As he tried to encourage a peace deal between Russia and Ukraine, President Donald Trump stated that Ukraine had started the war with Russia and called President Zelenskyy a “dictator”. President Trump is also pushing for NATO members to increase their defence spending to 5% of GDP from the current level of 2%. The news put upward pressure on European bond yields.
UK
The FTSE 100 slid 0.5% over the two weeks.
The S&P Global UK Composite PMI eased to 50.5 in February from 50.6 in January.
UK GDP grew 0.1% in the final quarter of 2024.
UK inflation rose to a 10-month high of 3.0% in January, from 2.5% in December.
US
The S&P 500 rose 0.8% over the two weeks while the Nasdaq rallied 1.4%.
Minutes from the latest FOMC meeting revealed policymakers wanted to see “further progress on inflation” before making further interest rate cuts, while Federal Reserve chair Jay Powell said he was in “no hurry” to cut interest rates.
Trump announced that he would impose 25% tariffs on steel and aluminium imports and also threatened to apply levies on imported copper. The President also said he would introduce higher levies on imports of cars, semiconductors and pharmaceuticals.
The S&P Global US Composite PMI fell to 50.4 in February compared with 52.7 in January and the lowest reading since September 2023. Services activity contracted for the first time in more than two years, although manufacturing activity accelerated slightly.
Headline US inflation increased to 3.0% in January, a higher-than-expected outcome.
US retail sales slumped 0.9% in January, the largest monthly decline in nearly two years.
The University of Michigan US consumer sentiment index was revised sharply lower to 64.7 in February from a preliminary of 67.8, reaching the lowest level since November 2023.
Sales of previously-owned homes dropped 4.9% in January from the previous month as buyers struggled with persistently high mortgage rates and elevated prices across large swaths of the country.
Europe
The Eurofirst 300 advanced 2.2% over the two weeks to high a fresh record high amid optimism that the war between Russia and Ukraine would soon be over and relief over the lack of higher US tariffs. European stocks have seen their best start to a year since the late 1980s and their strongest performance relative to the US in almost a decade, according to Bank of America.
Defence stocks, in particular, were lifted by expectations of higher European government defence spending and the prospect of European countries playing a security solution role in Ukraine.
The HCOB Eurozone Composite PMI held steady at 50.2 in February.
Germany went to the polls on Sunday 23 February.
Japan
The Nikkei 225 closed the two weeks unchanged.
Japan’s GDP expanded at an annualised rate of 2.8% in the final quarter of 2024, marking the third straight quarter of expansion.
Japanese inflation climbed to 4.0% in January from 3.6% in the prior month, marking the highest reading since January 2023.
The au Jibun Bank Japan Composite PMI rose to 51.6 in February, up from 51.1 the previous month.
Pacific Basin ex Japan
The Reserve Bank of Australia cut rates for the first time in more than four years, reducing rates by 25bps to 4.1%.
Hong Kong has been the best-performing major index since Trump’s inauguration, driven by strength in tech shares after DeepSeek’s surprise announcement.
Bonds
The yield on the 10-year US Treasury bond eased 3bps to 4.46%, while the yield on the 2-year note slid 4bps to 4.24%.
The yield on the 10-year German Bund rose 10bps to 2.47%, while the 10-year UK Gilt yield increased 8bps to 4.67%. European yield curves have steepened amid expectations of higher government spending.
10-year JGB yields rose 12bps to 1.42%, the highest level since 2009.
Commodities
Gold prices rose to a fresh all-time high of $2,955 per troy ounce driven by rising inflation expectations and rising geopolitical anxiety. Gold has been the best-performing asset since Trump’s inauguration.
Currencies
The US dollar fell to its lowest level since mid-December as Trump’s trade policies have to date been less aggressive than many anticipated.
