Danske Research Team reports a sharp rebound in global equities after US President Trump signalled negotiations and a five-day halt to strikes on Iranian energy assets. European indices reversed steep losses, while US benchmarks closed higher. The bank notes that cyclicals, especially growth sectors, led gains as investors priced out some recession risk, though rate and inflation expectations appeared little changed.

Cyclicals lead relief-driven bounce

"Equities rebounded in a rare manner following a post from the US president that negotiations have been initiated and a five-day long halt to attacks will follow. "

"The gains later faded, as Iranian officials denied that negotiations have been held. Nonetheless, equities closed higher with S&P 500 up 1.2%, small cap Russell 2000 up 2.3% and Stoxx 600 0.6%. Futures have however dipped back into negative this morning."

"The sector preference was mostly reversal of geopolitical trades. Cyclicals led the gains, and primarily growth cyclicals as yields dropped, including tech and consumer discretionary in the lead. What is just as interesting is to see which sectors that did not rebound on the news. "

"The real estate sector, one of the worst performers the last week, did not benefit from the drop in yields, but continued to underperform. Similarily, consumer staples that, believe it or not, have sold off more than industrials over the last month did not rebound either. "

"To us, this is a sign that investors priced out some of the recession risk yesterday through the cyclicals, but that inflation and rate hike expectations are little changed. This can serve as a guide on what a TACO (Trump Always Chickens Out) trade would like ahead."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)