8 min readLast week was another choppy week on the markets, with stock indices closing in the red despite a late-in-the-day rally on Friday. The Dow Jones was the only key US index to book a weekly gain, rising 0.95%. The S&P 500 lost almost 1%, while the tech-heavy Nasdaq registered a weekly decline of 3.4%, its worst week since September.
Trade tariffs
This week has started on the back foot after Trump went ahead and applied 25% trade tariffs to Mexico and Canada and 10% tariffs to Canadian energy, kicking off March 4th. Trump also applied an additional 10% tariff on China, lifting the tariff applied to Chinese imports into the US to a total of 20%. China has announced it will retaliate with up to 15% trade tariffs on US imports starting March the 6th, fuelling fears of a full-blown trade war between the world’s two largest economies.
Why does this matter? The market is worried that trade tariffs will slow US growth. Data last week showed that business and consumer confidence had fallen sharply on fears of trade tariffs and their impact on the US economy. The Nasdaq closed over tips and lower on Monday and now trades down over 7% from its record high reached on February 18.
China Two Session & PMI data (Wednesday/ Thursday)
This week’s key focus in the east will be China’s two sessions meeting, where investors will pay close attention to China’s 2025 growth target and top-level policy priorities. China is expected to stick around the 5% GDP goal, the same as last year, and could provide details about the direction of fiscal and monetary policy. Any comments will be closely watched, given the increase in US trade tariffs and the retaliatory move from China.
On the data front, China’s Caixin services PMI will be released on Wednesday. It comes after the official services PMI at the weekend, which was slightly stronger than expected at 50.4. The Caixin services PMI is expected to ease to 50.8 in February, down from 51 in January. Stronger-than-expected data could help boost sentiment and lift the Hang Seng, which rose to a two-year high last week. However, gains could be limited owing to the newly applied tariffs.
US ISM services PMI (Wednesday)
Economists expect US ISM services PMI to rise to 52.9 in February after declining to 52.8 in January from 54.1 in December and below expectations of 54.3. Whilst this would mark the eighth straight month of expansion, the pace of expansion has slowed. The data comes after the S&P Global survey showed the services PMI crashing to a 25-month low linked to a downturn in activity and worsening new orders due to rising political uncertainty. Optimism about the coming year also slumped to its lowest level since December 2022. Weak ISM services PMI data could fuel concerns over the outlook for the US economy, sending stocks lower.
The S&P 500 fell 1% last week and dropped 1.7% yesterday, trading around 5850.
ECB rate decision (Thursday)
The ECB is expected to cut interest rates again in the March meeting, following a rate cut in January. Since starting its easing cycle last June, the central bank has cut rates five times. The meeting comes as inflation cooled again in the eurozone to 2.4%, down from 2.5% in January and closer to the ECB’s 2% target, a sign that prices are cooling again after rising from 1.8% last year. The data suggests a possible bottoming out of the eurozone economy. Revised GDP data showed the Eurozone economy narrowly missed a contraction in Q4 of 2024. Confidence indicators for January and February have shown some improvement. In its latest macro projections, the ECB is expected to maintain its inflation forecast but lower its GDP growth projections for the year.
But how much further will the ECB go? At 2.5%, the policy rate would be at the upper end of neutral, and more hawkish ECB officials, such as Isabel Schnabel, have started to push back against additional rate cuts. The ECB is likely to avoid giving any forward guidance due to the high level of uncertainty and concerns over possible trade tariffs from President Trump, especially after he went ahead with
A more cautious-sounding ECB could help boost EUR/USD, which continues to struggle below 1.05.
Canada unemployment (Friday)
The Canadian employment report is expected to show that 1 17.5 K jobs were created in February, down from 76 K in January. Meanwhile, the unemployment rate is expected to tick higher to 6.7% from 6.6% prior. Jobs data has been coming in ahead of expectations by a large margin over the past few months thanks to aggressive BOC easing, which has given the economy a boost.
However, Trump’s 25% trade tariffs are likely to tip the Canadian economy into recession. This means that the outlook for the jobs market will likely deteriorate, and the Bank of Canada may need to cut rates more aggressively to support the economy.
Weaker-than-expected jobs data could pull the loonie lower, boosting USD/CAD.
US Non-farm payroll (Friday)
The US labour market is expected to show that 153k jobs were added in February, up from 143k in January. The unemployment rate is expected to hold steady at 4% after unexpectedly falling in the previous month. Low unemployment would suggest little urgency for the Federal Reserve to cut rates in the short term. Average earnings are also expected to remain unchanged at 4.1%, well above headline inflation, which means the Fed’s main concern will likely remain inflation rather than jobs in the dual mandate.
However, it is also worth noting that since the January report, signs of weakness have started appearing in forward-looking US economic data, with business and consumer confidence falling sharply. Jobless claims rose to the highest level in five months. Elon Musk’s DOGE continues to cut Federal jobs, which could impact payrolls. The market will watch closely for signs that the private sector is strong enough to absorb the employees who lost jobs. Signs of weakness could feed concerns over the outlook for the US economy.
Worries over the outlook for the US economy could see USD/JPY fall below the 148.70 support.
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