The significant events in the global economy over the past week
Weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.
U.S. stocks finished lower in a holiday-shortened week, reflecting a mix of geopolitical concerns and softening consumer sentiment. After markets closed Monday for Presidents’ Day, equities initially rose, pushing the S&P 500 to record highs on Tuesday and Wednesday. However, momentum faded late in the week, partly due to President Donald Trump’s ongoing efforts to resolve the Russia-Ukraine conflict and his newly announced tariff plans on automobiles, pharmaceuticals, and lumber. Details of these tariffs remain sparse, but traders worried that additional trade barriers could further weigh on economic growth.
Sentiment turned sharply negative on Thursday when Walmart released a fourth-quarter report indicating solid past performance but weaker-than-expected guidance for the year ahead. This news followed an earlier Commerce Department report showing January’s retail sales posted the steepest monthly drop in nearly two years, raising fresh concerns about consumer spending. Meanwhile, new data suggested caution in other areas of the economy: the National Association of Home Builders’ housing market index fell to 42 in February, reflecting slower construction as housing starts also declined. Additionally, S&P Global’s flash Composite Purchasing Managers’ Index revealed that services activity entered contraction territory, signaling that mounting cost pressures and policy uncertainty may be dampening business expansion.
In Europe, the pan-European STOXX Europe 600 Index edged up 0.26%, reflecting cautious optimism over evolving U.S. trade policies and efforts to end the Russia-Ukraine conflict. Germany’s DAX slipped 1.00% ahead of the federal election, France’s CAC 40 shed 0.29%, and the UK’s FTSE 100 fell 0.84%. Italy’s FTSE MIB, however, climbed 1.17%.
S&P Global’s flash data indicated eurozone business activity remained in expansion for a second month, with the Composite PMI reading at 50.2. New orders stayed weak, and staffing levels dropped slightly, while accelerating input cost inflation pushed output prices higher. Germany’s economic output expanded modestly, contrasting France’s contraction, though much of the rest of the bloc saw moderate growth. In the UK, the Composite PMI slipped but held above 50, hinting that activity continued growing, albeit at a subdued pace. Notably, employment in Britain’s private sector declined at its fastest rate since late 2020, driven by rising payroll costs.
Meanwhile, UK inflation exceeded forecasts, with consumer prices climbing 3% in January. Transport and food were primary drivers, while services inflation, closely monitored by policymakers, reached 5%. At the same time, average wages (excluding bonuses) rose 5.9% in the fourth quarter, and the jobless rate remained at 4.4%.
In Japan, equity markets declined, with the Nikkei 225 and the broader TOPIX shedding 0.95% and 0.82%, respectively. A stronger yen and rising government bond yields weighed on sentiment, as did concerns over potential U.S. tariffs. The yen appreciated to roughly JPY 150.4 per U.S. dollar, reflecting expectations that the Bank of Japan (BoJ) could raise rates. Japan’s core consumer price index rose 3.2% year over year in January, above forecasts, while gross domestic product expanded 0.7% quarter on quarter in the final three months of 2024. These indicators fueled speculation that the BoJ might tighten monetary policy, pushing the 10-year Japanese government bond yield to its highest since 2009.
By contrast, Chinese markets advanced, spurred by robust tech earnings and hints of a more supportive policy environment for private-sector companies. The CSI 300 Index rose 1.00%, while Hong Kong’s Hang Seng Index jumped nearly 3.80%, boosted by a rally in Alibaba shares after the company posted stronger-than-expected sales. Investor sentiment improved when President Xi Jinping met with prominent technology entrepreneurs, suggesting a shift away from the government’s earlier regulatory crackdown. Despite persistent concerns about China’s property sector and subdued domestic demand, the tech-driven upturn helped lift broader investor confidence.
Looking ahead, investors remain vigilant, balancing ongoing geopolitical developments, consumer demand trends, and potential policy shifts as they gauge the course of global growth in the coming weeks.
