Watch out tariffs’ negotiations… before the upcoming earning season

With geopolitical concerns easing in the Middle East while tariff news were positive with the signing of a US-China deal at the end of last week, credits performed nicely last week . High Betas were the main beneficiaries of that lower risk aversion context (with VIX dropping by 4 points last week to 16%), led by AT1s (-11bp) and US HY (-10bp). The latter was also supported by record inflows since November 2023 according to Lipper-FMI ($3.5bn). € Corporate hybrids also performed nicely with an average 6bp tightening vs swap. On the other hand, it’s interesting to see that Bank T2s had more difficulty to perform (-2.6bp), same for €HY (-2bp) and €IG Corp (-1.3bp). Truly, European HY funds did not experience the massive inflows (€221mn last week from EPFR data) that benefited to their US counterparts. Moreover, the €HY market had to digest a flurry of new deals (€17bn over the last two weeks). Going forward, is a repricing of credit markets likely in July ? the first indication will be given by tariffs, and particularly the potential finalization of an EU-US trade agreement which looks much more likely after U. Von der Leyen recent statements, while the de-escalation with Canada on digital services tax tend to confirm the Trump moment is still under way. But next will come the H1-25 earning season, in which we would expect more disappointment and warnings than in Q1-25, particularly in US consumer-related sectors as well as cyclicals already hit by tariffs (autos).