Weekly Overview 3. – 9. Feb 2025

The content of this post does not constitute financial advice. It is intended for information and education purposes only.

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The Week in Global Markets

Financial markets summary:

– EUROPE: Despite the threat of tariffs by the Trump administration coming next week and a slight re-acceleration in inflation, major pan-European stock indices ended this week higher, including the FTSE 100 in the UK. While the final PMI figures confirmed that the manufacturing sectors across the UK, Germany and the Eurozone remain in contraction territory, investor optimism was likely supported by an unexpected jump in German factory orders and another round of rate cuts (25bp) by the Bank of England. Nevertheless, German industrial production and Euro area retail sales have hardly pointed to a significant recovery or brought any reason for sustained optimism yet. The ECB, which anticipated this rise in the headline inflation rate (core stayed the same), stated that it is due base effects in energy YoY. The euro started the week in positive territory against the US dollar but once again dropped below 1.039 at the end of the week as talk of new trade frictions was discussed again. Notably, in the UK, the BoE slashed its forecast for economic growth in the Kingdom in half (0.75% in 2025), now expecting also higher inflation (above target) until 2027. After the rates announcement, the pound slumped but then rebounded, finishing the week slightly higher vs. the USD.

– UNITED STATES: After the announcements last Friday, this week began with a step back by US President Trump, as negotiations with Mexican President Sheinbaum and Canadian Prime Minister Trudeau (mainly regarding border security) led to a postponement of the tariffs for 30 days. Nevertheless, the 10% tariff imposed on Chinese imports across the board remained in place and we observed pledges by China to impose retaliatory measures, including threats to start investigations against US tech companies (such as Google). While the US stock market rebounded after these talks, it remained volatile and was then hit by another statement by President Trump at the end of the week, that the tariff topic is far from over. He promised reciprocal tariffs that would potentially match import taxes imposed by other countries in an effort to “restore fairness” in foreign trade. It is not clear yet what such tariffs would include and what their scope would be but they will likely affect the European Union and this could prompt a number of counter-measures by EU countries. This back-and-forth in the new government’s trade policy is causing a lot of uncertainty for investors. The Institute for Supply Management (ISM) has warned that companies in certain sectors are stockpiling goods from countries threatened by tariffs and that the uncertainty over tariffs could delay a company’s investments in other more pressing areas. Businesses might need to find new strategies (and allocate capital for that) to manage this increased uncertainty. On the earnings front, FactSet reported that 77% of the companies part of the S&P 500 that have reported earnings so far for Q4 have exceeded earnings expectations (average earnings growth 16.4% vs. expected 11.9%) and 63% have exceeded revenue expectations. ISM PMIs showed that both manufacturing and services activity expanded in January, although the latter was lower than in December and than expectations. Nevertheless, there appears to be further weakening in the US labor market, according to the NFP and JOLTs reports. Non-farm payrolls came in well below expectations at +143K new jobs, still positive but less than half the December reading. The unemployment rate declined to 4%, but the job openings declined to 7.6m, with initial and continuing jobless claims both rising this week. These developments likely helped push Treasury yields down across tenors.

– ASIA-PACIFIC: Major Japanese stock indices dropped this week as the yen strengthened against the US dollar to around 151 and the 10y JGB yields rose further to 1.28%. This came about as the Bank of Japan stated that they would “continue to raise interest rates and adjust the degree of monetary support if underlying inflation accelerates toward 2%”, which is their base case projection. This hawkish tone was supported by wage growth data and increases in household spending. In China, major indices such as the CSI 300 and the Shanghai Composite gained this week as data showed that consumer spending is on the rise again in a sign of improving domestic demand. However, PMI data from Caixin show that both manufacturing and services activity growth is likely slowing down, confirming that the economy is still struggling.

– BITCOIN: Despite briefly returning above $100k, BTC spent most of the week below that mark, fluctuating as of the time of writing around the $96k level. The risk-off mood (which is likely short-term) that seems to have taken over the market is possibly driven by macro developments, such as global trade policy sparks. Technical analysts expect a potential pullback to $92k that reflects the selling pressures and the rapid pace of recent gains but highlight that the overall sentiment is still bullish. Notably, the CEO of Coinbase has recently expressed himself in strong support of the moves of Elon Musk’s Department Of Government Efficiency (DOGE) to shut down the Consumer Financial Protection Bureau (CFPB), which was responsible for protecting US customers against corporate and market fraud and scams – including in the crypto sector.