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Trump tariffs trigger market turmoil

Financial markets reacted strongly on Monday as investors sought safety in the US dollar and sold off stocks and cryptocurrencies following Donald Trump's announcement of new tariffs on major US trading partners. The tariffs, set to take effect on Tuesday, include 25% levies on imports from Mexico and Canada, and 10% on goods from China. In the meantime, Canada has announced retaliatory tariff measures. The US Dollar Index was trading 1.1% higher to start the week, while bitcoin dropped about 6% to around USD 94,500 and gold slipped 0.5% to USD 2787 per ounce. US and European stocks dropped at the end of last week and Asian markets were under significant pressure to start the new week.

Date
Author
Shane Strowmatt, LGT
Reading time
5 minutes

USA Interest Rates
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The threat of an escalating trade war with its effects on growth and inflation caused Asian stock markets to trade deep in the red on Monday. Japan’s Nikkei 225 was trading 2.7% lower, while Korea’s Kospi fell 2.5%. Australia’s S&P/ASX 200 was down 1.8%. Hong Kong’s Hang Seng Index lost 0.4%. Markets in mainland China were still closed for the Lunar New Year holiday.

Factory activity in Asia weakens

Purchasing Managers’ Indices (PMI) released out of the Asia-Pacific region couldn’t prop up markets on Monday. Asian factory activity weakened in January as soft Chinese demand and threats of higher tariffs by US President Donald Trump had already impacted business sentiment, according to private surveys released on Monday. China's Caixin manufacturing PMI fell to 50.1 from 50.5 in December, while Japan's PMI dropped to 48.7 from 49.6 in December. South Korea's PMI slightly improved to 50.3 from 49.0 points.

Inflation and PMI data to guide markets

This week, markets will closely watch inflation data and further Purchasing Managers' Indices (PMI) for insights into global economic health. On Monday, the euro area releases its Consumer Price Index, providing a snapshot of regional inflation. The same day, US ISM Manufacturing PMI offers insight into the state of the world’s largest economy. Midweek, the focus shifts to the US labour market with the JOLTS jobs report (Tuesday) and ADP employment report (Wednesday) both due. On Thursday, the Bank of England will announce its latest interest rate decision. The macroeconomic data ends the week with US nonfarm payrolls on Friday. Additionally, major earnings reports will continue to roll in throughout the week, with market participants focusing particularly on tech stocks, including Google parent Alphabet (Tuesday), AMD (Tuesday) and Amazon (Thursday).

New York stocks slip

The Dow Jones Industrial fell 0.8% to 44,544.66 points, while the S&P 500 dropped 0.5% to 6,040.53 points on Friday, while the Nasdaq 100 declined by 0.1% to 21,478.05 points, influenced by concerns over high valuations in the tech sector. Despite positive earnings, Apple shares fell 0.7%, and Intel dropped 2.9% due to a weak revenue forecast. In addition to fears surrounding tariffs, markets were also concerned about the most recent inflation data, which shows inflation remaining stubbornly higher than the Federal Reserve’s (Fed) 2% target. The personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, increased by 0.3% in December and 2.6% year-on-year, with core PCE (excluding food and energy) up 2.8%, as reported on Friday.

German inflation expected to rise

Germany's inflation rate is projected to reach 2.3% year-on-year in January 2025, according to preliminary data released on Friday. The consumer price index is anticipated to decline by 0.2% from December 2024. Core inflation, excluding food and energy, is estimated at 2.9%. Additionally, employment in Germany remained flat in December 2024, with the seasonally adjusted number of employed persons rising marginally compared to November. Germany’s DAX was essentially flat on Friday, while the Euro Stoxx 50 edged up 0.1%.

Swiss retail sales growth accelerates

Swiss retail sales increased by 2.6% year-on-year in December, up from 1.4% in November, marking the highest growth in four months, according to the Federal Statistical Office on Friday. The rise was driven by stronger demand for both food and non-food products, with food sales up 2.7% and non-food sales (excluding service stations) up 3.4%. On a month-on-month basis, retail sales grew by 0.6% in December after being flat in November. Nominal retail turnover saw an annual growth of 1.1%. The Swiss Market Index decreased slightly by 0.1% on Friday.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from Julius Baer.

Economic data in focus: Swiss Purchasing Managers' Index (09:30), German Purchasing Managers' Index (09:55), euro-area Consumer Price Index (11:00), Italian Consumer Price Index (11:00), Canadian Purchasing Managers' Index (15:30), US ISM Manufacturing PMI (16:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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