It was a choppy week for global markets as investors grappled with fresh U.S. tariff announcements, mixed economic data, and a cautious earnings season. The S&P 500 posted a modest decline of 0.24%, while the Nasdaq fell 0.53% as tech stocks lagged. Meanwhile, gold set another record high above $2,900 per ounce, and U.S. Treasury yields declined as investors reassessed economic growth and inflation prospects.
U.S. Markets: Tariff Uncertainty and Labor Market Softness
Stocks started the week on a sour note after President Trump announced new 25% tariffs on Mexican and Canadian imports and 10% levies on Chinese goods, effective February 1. However, a last-minute 30-day delay on Mexico and Canada tariffs helped ease investor concerns.
Key drivers:
Earnings Resilience: As of Friday, 77% of S&P 500 companies that had reported Q4 earnings beat expectations, with profits growing 16.4% year-over-year—well above the initial 11.9% forecast.
Manufacturing Rebound: The ISM Manufacturing PMI rose into expansion territory for the first time since 2022, coming in at 50.5. However, ISM officials warned that tariffs could derail this recovery.
Labor Market Cooling: Payrolls increased by 143,000 in January, missing expectations of 170,000 and marking a sharp decline from December’s 307,000 gain. However, the unemployment rate unexpectedly fell to 4.0% from 4.1%, while job openings dropped to a three-month low of 7.6 million, reinforcing the narrative of a gradually slowing labor market.
Consumer Sentiment Drops: Wage growth remained steady, but consumer confidence weakened, with the University of Michigan’s index falling to 67.8, its lowest level in seven months.
Europe: BoE Cuts Rates Again, Inflation Remains Sticky
Despite growth concerns, European equities climbed, with the STOXX Europe 600 Index rising 0.60%. Italy’s FTSE MIB led with a 1.60% gain, while Germany’s DAX added 0.25%.
Key themes:
Bank of England Rate Cut: The BoE lowered rates by 25 basis points to 4.5%, its third cut since August. However, inflation is still projected to stay above target until 2027, meaning further cuts will be slow and cautious.
Inflation Pressures: The annual inflation rate in the Eurozone ticked up to 2.5%, while core inflation held steady at 2.7%. Policymakers attributed the rise to base effects from last year’s energy price drop.
Factory Orders Surge: Germany’s factory orders jumped 6.9% in December after falling 5.4% in November, but industrial production remained weak, contracting 2.4% for the month.
Japan: Markets Slide as Yen Strengthens
The Nikkei 225 dropped 2.00% as the yen strengthened, weighing on exporters.
Key themes:
Hawkish Bank of Japan Signals: BoJ officials reinforced expectations for further rate increases, lifting 10-year JGB yields to 1.28%.
Wage Growth Rises: December saw a sharp increase in nominal wages, but much of the rise was tied to winter bonuses rather than broad salary hikes.
China: Lunar New Year Boosts Consumer Spending
Chinese equities rebounded, with the CSI 300 Index gaining 1.98% and Hong Kong’s Hang Seng Index surging 4.49%—its best week in four months.
Key themes:
Record Holiday Travel and Spending: Domestic travel hit a record 501 million trips, a 5.9% increase over last year. Box office sales jumped 18% to $1.3 billion, reflecting strong consumer demand.
Slowing Business Activity: The Caixin Services PMI fell to 51, its lowest level in four months, signaling weaker business activity despite strong consumer spending.
What to Watch This Week
United States
Fed Testimony (Feb 11): Federal Reserve Chair Jerome Powell is set to testify before Congress, providing insights into the economic outlook and monetary policy.
Inflation Data (Feb 12): The January CPI report will be a key indicator for inflation trends and Fed policy decisions.
Retail Sales (Feb 14): January retail sales figures will offer a glimpse into consumer spending patterns, a primary driver of the U.S. economy.
Eurozone & UK
Industrial Production (Feb 13): Eurostat will release December industrial production figures, shedding light on manufacturing output.
UK GDP (Feb 13): The preliminary estimate of Q4 GDP will provide an early look at the UK’s economic performance.
Japan
Producer Prices (Feb 13): Japan's PPI data will reveal trends in the selling prices received by domestic producers.
China
Credit Expansion (Feb 10): The People’s Bank of China will report total new yuan-denominated loans issued in January, a key indicator of credit growth.
Money Supply (Feb 10): M2 money supply figures will reflect liquidity conditions in China’s financial system.
Conclusion
Global markets faced volatility last week as investors digested new U.S. tariffs, shifting monetary policies, and mixed economic data. Looking ahead, key economic reports—including U.S. inflation, retail sales, and the Fed’s testimony—will shape market sentiment. Stay tuned for next week’s Market Roundup.
FAQs
Why did U.S. markets struggle last week?
Markets were rattled by fresh U.S. tariffs, mixed economic data, and signs of a slowing labor market.Why did the BoE cut rates despite high inflation?
While inflation remains above target, the BoE is trying to support economic growth as borrowing costs remain high.What caused the Nikkei to fall?
The strengthening yen and expectations of further BoJ rate hikes weighed on Japanese stocks.How is China’s economy performing post-Lunar New Year?
Consumer spending surged, but weaker services PMI data suggests that business activity is slowing.What are the key events to watch this week?
Fed Chair Powell’s testimony, U.S. CPI data, UK GDP estimates, and China’s credit expansion figures will be closely monitored.
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