Markets have been through another week where tariffs have been the driving force behind market moves. The PCE data which I had thought would be the major event for the week failed to stoke any real volatility and that is testament to what we have seen in 2025 thus far.
Markets are more occupied with the moves of the Trump administration than they are about the data.
US data this week showed signs that the economy may be stalling while overall market sentiment has been dented by tariff chatter and inflationary concerns. This was reflected in the CB consumer confidence data which showed a significant uptick in the 12 month interest rate expectations by consumers.
U.S. consumer spending dropped in January for the first time in almost two years, and the goods trade gap hit a record high as businesses sped up imports to avoid tariffs. This points to weak economic growth or even a possible contraction this quarter.
Data from the Commerce Department also showed that while inflation slowed down yearly, prices remain stubbornly high with steady monthly increases. Meanwhile, the Trump administration is increasing tariffs, which economists warn will lead to higher prices as businesses pass costs to consumers.
Sources: LSEG Datastream (click to enlarge)
Inflation expectations among consumers rose sharply in February. The Atlanta Federal Reserve cut its first-quarter GDP forecast, now predicting the economy will shrink by 1.5% annually instead of growing at the earlier estimate of 2.3%.
The S&P 500 and Nasdaq 100 struggles continued this week which is no surprise given the current market dynamics. The Fear and Greed index is now in fear territory as tariff chatter ramps up and economic data continues to underwhelm.
Source: Isabelnet (click to enlarge)
On the FX front,the Dollar returned to its king status this week weighing on US dollar denominated pairs with the Euro losing ground and retreating from the psychological 1.0500 handle.
Gold is the biggest loser this week and I was taken aback by the selloff. Mostly down to the fact that tariffs have until now been a positive for safe haven demand. The only explanation I can see is potential profit taking and gold traders concerned by the rise in inflation expectations.
Oil prices also struggled this week on growing concerns about global growth and Oil demand. A disagreement by OPEC + members on an output increase from April provided a brief respite on Thursday but was followed by another bearish day to end the week.
Crypto markets are also feeling the pinch with Bitcoin on course for its biggest weekly drop since the collapse of FTX in 2022.
The Week Ahead: Tariffs at the Forefront. Will Trump Follow Through?
Asia Pacific Markets
The main focus this week in the Asia Pacific region for me is China’s Two Sessions meeting.
Markets are closely watching China’s Government Work Report, which Premier Li Qiang will deliver on March 5. It will reveal the country’s 2025 growth target and outline key policies. China is expected to keep its growth goal at “around 5.0%,” the same as in 2024, while giving more details about fiscal and monetary plans.
This Saturday morning, China will release its official February purchasing managers’ index (PMI), with a slight growth at 50.1 expected. The Caixin PMI will follow on Monday. On Friday, China Customs will provide the first trade data for the first two months of 2025.
Europe + UK + US
In developed markets, the US PCE data released last week failed to shake markets as expected but the Trump administrations continue to throw curveballs for Global Market participants to navigate.
Next week is important for the US, with trade tariffs on imports from China, Mexico, and Canada possibly starting on March 4, along with key economic data, like the February jobs report.
President Trump argues that foreign countries will bear the cost due to a stronger dollar, but consumer prices may rise, similar to past tariffs. Consumer confidence is already shaky due to spending concerns and austerity measures, and more tariff news could worsen the outlook and dent overall market sentiment.
Economic data, including the ISM reports, is expected to show slow growth. Manufacturing and services surveys suggest a weaker outlook, and corporate caution over changing trade policies may lead to only a small rise in payrolls. Federal job cuts may take months to show a clear impact.
Next week, the European Central Bank will decide on interest rates after reviewing a new inflation report. A 0.25% rate cut is expected, though inflation might rise in February before easing. With more hawkish voices in the ECB, debates on the final rate for the eurozone are growing more important.
Unemployment is also in focus. Despite businesses cutting jobs recently, the unemployment rate remains at a record low of 6.3%. Any shift in the labor market could impact how far the ECB can lower rates.
Chart of the Week
This week’s focus is on the US Dollar Index (DXY) after a solid recovery this week which has propelled the DXY back above the 107.00 handle.
A lot of the move was down to the tariff chatter which arose toward the backend of the week and that is likely to carry over into Next week.
Currently the DXY is supported by the 107.00 handle with the 100-day MA resting at 106.700 also likely to provide support.
Immediate resistance rests at 108.00 before the 108.49 handle comes into focus.
US Dollar Index Daily Chart – February 28, 2025
Source:TradingView.Com (click to enlarge)
Key Levels to Consider:
Support
- 107.00
- 106.13
- 105.63
Resistance
- 108.00
- 108.49
- 109.52