The US trade war escalated, with President Donald Trump pressing ahead with 25% tariffs on Canada and Mexico, as well as global tariffs on steel and aluminium. Trump later postponed many of his tariffs on Canada after being hit by a robust response, including a 25% hike in electricity exports from Ontario. He also promised sharply higher tariffs on EU exports to the US.
The Vix Index jumped to 29, its highest level since the market sell-off in August 2024.
UK
The FTSE 100 fell 2.0% over the two weeks.
The UK economy shrank 0.1% over the month of January.
US
The S&P 500 dropped 4.4% over the two weeks while the Nasdaq declined 4.9%. US stocks tumbled after President Donald Trump refused to rule out that his policies could tip the US into a recession. Investors have been spooked by concerns over slower US growth given President Trump’s aggressive approach to tariffs and federal job cuts. However, they closed the fortnight on a stronger footing after a federal shutdown was averted.
US stocks briefly fell into correction territory, having wiped out all of the gains accumulated after Donald Trump’s election, after the president’s tariffs on Washington’s biggest trading partners sparked fears of serious damage to the global economy.
The University of Michigan consumer sentiment plunged to 57.9 in March from 64.7 in February and the lowest since November 2022.
The ISM manufacturing purchasing managers’ index dropped to 50.3 in February from 50.9 the previous month, leaving it just above contraction territory, while secondary indices pointed to a sharp fall in new orders from 55.1 to 48.6.
The Federal Reserve Bank of Atlanta’s running estimate of US GDP growth pointed to a 2.8% fall in the first quarter.
US inflation eased to 2.8% in February from 3% in January.
Non-farm payrolls grew 151,000 in February, slightly less than expected.
The Bank of Canada cut rates by 25bps to the lowest level since 2022 as the trade war with the US takes its toll on consumer and business confidence.
Europe
The Eurofirst 300 fell 2.2% over the two weeks.
In Germany, the election-winning CDU/CSU and the Social Democratic Party, who are expected to form a governing coalition, agreed to relax the country’s strict borrowing rules. Friedrich Merz’s “whatever it takes” plan to unleash defence spending and overhaul German infrastructure is set to usher in the largest economic stimulus since the fall of the Berlin Wall. The plan breaks with more than two decades of fiscal conservatism.
The European Central Bank cut rates by 25bps to 2.5% as expected but signalled that they may slow the pace of rate cuts in future. Traders are now just pricing in one further rate cut this year.
Japan
The Nikkei 225 slid 0.3% over the two weeks.
Japan’s spring “shunto” wage negotiations secured the largest pay deal in more than three decades.
Pacific Basin ex Japan
China set a growth target of “about 5%” for 2025, matching the target for the last two years. Chinese inflation fell 0.7% year on year in February, marking the first decline in 13 months.
Chinese shares jumped after Beijing said there would be fresh measures to “boost consumption”.
Emerging Markets
The MSCI EM Index lost 1.6% in USD terms over the two weeks.
The Central Bank of Turkey cut rates by 250bps to 42.5%, taking borrowing costs to the lowest since December 2023. Turkish inflation slowed to 39.1% in February down from 42.12% in January.
This was the ninth successive monthly fall and the lowest level since June 2023.
Bonds
The yield on the 10-year US Treasury bond declined 24bps over the two weeks to close at 4.30%, while the yield on the 2-year note slid 2bps to 4.00%. Over the last month, traders have now priced in a further two full rate cuts for 2025 due to lower growth forecasts.
US junk bond credit spreads have widened sharply over the past month, jumping to a six-month high amid growing fears of a US slowdown.
The yield on Germany’s 10-year Bund surged 47bps to 2.88%, coming close to hitting 3.0% for the first time since July 2011. German government bonds experienced their largest one-day sell-off since 1997 on expectations of increased spending after Berlin voted to loosen its debt break to fund higher defence and infrastructure spending.
The yield on the 10-year Japanese government bond rose 15bps to 1.52%, its highest level since 2009.
Commodities
Oil prices fell to the lowest level in three years as fears rise that Donald Trump’s trade war will slow economic activity and cut crude demand. Brent crude, the international benchmark, dropped as low as $68.33, the lowest since December 2021.
Gold surged to a record high above $3,000 per troy ounce, as fears over the threat to global growth from President Trump’s trade war push investors into safe havens.
