US markets declined over February as a whole, driven down by concerns over the possible impact of US President Donald Trump’s trade tariffs. Investors remain worried that tariffs will stoke inflationary pressures in the US, keeping interest rates higher for longer.
- US consumer price inflation rose to 3% YoY
- US consumer confidence deteriorated sharply
- The CDU won the most votes in Germany’s elections
Tariffs set to stoke inflation? US markets declined over February as a whole, driven down by concerns over the possible impact of US President Donald Trump’s trade tariffs. Investors remain worried that tariffs will stoke inflationary pressures in the US, keeping interest rates higher for longer. Credit ratings agency Fitch warned that a trade war would have a “materially negative effect on global economic growth”. President Trump suspended the planned 25% tariffs on goods from Mexico and Canada early in February; they subsequently came into effect on 4th March. Meanwhile, his 10% tariff on goods from China triggered retaliatory measures from Beijing, and he announced plans for another levy of an additional 10% on Chinese products later in the month.
“Credit ratings agency Fitch warned that a trade war would have a ‘materially negative effect on global economic growth;”
Downbeat economic data: higher-than-expected US inflation, alongside weakening consumer confidence and worries about government jobs, undermined investor sentiment in February. The Dow Jones Industrial Average Index fell by 1.6%, while the technology-heavy Nasdaq Index fell by 4%. The rate of inflation climbed from 2.9% to 3%; food price inflation was stoked by higher prices for eggs – driven up by shortages caused by an outbreak of bird flu – shelter, and energy. US consumer confidence weakened at its most rapid rate since August 2021 during February: the Conference Board’s consumer confidence survey reported that responses were “dominated” by comments on the Trump administration and its policies.
Uncertainty in Europe: in an address to the European Parliament, European Central Bank President Christine Lagarde reiterated that inflationary pressures in the eurozone were continuing to ease but also warned that greater friction in global trade would make the region’s inflation outlook “more uncertain”. Elsewhere, the Christian Democratic Union (CDU) party won the most votes in Germany’s elections; however, without an outright majority, the CDU looks set to form a coalition government with the Social Democratic Party. Over the month, the Dax Index rose by 3.8%.
Accelerating inflation: Developments in the US continued to preoccupy investors in Japan during February, and the Nikkei 225 Index fell by 6.1% over the month. Japan’s economy expanded at an annualised rate of 2.8% during the final three months of the year, although underlying data showed a slowdown in private consumption. Meanwhile, consumer price inflation continued to gather pace, rising from 3.6% to 4% year on year in January and stoking expectations of further rate increases.
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