Market developments
Equities:
The U.S. markets experienced a significant options expiration event known as “triple witching,” with an estimated $5.5 trillion in contracts set to expire. This event is causing volatility in the stock market, particularly affecting Nvidia, which holds the second-largest value of expiring contracts. Despite market turbulence, tech funds have seen record inflows driven mainly by the ongoing AI frenzy. However, there are growing concerns about equity concentration risk, especially in AI-related stocks. With all the volatility this week, the S&P 500 Index ended up 0.60%, Nasdaq was flat, while the TSX was down 40bps.
Fixed income:
Risk-off trades gained favour at the end of the week, influenced by political uncertainty in France following President Macron’s call for a snap election. Market expectations indicate a second ECB rate cut by October and an 80% chance of a third cut this year. As such, traders are adjusting their expectations for Federal Reserve policy, now pricing in about two quarter-point rate cuts this year, with the first one fully expected in November.
Commodities:
Oil futures also ended lower on Friday, but still managed to achieve a significant weekly gain. The weekly gain in oil prices was primarily driven by investors assessing the risk of a broader conflict in the Middle East, which could potentially disrupt crude oil supply from the region.