InvestMacro

On Monday’s close, the Dow Jones Index (US30) was down 0.28%. The S&P 500 Index (US500) decreased by 0.76%. The Nasdaq Technology Index (US100) fell by 0.84%. Global stock markets came under pressure on Monday after President Trump on Saturday announced 25% tariffs on Canada and Mexico and 10% tariffs on China, and warned of impending European tariffs. The tariffs were due to take effect on Tuesday and could spark a trade war that threatens economic growth around the world. Goldman Sachs warned there was a risk of a 5% drop in US stocks due to the hit to corporate earnings, while RBC Capital Markets estimated a 5% to 10% drop in stocks. However, stocks recovered more than half of their losses after President Trump agreed late in the day to suspend planned tariffs on Mexico and Canada for a month after successful talks with their leaders.

The Canadian dollar strengthened to 1.45 per US dollar in February, rising from its lowest level in two years, after Prime Minister Trudeau confirmed that the imposition of US tariffs on Canadian goods would be suspended for at least 30 days. The postponement alleviated immediate concerns over potential trade disruptions, which had pressured the loonie due to fears of lower demand for Canadian exports and restricted foreign exchange inflows. Despite this, the CAD remains under pressure as Canadian GDP growth in December was just 0.2%, leaving the annualized growth rate for 2024 at a modest 1.4%.

The Mexican peso (USD/MXN) strengthened to 20.5 per US dollar, recovering after briefly falling to a three-year low after US President Trump delayed the imposition of tariffs against Mexico announced over the weekend. The US president cited talks with Mexican counterpart Sheinbaum and progress on the border issue, supporting bets that the restrictions will be avoided by the new deadline.

Equity markets in Europe were mostly down yesterday. Germany’s DAX (DE40) fell by 1.40%, France’s CAC 40 (FR40) closed down 1.20%, Spain’s IBEX 35 (ES35) lost 1.32%, and the UK’s FTSE 100 (UK100) closed down 1.04%.

WTI crude oil prices trimmed gains and traded near $73 per barrel after OPEC+ confirmed a gradual increase in production and removed the US Energy Information Administration (EIA) from its list of sources for monitoring production. The decision follows past tensions between OPEC+ and President Trump, who has previously pressured the group to increase supply to offset US sanctions on Iran. Since returning to office, Trump has again urged OPEC to release more oil, arguing that high prices support Russia’s war in Ukraine.

Silver (XAG/USD) topped $31.5 an ounce on Monday, near its highest since early December, amid easing trade war fears and optimism about improving demand for manufactured goods. Meanwhile, strong manufacturing data from ISM pointed to welcome momentum in US factory activity, which supported silver’s prospects as industrial demand, especially in electrification technologies. On the supply side, the Silver Institute recently predicted a fifth consecutive year of significant market shortages of the metal in 2025, driven by strong industrial demand and retail investment.

Asian markets were mostly falling yesterday. Japan’s Nikkei 225 (JP225) was down 2.66%, China’s FTSE China A50 (CHA50) lost 0.37%, Hong Kong’s Hang Seng (HK50) was 0.04% cheaper, and Australia’s ASX 200 (AU200) was negative 1.79%.

US President Donald Trump is set to speak to his Chinese counterpart Xi Jinping as early as this week as the two major economies work towards a deal to avoid wider trade tensions. On Monday, Beijing called on Washington for “frank dialogue and strengthened cooperation,” stressing that the tariffs are counterproductive and harmful to normal trade relations. Beijing also plans to sue the World Trade Organization.

As of Friday, the Dow Jones (US30) was down 0.75% (for the week +0.90%). The S&P500 Index (US500) decreased by 0.50% (for the week +1.20%). The Nasdaq Technology Index (US100) is down 0.14% (for the week +2.28%). Stocks gave up an early rally on Friday and declined moderately. The long liquidation in stocks emerged on Friday afternoon when the White House denied a Reuters report that President Trump would delay imposing tariffs against Canada and Mexico until March 1.

