Over the past two days, global markets have been significantly influenced by escalating trade tensions, central bank policy shifts, and geopolitical developments. The imposition of U.S. tariffs on steel and aluminum imports has sparked widespread reactions, while central banks in North America have adjusted monetary policies in response to evolving economic conditions. Additionally, tentative steps toward a ceasefire in Eastern Europe have impacted currency and commodity markets.
United States
On March 12, President Donald Trump enforced a 25% tariff on steel and aluminum imports, aiming to bolster domestic production. This move has raised concerns about potential inflation and a slowdown in economic growth. The S&P 500 index experienced volatility, closing 0.8% lower amid fears of an economic downturn.
According to data released by the U.S. Labor Department on March 12, 2025, the Consumer Price Index (CPI) rose 0.2% month-over-month and 2.8% year-over-year in February, slightly below economists’ expectations of 0.3% and 2.9%, respectively. Core inflation, excluding food and energy prices, also increased by 0.2% monthly and 2.8% annually, again falling short of forecasts. These figures indicate a deceleration in inflation, potentially influencing the Federal Reserve’s upcoming monetary policy decisions.The lower-than-expected U.S. inflation figures could positively influence market sentiment. Investors might interpret the slowing inflation as giving the Federal Reserve greater flexibility to implement future interest rate cuts or pause monetary tightening, supporting risk appetite. Stocks and risk-sensitive assets such as technology shares, cryptocurrencies, and emerging markets could benefit. Conversely, a softer inflation reading might weaken the U.S. dollar, providing upward momentum for commodities, precious metals, and non-USD currencies. Treasury yields might also decline in anticipation of looser monetary policy ahead.
Eurozone
European Central Bank (ECB) President Christine Lagarde cautioned that trade disputes, defense spending, and climate-related shocks could heighten inflation volatility within the eurozone. She emphasized the ECB’s commitment to its 2% inflation target and the necessity for transparent policy responses to various economic shocks. These remarks come amid the European Union’s retaliatory tariffs on U.S. goods, valued at approximately $28 billion, in response to the U.S. steel and aluminum tariffs.
United Kingdom
The UK government expressed disappointment over the U.S. tariffs but has opted against immediate retaliation, focusing instead on securing an exemption. Prime Minister Keir Starmer emphasized a pragmatic approach, highlighting ongoing negotiations for an economic deal that could address tariff concerns. Additionally, the UK Debt Management Office reported a record £67.5 billion in orders for a new 25-year inflation-linked bond, reflecting strong investor demand despite rising yields.
China
China announced plans to implement necessary measures to safeguard its interests in light of the new U.S. tariffs. While specific countermeasures have yet to be detailed, the situation has contributed to global market uncertainty, with investors wary of a potential escalation into a broader trade conflict.
Japan
The Bank of Japan reiterated its stance that bond yields should be determined by market forces, maintaining its current monetary policy amid global trade tensions. The central bank’s position underscores its commitment to market stability during periods of economic uncertainty. wsj.com
Canada
In response to U.S. tariffs, the Bank of Canada reduced its benchmark interest rate by 25 basis points to 2.75%, marking its seventh consecutive rate cut. Governor Tiff Macklem highlighted the need to assess both upward inflationary pressures from higher costs and downward pressures from reduced demand. The central bank signaled a cautious approach to future monetary policy adjustments, given the complex economic landscape.
Other Notable Developments
- Oil Markets: Oil futures rebounded after reaching six-month lows, buoyed by a weakening U.S. dollar and reports of a potential 30-day ceasefire between Ukraine and Russia. The prospect of eased geopolitical tensions contributed to improved market sentiment, although analysts caution about the potential for increased global oil supplies if sanctions on Russian crude are lifted.
- Currency Movements: The euro surged to a five-month high against the U.S. dollar, influenced by Ukraine’s acceptance of a U.S.-proposed ceasefire and the resumption of U.S. military aid to Ukraine. The Russian ruble also strengthened, reaching a seven-month peak, reflecting optimism over potential de-escalation in Eastern Europe.
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