Weekly Overview 17. – 23. Mar 2025

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The Week in Global Markets

FINANCIAL MARKETS SUMMARY:

– EUROPE: The performance of European stocks was mixed this week, with pan-European indices delivering gains, along with benchmark indices in the UK, France and Switzerland, while the German DAX and Italy’s FTSE MIB were down. Three factors remain the most important drivers of these moves – expected growth effects of fiscal boosts, monetary policy decisions and the shift in US policies (including trade uncertainty and tariffs). The BoE and Sweden’s Riksbank did not cut rates, as inflation risks are still seen as too high. The Swiss National Bank (SNB) did, however, cut by another 25bp as inflation pressures are receding, although this is likely the end of this cutting cycle. ECB President Lagarde stated that the bank needs to stay vigilant as international trade tensions are rising and causing uncertainty, which poses a threat to EU growth and inflation. Wage growth is moderating as real wages have now caught up with levels seen before the surge in inflation – the ECB wage tracker now expects negotiated wages to grow by 3.3% in 2025 (vs. 5% in 2024). In Germany, the ZEW indicator of economic sentiment showed strong growth in expectations in March, while the assessment of current conditions remained stable and negative. This improvement was most likely driven by the announced German fiscal boost, driving up the growth prospects for metal and steel manufacturers, as well as the mechanical engineering sector. The indicator for the euro area is also on the rise. Week-on-week, the pound and the euro depreciated a bit against the US dollar, while German and UK 10y yields declined.

– UNITED STATES: US stocks turned positive, but did not deliver a meaningful rebound this week. Value stocks outperformed growth stocks once again, while large-caps are still experiencing weak performance overall. The BofA Fund Manager Survey (FMS) showed a record rotation out of US and into European equities during March, with a net 60% of investors expecting stronger European growth on account of higher fiscal stimulus. This is the most significant stock market rotation since 1999. A significant share of the surveyed investors (89%) now expect US growth to slow – a major turn and likely signaling the end of the so-called “US exceptionalism” for the time being. Many of the respondents do not expect a deep recession but rather a mild stagflation or stagnation, particularly if the tariff hikes grow into a more significant global trade war. As the Federal Reserve kept rates steady, there is still an expectation for 50bp cuts in 2025, while inflation is now expected to be higher, combined with lower real growth in GDP. Home sales and housing starts came in higher than expected for February while manufacturing activity in New York appears to be dropping. Retail sales data were also weak for February.

– ASIA-PACIFIC: Japan’s Nikkei 225 and TOPIX indices ended this week higher as the BoJ held the policy rate steady and the yen weakened a bit against the US dollar. Investor expectations still point to maintaining gradual rate hikes, with inflation data raising the probability of a hike at the next central bank meeting. In China, despite positive economic data such as increases in retail sales and industrial output, major stock indices declined week-on-week. Both the 1y and 5y loan prime rates remained unchanged (at 3.1% and 3.6%, respectively). The rates have been steady for 5 months in a row as policymakers have turned more confident in the strength of economic growth and that the current levels of rates are sufficiently supportive for the market. So far, the impact of rising trade tensions with the United States has not been significant and there is no urgency to cut rates. However, some domestic sectors continue to struggle – property development investment is still in decline in the first two months of this year. In India, despite a strong global trade performance in 2024 (export growth of 6.3%), 2025 could bring a significant hit due to US tariffs. SBI Research projects that Indian exports to the US could decline by 3-3.5% if the Trump administration implements reciprocal tariffs in April as announced. This may be offset at least partially by expanding trade through free trade agreements with the EU and the rest of the Asia-Pacific region.

– BITCOIN: BTC has been locked in a range of $81-87k this week, currently around $85k. This week Tim Peterson (author of “Metcalfe’s Law as a Model for Bitcoin’s Value”) compared the current Bitcoin downturn to the 10 previous bear markets, which occur roughly once per year, and noted that only 4 of them have been worse in terms of duration: the ones in 2018, 2021, 2022 and 2024. This has made him predict that BTC will not fall below the $50k level as adoption rates will prevent that and that the bear market will only last 90 days in total. April may be key as the new US tariff policies take a more complete shape, and then there could be a 20-40% recovery. While such projections are highly conditional and hypothetical, they factor in macroeconomic uncertainty as well as speculative sentiment which could turn when the risk-on mood takes hold in financial markets once again. The counterargument highlights that the repercussions of a potential global trade war could be much more lasting and far-reaching than investors are currently pricing in, which can result in a much more significant correction.

policy rate overview

For a second consecutive meeting, the Fed kept rates at the 4.25-4.5% range this week, as expected. Chair Powell stated that the central bank will wait for further clarity, as it needs to assess a wide spectrum of drastic policy changes implemented by the Trump administration that are likely to impact economic performance. The tone of the Fed chief did not turn more hawkish despite the expected inflationary effects of the tariff hikes – which Powell said could go away quickly without FOMC action. The economic projections were updated and show that there are likely to be 2 more rate cuts in the course of 2025, while PCE inflation and unemployment are expected to be higher than what the previous forecast suggested. Growth projections for 2025 were downgraded to 1.7% for this year and 1.8% for the following two years. Meanwhile, the US president posted on his social media platform that he believes the Fed should cut interest rates. The situation for the Fed is becoming increasingly difficult as it needs to balance between a rising slowdown in the labor market and anticipated higher inflation readings ahead given the rapid shifts in trade policies. At this point, it is hard to discount the probability of stagflation in the US, especially if the spike in inflation expectations observed over the past two months persists going forward.

The Bank of Japan (BoJ) kept its policy rate unchanged at 0.5% with a unanimous vote against the backdrop of rising inflation and wage growth. In its statement, the central bank noted that the yen moves in the currency markets are expected to impact prices and that the outlook on growth and inflation remains uncertain. This week’s inflation data showed that core CPI rose more than expected in Feb (3% YoY), while the CPI index without fresh food and fuel costs rose by 2.6% (more than in January). This could prompt the BoJ to hike interest rates at its May meeting but that will also depend on the effects and scope of US tariffs.
The Bank of England (BoE) also maintained its bank rate at 4.5%, in line with expectations. Inflation is currently at 3% YoY and is expected to rise in the months ahead (some projections point to a rate of 4%) due to higher economic uncertainty and maybe even as a result of the US tariff policy. Another cut may be happen in May but that depends on global and domestic economic conditions and the dynamics of inflation. So far, expectations point to at least 2 cuts this year – most likely in May and November but UK business surveys are still quite weak, raising concerns regarding UK economic growth.