Relations between longtime allies the US and Canada, which has the world’s longest land border, have reached a new low. Canadian Prime Minister Trudeau said he was imposing tariffs on 155 billion Canadian dollars ($107 billion) worth of US goods. He said tariffs on 30 billion Canadian dollars will take effect Tuesday, the same day as Trump’s tariffs, and duties on the remaining 125 billion Canadian dollars 21 days later. Trudeau’s announcement came just hours after Trump imposed 25 percent tariffs on Canadian and Mexican imports and 10 percent on goods from China, creating the risk of a trade war that economists say could slow global growth and stoke inflation.

The tariffs pose a significant threat to the commodity-linked CAD, as they could reduce currency demand and limit foreign exchange inflows. These tariff risks also add to pessimism about Mexico’s economic outlook, especially after its GDP contracted by 0.6% in Q4 2024. Meanwhile, diverging monetary policies between the hawkish US Federal Reserve and Mexico’s central bank, expected to cut rates further to stimulate economic recovery, have narrowed the yield differential, adding pressure on MXN.

Equity markets in Europe were mostly up on Friday. Germany’s DAX (DE40) rose by 0.02% (for the week +2.50%), France’s CAC 40 (FR40) closed up 0.11% (for the week +0.97%), Spain’s IBEX 35 (ES35) index fell by 0.41% (for the week +4.00%), and the UK’s FTSE 100 (UK100) closed 0.31% (for the week +2.02%) on Friday. The DAX index closed without significant changes on Friday, setting a new record high. Market participants were assessing key inflation data from Europe and the US and the latest corporate earnings reports. In Germany and France, core inflation came in below forecasts, indicating that price pressures are easing and reinforcing expectations that the ECB will continue to cut rates this year.

WTI crude oil prices rose to around $73.8 a barrel on Monday after US President Donald Trump imposed tariffs against Canada, Mexico, and China, raising concerns about possible supply disruptions. However, crude oil prices could face downward pressure in the near term. Imposing tariffs and subsequent retaliatory measures could trigger a wider trade war, hurting global economic growth and reducing energy demand.

Asian markets were predominantly up last week. Japan’s Nikkei 225 (JP225) fell by 2.59%, China’s FTSE China A50 (CHA50) gained 0.44%, Hong Kong’s Hang Seng (HK50) rose by 0.91%, and Australia’s ASX 200 (AU200) posted a positive 1.21% for the week. Hong Kong stocks fell 1.3% in early trading at the start of the new month, reversing gains from the previous three sessions when trading resumed after the New Year holiday amid widespread sector losses. Over the weekend, investors reacted as Donald Trump imposed sweeping tariffs against several countries, including China. Meanwhile, Beijing announced plans to challenge Trump’s decision at the WTO and take other countermeasures, adding to fears of a trade dispute between the two countries.

The Australian dollar fell about 2% to below $0.61, hitting its lowest since April 2020. New US tariffs heightened fears about a global trade war, triggering a sell-off in risk assets. While Australia has not been directly impacted by the new US tariffs, its economy, which relies heavily on exports and free trade, remains vulnerable to disruptions in global trade. Meanwhile, data showed a 0.1% decline in Australian retail sales for December, the first drop in nine months. The slowdown has further supported expectations of a dovish stance by the Reserve Bank of Australia, with many analysts predicting rate cuts could begin as early as this month.

On Monday, the New Zealand dollar fell by 2% to US$0.553, its lowest level since March 2020, as the threat of a global trade war weighed on risk sentiment. In addition, the Kiwi weakened further after China’s manufacturing PMI fell below expectations as China is New Zealand’s key trading partner. The prospect of further rate cuts by the Reserve Bank of New Zealand also weighed on the currency. The market is pricing in a 50 bps rate cut to 3.75% at the February 19 meeting and forecasts a rate cut to 3% over the next 12 months.

Indonesia’s annualized inflation rate for January 2025 fell to 0.76% from December’s 1.57%, the lowest since March 2000. Core inflation, which excludes managed and volatile food prices, accelerated to an 18-month high of 2.36%, beating growth estimates of 2.30%.

