Shaw and Partners

Trade tensions continued to build up over the week, keeping investors on edge. On Wednesday President Trump announced that all imports of automobiles and auto parts would face a 25% tariff from 02 April, with markets also cautious over the possibility for further tariff announcements. For the week the S&P 500 declined 1.5%, led by losses in information technology and communication services sectors. The tech-heavy Nasdaq Composite fell 2.6% for the week and the Dow Jones Industrial Average lost 1%. While they had initially made a positive start to the year, they are on track to seeing a quarterly loss.

Aside from trade worries, markets also had to contend with inflation and weakening growth concerns. On Friday the Federal Reserve’s preferred inflation gauge, the core personal consumption expenditures price index rose 2.8% year-on-year in February, continuing to remain above the central bank’s target. Furthermore, the University of Michigan’s consumer sentiment index dropped to its lowest level since 2022, a sign of a gloomier economic outlook. US Treasury yields had initially moved higher given the trade uncertainty before selling off on Friday following the data. Overall, the 10-year yield ended at 4.26%.

European markets experienced a weekly decline owing to the latest tariffs which dragged down automakers. There had been earlier optimism that Trump may be more lenient on tariffs, however this was not the case. For the week the pan-European STOXX 600 lost 1.4%, in its worst week since December. Despite the recent losses the index is on track for its best quarter in two years. Stocks had begun the week on more positive footing, given encouraging economic data releases. Most regional indices saw weekly losses although the UK FTSE 100 saw a modest 0.1% rise. This was even despite the Office for Budget Responsibility cutting its economic growth forecast to 1% this year.

Japanese equities dropped in response to the tariffs, with Prime Minister Shigeru Ishiba warning that the impact on the auto industry and the economy would be very big. The Nikkei 225 fell 1.5% while the Japanese yen weakened against the US dollar. Losses in China were more muted in a week relatively light on economic data, with the Shanghai Composite dipping 0.4% and the CSI 300 flat. Meanwhile the Hang Seng retreated 1.1%. Gold continued to reach new highs, gaining 2.3% on the week as investors sought out the safe haven amidst the uncertainty.

Weekly macro highlights

US core PCE inflation rises in February

Fears of stagflation in the US economy increased on Friday following the release of the latest Personal Consumption Expenditure (PCE) data. The PCE price index increased 0.3% in February, adding to a 2.5% increase year-on-year (YoY). However, excluding the volatile components for food and energy, the core PCE index increased by 0.4% in February, representing a 2.8% increase YoY. In recent weeks, business and consumer sentiment have deteriorated, increasing risks of a stagnation in activity, or worse, an economic recession in the coming months. Data from the Commerce Department revealed that consumer spending rebounded by 0.4% in February, from a decline of 0.2% in the previous month, as consumers attempted to front-load spending ahead of potential tariffs on imports. Investors fear that weak US GDP growth and high inflation, amid an escalation in trade tensions could constrain the Federal Reserve’s ability to deliver further interest rate cuts.

UK CPI inflation eases in February

UK consumer price index (CPI) inflation declined from 3.0% year-on-year (YoY) in January to 2.8% YoY in February according to data published by the Office for National Statistics. The data was below market expectations for a decline to 2.9% YoY. February’s drop in headline inflation was driven by clothing and footwear deflation, with the index falling 0.6% YoY having risen 1.8% YoY in January. Recreation and culture inflation also made a downward contribution to headline inflation, with the 3.4% YoY average price increase in February below the 3.8% YoY registered in January. Partially offsetting these downward contributions was an upward contribution from communication, which saw 7.3% YoY inflation in February, above the 5.9% YoY increase in January. Services inflation, which the BoE has been watching closely, was unchanged at 5.0% YoY in February. Core CPI inflation, which excludes food, energy, alcohol and tobacco, fell from 3.7% YoY to 3.5% YoY.

Eurozone flash PMI rises in March

The S&P Global eurozone composite flash Purchasing Managers’ Index (PMI) rose from 50.2 in February to 50.4 in March, remaining above the 50 level separating expansion and contraction. Although the data was below market expectations for a PMI at 50.8, it still represented the fastest rate of expansion in seven months. This reflected an increase in the manufacturing output index from 48.9 to 50.7, offsetting a decline in the services business activity index from 50.6 to 50.4. Despite the expansion in output, new orders contracted in both sectors in March. The weakening of demand conditions accelerated in the services sector, with the new orders index dropping from 49.5 to 49.1, while it slowed in the manufacturing sector as the index rose from 47.7 to 49.2. With output growing at its fastest pace in seven months, eurozone businesses expanded their workforces. The composite employment index was at 50.1 in March, its first expansion since July 2024.