Global markets endured a volatile week as tariff disputes, inflation concerns, and central bank actions dictated sentiment. U.S. stocks tumbled under the weight of trade policy uncertainty, while European equities struggled with weak growth signals despite another ECB rate cut. Japan saw rising wage pressures that could accelerate monetary tightening, and China set an ambitious growth target while boosting fiscal stimulus. Let’s dive into the details.
U.S. Markets: Trade Tensions and Growth Concerns Weigh on Stocks
U.S. equities suffered their worst week in months as investors wrestled with tariff escalations, slowing manufacturing growth, and ongoing uncertainty around Federal Reserve policy.
Key drivers:
The U.S. imposed 25% tariffs on Canadian and Mexican imports and increased duties on Chinese goods. Retaliatory measures from these key trade partners sent shockwaves through the market. While the White House later announced exemptions and delays, the back-and-forth eroded investor confidence.
The February employment report showed 151,000 new jobs—below expectations but above January’s 125,000. The unemployment rate ticked up to 4.1%, suggesting a cooling labor market.
The ISM Manufacturing PMI dipped to 50.3, with new orders contracting, while the ISM Services PMI climbed to 53.5%, marking its eighth consecutive month of expansion.
The U.S. dollar suffered its largest weekly drop since 2022 (-2.4%) as growth concerns mounted, while the euro posted its biggest weekly gain versus the dollar since 2009.
Europe: ECB Cuts Rates Again as Growth Struggles, UK Mortgage Lending Surges Ahead of Tax Break Expiry
European equities faced headwinds as economic data painted a mixed picture. Meanwhile, the UK market slid as persistent inflation and cautious central bank rhetoric weighed on sentiment.
Key themes:
The European Central Bank (ECB) cut its deposit rate by 0.25% to 2.5%, marking its sixth consecutive rate reduction. ECB President Christine Lagarde cited “phenomenal uncertainty” and trimmed the 2025 GDP growth forecast to 0.9%.
Germany unveiled a 500 billion euro infrastructure fund and plans to loosen debt limits to support defense spending, sparking a surge in Bund yields.
Eurozone inflation edged down to 2.4% in January, while core inflation fell to 2.6%—signs that price pressures are slowly easing.
Bank of England Governor Andrew Bailey reiterated that inflation risks remain, making early rate cuts unlikely.
UK mortgage lending hit its highest level since 2022 as first-time buyers rushed to take advantage of a stamp duty reduction before its March expiration.
Japan: Wage Growth Could Accelerate BoJ Tightening
After a strong February, Japan’s stock market saw mixed performance amid rising speculation of a rate hike.
Key drivers:
Japan’s largest labor union group, RENGO, is seeking a 6% wage increase, the highest in over 30 years. If granted, it could prompt the Bank of Japan (BoJ) to accelerate its policy tightening timeline.
The yen appreciated to the mid-147 range against the dollar, as risk-off sentiment drove demand.
Yields on Japanese government bonds surged to 1.53%, the highest level since 2008, on expectations of further BoJ rate hikes.
China: Growth Targets Hold, but Challenges Remain
Chinese stocks rebounded as Beijing reaffirmed its 5% GDP growth target for 2025 and signaled additional stimulus measures.
Key themes:
China raised its fiscal deficit to 4% of GDP, the highest since 1994, signaling an aggressive push to boost growth.
The latest manufacturing PMI fell back into contraction territory at 49.6, raising concerns about the strength of China’s economic recovery.
Another major developer, Country Garden, missed a debt payment, reigniting fears about the real estate sector’s stability.
What to Watch This Week
United States
February’s Consumer Price Index (CPI) will be a critical gauge of inflation trends. January’s core CPI came in at 3.3%, slightly above expectations. If inflation remains sticky, it could delay potential Fed rate cuts.
Retail sales data will provide insights into consumer spending. Will spending continue to hold up despite higher borrowing costs?
Eurozone & UK
The latest manufacturing PMI data will offer insights into the performance of the manufacturing sector across the Eurozone.
The final inflation figures for February will be published, providing a detailed view of price changes within the Eurozone.
The UK’s economic growth update and job market data will highlight recruitment trends and employment changes.
Japan
An updated estimate of Japan’s economic growth in the last quarter of 2024 will provide further clarity on the country’s recovery trajectory.
China
While no major data releases are scheduled, the ongoing National People’s Congress (NPC) may announce economic targets and policy measures impacting China’s economic landscape.
Conclusion
Markets faced heightened volatility last week as tariff tensions, inflation concerns, and central bank moves drove investor sentiment. As economic data continues to shape rate expectations, investors will closely watch key inflation and growth indicators. Stay tuned for next week’s Market Roundup.
FAQs
Why did U.S. markets struggle last week?
The combination of new tariff disputes, weaker manufacturing data, and uncertainty around Fed policy weighed on investor sentiment.Why did the ECB cut rates again?
The ECB is trying to support sluggish economic growth and ease financial conditions, but persistent inflation risks mean policymakers remain cautious.What’s behind Japan’s market uncertainty?
Rising wage pressures and speculation about an accelerated BoJ rate hike timeline have created uncertainty in Japanese markets.How is China managing its economic slowdown?
China has reaffirmed its 5% GDP growth target while increasing its fiscal deficit to boost economic activity, though concerns about real estate stability persist.What key economic reports should investors watch this week?
U.S. inflation data, retail sales, eurozone manufacturing figures, and Japan’s GDP estimate will be closely monitored for market impact.
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