US equities had a challenging week as investors navigated the latest tariff developments. On Tuesday, 25% tariffs on goods imported from Canada and Mexico came into effect, as well as the additional 10% on Chinese imports. However, it wasn’t long before the Trump administration rolled back, announcing a one-month reprieve for goods from its neighbours covered by the US-Mexico-Canada trade agreement. Instead of welcoming the temporary exemption, this sparked a sell-off in equities owing to the uncertainty surrounding trade policies. Indeed, on Thursday, the Nasdaq Composite entered correction territory, down 10% from its recent peak.
For the week, the major indices saw sharp losses, with the S&P 500 down 3.1%, marking its biggest weekly decline since September. The Dow Jones Industrial Average fell 2.4% and the tech-heavy Nasdaq Composite lost 3.5%. Losses were slightly trimmed at the end of the week as stocks digested comments from Federal Reserve Chair Jerome Powell, which indicated that the central bank was willing to take a more cautious approach to monetary policy easing. The yield on the 10-year Treasury yield edged slightly higher, ending at 4.32%.
The pan-European STOXX 600 started the week by hitting yet another all-time high; however, it was later impacted by trade policy concerns. For the week, the index dropped 0.7%, snapping a 10-week winning streak. Regional performance was mixed, with the German DAX outperforming, up 2%, France’s CAC 40 seeing a modest gain, and the UK FTSE 100 slipping 1.5%. In Germany, an agreement was reached between Friedrich Merz’s alliance and the Social Democrats to exempt defence spending above 1% of GDP from its constitutional borrowing limit, create a €500bn infrastructure fund and loosen debt rules for states. This prompted a sharp sell-off in German bonds, with the yield on the 10-year Bund surging by 0.31 percentage points on Wednesday, its biggest move since 1997.
The sell-off extended to Japan, with the yield of the 10-year Japanese government bond rising to 1.53%, its highest level since 2008. This was also fuelled by growing expectations of additional interest rate hikes from the Bank of Japan this year. The yen benefited from investors seeking safe havens amid the increased uncertainty, sending it higher against the US dollar. This, in turn, impacted stocks, with the Nikkei 225 dropping 0.7% for the week. Bucking the wider downtrend, Chinese equity markets managed to log gains. There was optimism surrounding the annual the National People’s Congress, with China setting a growth target of around 5% for this year. The Shanghai Composite advanced 1.6% and the Hang Seng surged nearly 6% amid ongoing enthusiasm around artificial intelligence.
Weekly macro highlights
US labour market remains robust in February
US non-farm payroll employment rose by 151,000 in February, according to data published by the Bureau of Labor Statistics (BLS). The data was below market expectations for a 160,000 increase but above the downwardly revised 125,000 recorded in January. The change in employment for December was revised up by 16,000, partially offsetting the 18,000 downward revision to January’s data, meaning that employment in December and January combined is 2,000 lower than previously reported. Driving the job gains in February were increases of 52,000 and 21,000 in healthcare and financial activities, respectively. Federal government employment declined by 10,000 in February. The household survey data collected by the BLS showed a 588,000 decrease in employed persons, compared to the 151,000 increase reported in the establishment survey. This reflected a contraction of the labour force by 385,000 and the number of unemployed persons increasing by 203,000. As a result, the unemployment rate rose from 4.0% to 4.1%.
ECB cuts rates by 25 basis points in March
The European Central Bank (ECB) Governing Council reduced the deposit facility rate by 25 basis points to 2.5% at its meeting on 06 March. The decision was based on the Governing Council’s view that the disinflation process remains on track and that inflation has continued to develop broadly as ECB staff had expected. The ECB’s inflation projections were updated, with headline inflation now expected to average 2.3% in 2025 and 1.9% in 2026. The projection for 2025 represents an upward revision of 0.2 percentage points and reflects stronger energy price dynamics. Gross domestic product (GDP) growth projections were also updated, with eurozone GDP growth now expected to be 0.9% in 2025 and 1.2% in 2026, down from previous forecasts of 1.1% and 1.4% respectively. The downward revisions to the growth forecasts reflect “lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty”.
Chinese exports soften in January-February
Chinese exports rose 2.3% year-on-year (YoY) in the first two months of 2025, according to data published by Chinese Customs. This figure was below market expectations for a 10.7% YoY increase and reflected the fading effects of frontloading orders from the US in anticipation of Trump tariffs. Chinese exports contributed 1.5 percentage points to the 5% gross domestic product (GDP) growth seen in 2024, with a pickup in exports to the US in Q4 driving this growth. The challenging external environment for 2025 was acknowledged as China’s 14th National People’s Congress convened for its third session last week, where Beijing outlined its economic goals for the year. The GDP growth target remained unchanged at “around 5%”. Given the headwinds from trade tensions, China’s government pledged additional stimulus for the year, raising the budget deficit target from 3% of GDP in 2024 to 4% of GDP in 2025, the highest level in around 30 years.
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