The market’s previous positive response to comments about potential deals no longer holds true. It now requires concrete agreements for a market rally, especially concerning trade discussions.
The use of tariffs as a revenue stream suggests their permanence rather than temporality. This leads trading partners to question the value of negotiating reciprocal tariffs.
Market Sensitivity Shifts
Recent remarks by the President did not prevent the Nasdaq from dropping by 3% during a trading session. There were comments about potential deals with the EU and a possible Russia-Ukraine agreement in the near future.
What we’ve observed so far is a shift in sensitivity toward speculative comments. Traders used to treat such remarks as cues, reacting swiftly and boosting equity prices in their wake. That’s no longer the case. Without something formal on record — signed statements, ratified terms, a structured timetable — the markets are treating verbal reassurances as noise. After all, it’s only binding language that creates recognised changes on schedules or pricing models.
Tariffs have changed from being leverage in talks to what appears now to be enduring levers of revenue. This makes sense from a fiscal point of view, yet for counterparties, it has forced a rethink. Why continue negotiating when the baseline assumption may be that punitive tariffs stay in place no matter the outcome? Especially if the perception builds that these measures are being institutionalised rather than deployed temporarily.
As for that recent drop in tech-heavy equities — the 3% correction following public statements — it provides perhaps the clearest indicator that sentiment is thinning. Markets are not looking for hopeful overtures anymore. They’re responding to delays, not promises. When Rasmussen suggested forward progress with European negotiators or hinted at movement on the regional conflict dossier, there was no reversal in direction. That tells us confidence is not being built with narratives; traders require evidence.
Short Term Market Observations
In the short term, we may need to refocus on volume and positioning rather than headlines. Liquidity remains intermittent, especially around the opening bell, with hedging now creeping into early afternoon activity too. Index options have shown widening implied volatility, but flow data suggest that aggressive directional bets are being scaled back. There’s less appetite for exposure beyond weeklies, even with expiry tailwinds approaching.
We should keep observing the futures spread between front-month contracts and those further out. Steeper backwardation is a message: participants are wary of carrying risk into midmonth events. Risk premium is concentrated near the present, suggesting that investors don’t expect clarity in the longer term, or trust that existing diplomatic tides will produce quick mechanical responses in the markets.
There’s also been a build-up in put protection among cyclicals — not only typical defensive names but also among transportation and manufacturing counters, which usually reflect macro expectations more clearly. With delta levels in those strikes moving faster than ATM options on indexes, this tells us traders are targeting specific policy outcomes, not broad moves.
Having watched correlation clustering break apart among large caps, it may be time to avoid assumptions of index-level moves being uniformly driven. These dislocations are giving advantage to those who focus on relative value. Moreover, momentum trades are showing shorter half-lives. Unwind windows are appearing sooner, and gains aren’t holding after open-to-close runs.
Our approach may benefit from stepping away from thematic strategies tied to diplomatic catalysts. Without confirmation from official channels, there’s a decreased likelihood for such strategies to pay off. Meanwhile, rates volatility is feeding into equity risk through positioning recalibrations, something we’ve tracked in futures book adjustments over the last five sessions.
Pay particular attention to order book depth and dealer gamma in the next ten trading days. As put skews steepen across shorter tenors, the threshold for market makers to hedge aggressively lowers. This mechanical behaviour, in and of itself, could create feedback loops in intraday pricing.
It’s not that we expect directional swings to disappear — only that they’ve become more conditional. The triggers now lie more in execution than expectation.