At the end of Thursday, the Dow Jones Index (US30) was up 0.38%. The S&P 500 Index (US500) added 0.53%. The Nasdaq Technology Index (US100) rose by 0.25%. The US stocks closed higher after a choppy Thursday amid mixed earnings results, while Fed policy bets remained unchanged following the release of key economic data. Meta rose by 1.6% after beating earnings expectations and signaling an ambitious investment in open-source AI, while Tesla jumped 2.9% after announcing earnings despite missing expectations. Meanwhile, Oracle and Broadcom rose by 5.2% and 4.5%, respectively. Microsoft, on the other hand, was down more than 6.2% as its revenue estimates fell short, reflecting some pessimism about the company’s big bet on Azure.

According to BEA’s preliminary estimate, the US economy is expected to grow at an annualized rate of 2.3% in Q4 2024, the slowest pace in three quarters, down from 3.1% in Q3 and projections of 2.6%.

On Thursday, Trump confirmed plans to impose 25% tariffs on Canada and Mexico starting February 1, but did not give a firm date on China, though he noted that tariffs on Chinese goods would be imposed soon.

Mexico’s Q4 2024 GDP contracted by 0.6% quarter-on-quarter, canceling out the 1.1% increase in the previous quarter and falling short of market expectations of a softer 0.2% decline. It’s the first cut since Q3 2021, coinciding with Central Bank signals that more rate cuts may be needed this year, especially if the US follows through on its tariff threats.

Equity markets in Europe traded flat yesterday. Germany’s DAX (DE40) rose by 0.41%, France’s CAC 40 (FR 40) closed up 0.88%, Spain’s IBEX 35 (ES35) gained 1.08%, and the UK’s FTSE 100 (UK100) closed positive 1.04%. After the ECB cut its key deposit rate by 25 bps, as expected, and signaled the possibility of further cuts, the DAX Index set a new record. Meanwhile, the Eurozone economy unexpectedly stalled in Q4 2024, posting its weakest performance in a year. The two largest economies saw an unexpected contraction, with Germany’s GDP declining by 0.2% and France’s by 0.1%. Italy stagnated for the second consecutive quarter, Ireland’s GDP fell by 1.3%, and Austria’s economy was flat. On the other hand, strong growth was recorded in Spain (+0.8%), Portugal (+1.5%) and Lithuania (+0.9%).

WTI crude prices climbed to $73 per barrel on Thursday, trying to rebound from four-week lows as weaker-than-expected economic growth in the US put pressure on the dollar and fueled speculation of a Fed rate cut in March. A weaker dollar made oil more attractive to buyers in other currencies. Meanwhile, investors assessed Trump’s new tariff threats against Canada and Mexico, major suppliers of oil to the US. The White House has confirmed plans to impose 25% tariffs if those countries don’t curb the fentanyl trade. Markets are also keeping an eye on the upcoming OPEC+ meeting on February 3 as Trump pressures the group, particularly Saudi Arabia, to lower oil prices.

The US natural gas prices fell nearly 2% to $3.11/MMBtu, the lowest level since early December, as projections point to milder weather and lower demand next week. Meanwhile, the EIA reported massive gas withdrawals due to last week’s extreme cold weather. The US utilities withdrew 321 billion cubic feet (bcf) from storage in the week ended January 24, well above last year’s 234 bcf and the five-year average of 189 bcf.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) was up 0.25%, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) were not trading due to holidays, while Australia’s ASX 200 (AU200) was positive 0.55%.

The benchmark Consumer Price Index in Tokyo, Japan rose 2.5% year-on-year in January 2025, up from 2.4% in the previous month to the highest level since February last year. The January figure was also in line with market expectations, signaling increased price pressures and providing further justification for the latest interest rate hike. At its January meeting, the Bank of Japan raised its discount rate to 0.5% from 0.25% and revised upward its inflation prognoses, signaling the possibility of further rate hikes.

The Australian dollar stabilized near $0.622 on Friday, but was still on track for a sharp weekly decline amid growing expectations that the Reserve Bank of Australia will start cutting interest rates in February. Data released earlier this week showed Australia’s annual inflation slowed to 2.4% in Q4, down from 2.8% in Q3 and slightly below the estimates of 2.5%. Producer inflation also fell to 3.7% in Q4, down from 3.9% in Q3. Markets are pricing in a 95% probability of a 25 basis point cut in the cash rate to 4.35% at the Central Bank’s February 18 meeting.