Markets Weekly Outlook – Tariffs, NFP, and ECB Meeting on the Agenda

In the past week, market fluctuations have primarily been influenced by ongoing discussions regarding tariffs. Although the U.S. Personal Consumption Expenditures (PCE) data was anticipated to create significant volatility, it surprisingly failed to impact the markets. Instead, traders have been more focused on political developments rather than economic data.

Recent U.S. economic indicators suggest that growth may be stalling. Notably, consumer spending decreased in January for the first time in nearly two years, and the trade deficit reached a record high as companies rushed to import goods in anticipation of new tariffs. This scenario points to potentially weak economic growth or even a mild contraction in the current quarter.

Further analysis from the Commerce Department indicates that while yearly inflation rates have eased, prices remain stubbornly elevated with consistent monthly increases. As the Trump administration intensifies tariff actions, economists warn that this could lead to increased consumer prices as companies pass on their costs to buyers. In February, consumer inflation expectations spiked sharply, prompting the Atlanta Federal Reserve to revise its first-quarter GDP forecast downward, now projecting a contraction of 1.5% instead of growth at 2.3% as previously estimated.

The S&P 500 and Nasdaq 100 indices continued to show signs of weakness throughout the week. The Fear and Greed index has fallen into the fear territory, reflecting growing nervousness as economic news remains lackluster amid rising tariff concerns.

On the foreign exchange front, the U.S. dollar regained strength, exerting downward pressure on currency pairs pegged to the dollar, with the euro retreating from the significant 1.0500 level. Gold experienced substantial sell-offs this week, which was surprising given that tariffs usually bolster demand for safe-haven assets. This decline may be linked to profit-taking and rising inflation expectations among traders.

Oil prices also faced downward pressure, fueled by concerns about global economic growth and oil demand. An ongoing dispute among OPEC+ members regarding production increases provided only a temporary reprieve before another bearish trend took over towards the week’s end.

Additionally, the cryptocurrency market is in jeopardy, with Bitcoin set for its largest weekly drop since the collapse of FTX in 2022.

The Upcoming Week: Tariff Discussions and Economic Data

Asia Pacific Focus

In the Asia Pacific region, the primary event of interest will be China's Two Sessions meeting. Markets are keenly awaiting Premier Li Qiang's Government Work Report scheduled for March 5, which will outline the nation’s growth targets and key policy directions. Analysts anticipate that China will maintain its growth goal at "around 5.0%" for 2025, the same as it was in 2024.

This coming Saturday, China will unveil its official purchasing managers' index (PMI) for February, with a slight growth forecast of 50.1. The Caixin PMI will follow on Monday along with the initial trade data covering the first two months of the year.

Market Developments in Europe, the UK, and the US

In developed markets, despite the recent U.S. PCE data not shaking market confidence as much as anticipated, the Trump administration continues to introduce complex challenges for global market participants. Next week will be crucial for the United States with the potential implementation of trade tariffs affecting imports from China, Mexico, and Canada starting on March 4. Additionally, critical economic data, including the employment report for February, will influence market sentiment.

President Trump claims that foreign countries will shoulder the burden due to a robust dollar, but the consumer price index could rise, akin to previous tariff situations. Shaky consumer confidence, compounded by concerns over spending and austerity, risks a worsened outlook due to further tariff-related news.

Upcoming economic releases, particularly the ISM reports, are expected to indicate sluggish growth. Manufacturing and service sector surveys predict a weaker economic outlook, which could result in only modest payroll increases. Federal job cuts may take time before showing a substantial impact.

Simultaneously, the European Central Bank (ECB) is set to assess interest rates based on the latest inflation report. A rate cut of 0.25% is anticipated, although inflation may rise temporarily in February before easing. Differences in opinion regarding the final rates for the eurozone are becoming more relevant as policymakers express more hawkish views.

Labor market statistics are also in the spotlight. Though some companies have recently reduced jobs, the unemployment rate remains historically low at 6.3%. Any changes in the labor market dynamics could influence how aggressively the ECB may lower rates.

Chart of the Week

This week’s focus is on the U.S. Dollar Index (DXY), which experienced a solid recovery, pushing it back above the 107.00 mark. Much of this movement can be attributed to the escalating tariff discussions noted at the week’s end, likely to influence markets in the upcoming days.

The DXY is currently supported by the 107.00 level, with the 100-day moving average sitting at 106.700, which should also act as support. Immediate resistance levels to monitor are at 108.00 and 108.49.

Key Levels to Consider:

Support Levels:

• 107.00
• 106.13
• 105.63

Resistance Levels:

• 108.00
• 108.49
• 109.52

Tariffs, Economy, Markets