Over the past two days, global markets have been influenced by escalating trade tensions, potential shifts in economic growth leadership, and fluctuating commodity prices.
United States:
U.S. stock index futures declined as investors grappled with the looming deadline for a government funding bill and persistent concerns over President Donald Trump’s unpredictable trade policies. The Senate is focusing on a stopgap funding measure to prevent a partial government shutdown, potentially extending funding until April 11. Earlier in the week, Wall Street experienced significant losses due to fears of a trade war initiated by Trump’s tariffs on steel and aluminum imports, leading to market instability and downgraded outlooks from brokerages.
Recent data indicates that U.S. inflation cooled in February, with the Consumer Price Index (CPI) rising 2.8% year-over-year, slightly below the anticipated 2.9% and down from January’s 3% increase. On a monthly basis, the CPI rose 0.2%, marking the smallest gain since October. Core inflation, excluding food and energy prices, also slowed to 3.1% over the past year, the lowest since April 2021.
This moderation in inflation offers the Federal Reserve more flexibility regarding interest rate decisions. However, concerns persist that recent tariffs imposed by the Trump administration could elevate prices in the near future, potentially complicating the Fed’s efforts to manage inflation amid economic uncertainty.
The stock market’s reaction to the inflation data was mixed.
Major indexes, including the S&P 500, approached a 10% correction from record highs. Investors are also anticipating updates on consumer inflation and jobless claims, with expectations that the Federal Reserve will maintain current policy rates.
Eurozone:
The U.S.’s economic growth advantage over the eurozone is expected to diminish. Challenges such as higher tariffs and reduced government spending in the U.S. contrast with anticipated economic boosts in the eurozone, particularly from increased defense and infrastructure spending in Germany. J.P. Morgan economists have adjusted their forecasts, indicating stronger eurozone growth potential and possibly lowered growth for the U.S. The European Central Bank (ECB) may not reduce its key interest rate as much as previously thought, due to expectations of higher inflation and government spending support. Conversely, the Federal Reserve may delay reducing its key rate because new tariffs could push U.S. inflation higher. Consequently, the growth gap and interest rate divergence between the U.S. and Eurozone are expected to narrow, influencing the euro’s recent strengthening against the dollar.
China:
China’s “Two Sessions” concluded with a focus on stimulating the economy. The government has promised substantial investment in the tech sector, set a 5% annual GDP growth target, and raised the fiscal deficit allowance. However, the actual impact on consumption could be minimal as the deficit increase primarily aims to aid local government debt restructuring. China’s strategy appears geared towards enhancing exports amid rising global protectionism, potentially challenging for global markets. In the short term, these policies bode well for the Chinese equity market.
Japan:
Japanese markets have been affected by global trade tensions and domestic economic indicators. The Nikkei index has experienced fluctuations, reflecting investor sentiment in response to international developments and internal economic data. Specific details on Japan’s economic performance over the past two days were limited in the available sources.
Other Notable Developments:
- Oil Prices: Oil prices have decreased slightly following a report from the International Energy Agency (IEA) highlighting concerns that increasing global trade tensions could dampen energy demand. The IEA noted that oil demand had fallen short of expectations and revised its growth estimates downward for late 2024 and early 2025 to approximately 1.2 million barrels per day. Despite this, the agency anticipates demand will increase by just over 1 million barrels per day in 2024, partly influenced by lower oil prices. The IEA warned that worsening macroeconomic conditions, exacerbated by escalating trade disputes involving the United States, could further impact demand negatively.
In summary, while the recent CPI report indicates a cooling in inflation, the economic outlook remains uncertain and markets are still anxious due to the possible future impacts of tariffs.
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