Weekly Overview 24. Feb – 2. Mar 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: Once again this week we saw mixed performance in stocks across Europe. The pan-European STOXX 600 index was up, as was the DAX, the FTSE 100, and the Swiss SMI indices, while the major Italian and French indices declined. The main gainers were stocks from or affiliated with the defense sector, which reflects the major shifts in US defense policy and the push for Europe to invest more on its own defense and to rearm in the face of Russian aggression on the continent. However, from a macro perspective the situation remains grim. With the final Q4 GDP numbers out, it is confirmed that both Germany and France are still contracting. Inflation remains elevated in Germany, while it is already below the target level in Italy and France. The minutes from the latest ECB meetings showed that upside risks to inflation have increased recently and some members of the central bank mentioned that it may be more cautious now to pause interest rate cuts. S&P Global Ratings revised its outlook on France’s ’AA-/A-1+’ credit ratings from stable to negative due to concerns regarding the state of the country’s public finances. The company also projects that France’s GDP growth will fall below 1% in 2025, thereby presenting a further challenge for the fiscal outlook. By 2028, the average cost of France’s debt is expected to equal nominal GDP growth. To achieve a reduction in the debt-to-GDP ratio, France will need to operate a primary budget surplus, something it has not managed to do since 2001. In the UK, house prices rose more than expected, according to the Nationwide Building Society. The pound and the euro depreciated again as more concrete timelines on the tariffs prepared by the Trump administration became clear and likely also as a consequence of the breakdown of negotiations between the United States and Ukraine.

– UNITED STATES: Most major US stock indices were down this week, with growth stocks in particular being more severely affected. The tech sector took a dive in the second half of the week after the earnings release by NVDA. After the US president reiterated his intentions about tariffs, which are supposed to be implemented on March 4th for Canada, Mexico, and China (where the tariffs will be doubled), as well as the likelihood of tariffs on the EU at the beginning of April, the market also reacted negatively. In fact, the Atlanta Fed GDPNow estimate of Q1 growth plummeted and turned negative mainly as a result of the anticipated impacts of the tariffs. Additionally, the Personal Consumer Expenditures (PCE) index rose more or less in line with expectations both on a headline and core basis – and is still above the Fed’s 2% target. Consumer inflation expectations rose rapidly, while consumer confidence dropped quite materially – which is one likely reason why analysts have become more pessimistic about the course of the economy’s future growth. Initial jobless claims also increased. Despite these macro developments, however, the US stock market is not in correction yet. The fact is that credit spreads have remained tight for the moment – which means that investors are likely not yet spooked by the policy shifts. Major US equity indices may be trading in a range for a while as it processes these changes and as the market adjusts to new realities, including geopolitical ones. However, earnings estimates for 2025 have fallen and the expected earnings growth rate has been cut – which could be one reason why the market is experiencing some declines these days. As the uncertainty starts to clear out and the path forward becomes more visible, we need to observe how credit markets will react and will happen to credit spreads, which will also give an indication as to whether a bigger correction is at hand.

– ASIA-PACIFIC: Japan’s major stock indices dropped significantly this week – the Nikkei 225 was down over 4% while the TOPIX index finished the week down by about 2%. Like in the US, Japanese tech stocks took the biggest hit, but investors are likely mainly concerned with the increase of tariffs on imports from China, which they fear might negatively impact Japanese growth as well. The Bank of Japan will need to reassess such impacts and this could impact the timing and magnitude of its rate decisions going forward and on its JGB purchases in case yields rise too much. In China, the reaction of markets to the increase of US tariffs and further restrictions on chip tech exports was also palpable – with the CSI 300 and the Shanghai Composite both declining. The government has made it clear that it will retaliate “with all necessary measures to defend its legitimate rights and interests”. In India, a number of meetings took place between representatives of the EU and the Indian government, with the intention to deepen the strategic partnership on trade and technology. This will include cooperation and common work on the Digital Public Infrastructures (DPIs), to explore joint research and development in the field of chip design and to further strengthen the resilience of semiconductor supply chains. The EU and India are currently negotiating a free trade agreement, an investment protection agreement and an agreement on geographical indications.

– BITCOIN: BTC took a significant dive this week as the market reacted similarly to other risk assets to the perceived hazards to the growth outlook and inflation expectations. It reached lows on Friday below $79k, however, it rapidly started to recover on Sunday (together with other crypto assets) as Donald Trump posted on his social media platform TruthSocial that a US crypto reserve will elevate the “critical industry” and as such he has directed with an executive order the Presidential Working Group to move forward reserve that includes XRP (Ripple), SOL (Solana), and ADA (Cardano). Notably, this list did not include Ethereum nor Bitcoin initially, but later Trump added them as an additional post. The problem with this proposal is that the government is picking the “winners” in what is essentially supposed to be a free market and that it is going to put taxpayer money in it. Additionally, several of the proposed tokens have been reported to be scams or manipulated, with the people directly involved in this project having actively promoted the tokens or having acquired them in their portfolios – and therefore expected to benefit quite significantly from this decision.