8 min readLast Monday, President Trump imposed 25% trade tariffs on Mexico and Canada and a 10% trade levy on China. Canada and China also took retaliatory measures. However, later in the week, Trump announced a slew of exemptions and delays for the tariffs, including goods covered by the US-Mexico-Canada Agreement, exempted for one month.
The ongoing uncertainty and changing policies unnerved investors, fueling risk-off sentiment. US stocks fell sharply last week, the worst week for some major indices since September. The S&P 500 and Nasdaq fell over 3%, and the Dow Jones dropped 2.3%. The USD also experienced another weekly sell-off, dropping to a 4-month low.
In Europe, Germany’s next Chancellor Friedrich Merz and other leaders announced a reform to the debt brake, a massive fiscal U-turn, to enable a huge increase in defence and infrastructure spending. The news boosted the DAX and EU Stoxx to record highs. EUR/USD also surged towards 1.09, jumping 4.46%, its largest weekly rise since March 2009.
Oil prices fell to a multi-year low, falling over 4% to 65.20. Reports that OPEC+ would increase oil production next month as previously planned sent prices tumbling. Output would rise when the demand outlook was weakening, owing to concerns over the outlook on the US economy.
China CPI (Sunday)
China’s deflationary pressures continue to weigh on the world’s second-largest economy. In February, China’s CPI fell -0.7% YoY, deeper than the -0.4% fall that economists had expected. The report cited an earlier-than-usual Chinese New Year as the reason for the deeper drop, as prices tend to increase during the holiday.
The PPI index, which measures factory gate inflation, fell -2.2 % in February, marking the 29th straight monthly decline and only a slight improvement from 2.3% in the previous month.
The data comes after China announced an ambitious GDP growth of 5% for 2025 during the government’s annual review.
Concerns of deflationary pressures, combined with Trump trade tariffs, are pulling the Hang Seng lower at the start of the week.
Japan GDP (Tuesday)
Japan’s economy is expected to have expanded in Q4 at the same upbeat pace as the preliminary reading showed. Q4 GDP is expected to show growth of 2.8% on an annualised basis, which is in line with the reading for mid-February. This would relate to a quarter-on-quarter expansion of 0.7%, also unchanged from the earlier reading.
Private consumption, which accounts for over half of Japan’s economic output, is expected to increase by 0.1%, which is in line with the preliminary reading after contracting 0.7% in the previous quarter. Meanwhile, Japanese household spending is expected to have climbed 3.6% in January, adding to inflationary pressures.
The data comes after the Bank of Japan lifted interest rates to the highest level in 17 years in January. Growth momentum will be among the key factors determining whether the central bank will continue hiking rates this year. The market is growing increasingly convinced that the Bank of Japan will follow January’s 25 basis point hike with a further 25 basis point increase potentially in Q3.
Hawkish BoJ bets, combined with safe-haven flows amid Trump’s trade tariff uncertainty, have pulled USD/JPY to a multi-month low.
US CPI (Wednesday)
US inflation will be the key focus this week. US CPI rose to 3% in January, its highest level since June 2024, having fallen as low as 2.4% last autumn. The price rebound was worrying enough for the Federal Reserve to pause its rate-cutting cycle when it met in January. After cutting 100 basis points in the final few months of 2024, policymakers halted.
Optimism surrounding a business-friendly Trump has all but disappeared after a slew of policy announcements since January 20th. U.S. stocks have fallen sharply, and yields are lower than at the start of the year, even though U.S. trade tariffs could make things more expensive. This is basically because of concerns surrounding the health of the US economy, which could be heading for a recession or stagflation. February CPI is expected to ease to 2.9%, with core prices falling to 3.2%. Weaker than expected inflation data could raise recession fears, pulling the US dollar lower and weighing on US equities.
The Nasdaq 100 fell into correction territory last week, down over 10% from its recent record high. Weak data could pull the tech-heavy index lower.
BoC rate decision ((Wednesday)
The Bank of Canada is set to announce its next interest rate decision on March 12. The central bank lowered its lending rate by 25 basis points in the January meeting, bringing it from 3.25 to 3%. Since the meeting, Canadian core CPI rose 1.9% YoY, and core CPI climbed to 2.1%, up from 1.8% and above the central bank’s 2% target. Meanwhile, the Canadian economy is showing signs of improvement. The Ivey PMI rose to a 7-month high in February, with employment rising and prices heating up.
The big question is regarding trade tariffs. Trump applied 25% trade tariffs at the start of last week but has significantly expanded the goods exempt. This raises questions over the BoC’s next move—after trade tariffs had been applied, BoC rate cut expectations jumped to 90% from 30%. However, the exemption has slightly lowered the chances of another cut. The consensus expectations are for another cut of 25 basis points.
The USD/CAD has fallen from its February high, owing to a weaker USD. Should the BoC hint towards a pause in rate cuts, the pair could fall lower.
UK GDP (Friday)
The UK economy performed better than expected at the end of 2024, eeking out gains of 0.1% thanks to a solid performance in December, which saw growth of 0.4%. The growth was a little surprising given weak PMIs and disappointing retail sales data, although hospitality and accommodation services expanded along with state spending, which was also strong. Still, this needs solid private sector inputs to continue. However, construction was also positive; given the latest PMI data, it looks sustainable. While the GDP was better than expected in December, the UK economy and still very weak, and expectations are for further contraction in January.
GBP/USD has risen to a multi-month high amid USD weakness. Weaker-than-expected UK data could pull GBP/USD back towards 1.27.
Michigan confidence (Friday)
The Michigan sentiment headline print will be watched closely for signs of the continued trend of soft data out of the US. This could further illustrate growth concerns surrounding the world’s largest economy. Attention will also be paid to inflation expectations.
The Atlanta Fed GDP is currently forecasting Q1 GDP at -2.4%, and Fed Governor Waller also said he’s seeing signs of softer data but will respond to hard data. New York Fed President Williams said it’s worth closely watching the University of Michigan’s inflation expectations. Hotter inflation expectations and a weaker growth outlook could be a concerning mix.
After reaching an all-time high earlier this year, Gold is consolidating around 2900. Hotter inflation expectations and weaker sentiment could lift the safe haven towards record highs of 2950.
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