEO’s tenure,  the focus on volume over price expansion had not been as successful as planned. However, the appointment of a Unilever lifer as the new CEO is not causing much enthusiasm from the market, Fernando Fernandez has a tough job ahead of him.

BP strategy review crucial for the future of the oil major

BP is also in focus ahead of Wednesday’s strategy review. BP’s share price is stable on Tuesday; however, the stock price is down nearly 5% in the past week. The oil price is marginally higher today, on the back of proposed sanctions on Iranian oil. However, Brent and WTI are both trading at weak levels, which could hinder the UK’s oil sector.

Gold could recover as Bitcoin falters

Elsewhere, Bitcoin is sharply lower and is below $90,000, which is a sign that the current environment of rising volatility is not conducive to cryptocurrency gains. The gold price, which has risen to fresh record highs in recent days, slipped early on Tuesday, however, it is clawing back earlier losses now that Europe has opened. The low for the day is $2929, but if risk sentiment continues to falter, we expect the gold price to continue to recover in the short term. The record high is $2951. 

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