Global markets faced a turbulent week as economic data surprises, geopolitical uncertainties, and shifting central bank expectations weighed on investor sentiment. U.S. equities struggled with weak economic data and consumer spending concerns, while European stocks extended their 2025 outperformance. Japan’s markets faced headwinds from a strengthening yen, while Chinese equities gained momentum on tech optimism and a more business-friendly regulatory approach. Commodities also made headlines, with gold briefly touching record highs. Let’s dive into the details.

U.S. Markets: Inflation, Tariffs, and a Consumer Slowdown Weigh on Markets
After hitting new all-time highs early in the week, U.S. stocks reversed course due to concerns over consumer spending, inflation, and potential new tariffs. The S&P 500 and Nasdaq Composite fell 2.24% and 1.1%, respectively, while the Dow Jones Industrial Average dropped 1,118 points, losing 2.5%.

Key drivers:

• Investor sentiment deteriorated after Walmart’s cautious outlook signaled potential weakness in consumer spending. The retail giant’s 6.53% decline on Thursday contributed to broader market losses, particularly in consumer discretionary stocks. This followed last week’s disappointing retail sales report, which showed the biggest drop in nearly two years.

• S&P Global’s flash U.S. Composite PMI fell to a 17-month low of 50.4, dangerously close to contraction territory. The Services PMI slipped to 49.7, indicating a decline in activity, fueling concerns about economic slowdown.

• The latest Fed minutes revealed policymakers remain cautious about cutting interest rates too soon despite cooling economic growth. Fed Chair Jerome Powell reiterated that more progress on inflation is needed before considering rate cuts.

Europe: Markets Mixed Amid Growth Concerns and Rate Speculation
European equities remained steady despite political and economic uncertainties. The STOXX Europe 600 Index posted a modest 0.26% gain, with Italy’s FTSE MIB rising 1.17%, while Germany’s DAX and the UK’s FTSE 100 lagged with losses of 1% and 0.84%, respectively.

Key themes:

• The Eurozone Composite PMI remained at 50.2, indicating near-stagnant growth. Germany saw modest expansion, while France’s output declined sharply.

• UK inflation accelerated to 3% in January (up from 2.5%), driven by rising transport and food costs. Wage growth also exceeded expectations, with average earnings up 5.9% year-over-year. Retail sales rebounded 1.7% in January, though consumer sentiment remained cautious.

• Stronger-than-expected inflation and wage data led traders to reduce bets on multiple Bank of England rate cuts in 2025.

Japan: Yen Strength and Bond Yields Pressure Stocks
The Nikkei 225 declined 0.95%, and the TOPIX dropped 0.82% as a stronger yen (150.4 per USD) and rising Japanese government bond (JGB) yields weighed on investor sentiment.

Key themes:

• Japan’s core CPI rose 3.2% year-over-year, exceeding expectations.

• Q4 GDP expanded at an annualized 2.8%, reinforcing views that the Bank of Japan (BoJ) could hike rates.

• The Corporate Goods Price Index (CGPI) rose 4.2% year-over-year, further supporting the case for BoJ tightening.

China: AI Boom Fuels Market Rebound
Chinese equities rallied, led by tech stocks. The CSI 300 Index rose 1%, the Shanghai Composite gained 0.97%, and the Hang Seng Index jumped 3.79%.

Key themes:

• Alibaba’s strong earnings and a high-profile meeting between President Xi Jinping and tech leaders signaled a more pro-business shift in policy, boosting investor confidence.

• Concerns remain about China’s property sector and weak domestic demand, which could limit broader economic recovery.

What to Watch This Week

1. United States

   • Consumer Confidence Index (Feb 25): A decline in consumer confidence could signal weaker retail sales and broader economic slowing.

   • Q4 GDP (Feb 27): The second estimate of U.S. GDP will reveal whether economic growth is holding up amid high interest rates.

   • PCE Price Index (Feb 28): The Fed’s preferred inflation gauge could influence future rate decisions. A higher-than-expected reading may reduce the likelihood of near-term rate cuts.

2. Eurozone & UK

   • Germany’s Ifo Business Climate Index (Feb 24): A key barometer for business sentiment in Europe’s largest economy.

   • Eurozone Economic Sentiment Indicator (Feb 27): Signs of weakening sentiment could support expectations for ECB rate cuts.

   • GfK Consumer Confidence Index (Feb 28): A decline could signal weakening consumer spending.

   • UK Nationwide House Price Index (Feb 28): A sharp drop in prices could indicate economic weakness.

3. Japan

   • Tokyo CPI (Feb 28): An early indicator of national inflation trends that could influence the BoJ’s policy stance.

   • Preliminary Industrial Production (Feb 28): A decline in output could signal weakening global demand.

4. China

   • Manufacturing and Non-Manufacturing PMI (Feb 28): A contraction in activity could heighten concerns about slowing global growth, while stronger data may indicate stabilization following recent stimulus measures.

Conclusion
Markets faced challenges last week as inflation concerns, shifting central bank expectations, and consumer jitters weighed on sentiment. As investors look ahead to key economic reports, rate decisions, and geopolitical developments, volatility is likely to remain elevated. Stay tuned for next week’s Market Roundup.

FAQs

1. Why did U.S. markets struggle last week?
   Weak consumer spending data, inflation concerns, and new tariff risks weighed on equities.

2. Why is the BoE holding off on aggressive rate cuts?
   Stronger-than-expected inflation and wage data have led traders to scale back expectations for multiple rate cuts in 2025.

3. What’s behind Japan’s market weakness?
   A stronger yen and rising bond yields put pressure on Japanese stocks, particularly export-driven companies.

4. Why are Chinese equities rallying?
   AI optimism, Alibaba’s strong earnings, and policy shifts toward a more business-friendly environment have fueled gains.

5. What are the key economic reports to watch this week?
   U.S. consumer confidence, GDP, and inflation data, along with Eurozone sentiment indicators and Japan’s inflation report, will be closely monitored.

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