Markets in a Minute – From Tariffs to Gold: February’s Market Moves Unpacked
Despite being a short month, there was no shortage of news flow to keep investors on their toes in February. Short-term noise from US President Donald Trump continued to be a key driver for investor sentiment, but recent weeks have reinforced the difficulty of trying to position an investment portfolio based on politics. The initial enthusiasm over Trump’s election win seems to have waned, with investors doubting that US consumer-led growth can continue at the current pace. US consumer confidence fell to an eight-month low over concerns of the adverse effects of tariffs. Meanwhile, in a sign of possible trouble ahead, US consumers owe a record $1.2tn on credit cards, up 7% on a year ago. Investors will hope for clarity on the implications of further trade tariffs in March, and how central banks respond.
Financial tariffs dominate markets, as Trump asserts influence
- President Trump ordered a 25% import tax on all steel and aluminium entering the US, ending previous exemptions for allies including Canada and the European Union (EU), marking a major expansion of trade barriers. Trump said he was “simplifying” the rules, and the measures would boost domestic production. Further speculation has been building on his plans for future tariffs.
- The US goods trade deficit widened in January to $153.3bn, according to the Commerce Department’s Census Bureau, an increase of $31.2bn compared with December’s deficit. The increase was attributed to a spike in goods imports – which increased over 10% in the month to $325.4bn, $34.6bn more than December. This may be a signal that businesses were trying to frontload imports and avoid the potential impacts of tariffs on China, Canada, and Mexico.
- The core personal consumption expenditures (PCE) index – the Federal Reserve’s (Fed) preferred inflation measure – showed prices had risen by an expected 0.3% in January. On a year-on-year basis, prices increased 2.6% to January and was down from the previous month’s 2.9%, a positive step for the economy but still above the Fed’s 2% target.
UK economy narrowly avoids stagnation, as government officials push for growth
- Financial markets revised expectations of three interest rate cuts by the Bank of England (BoE) in 2025, after UK wage and inflation data put pressure on the central bank. Consumer prices jumped to 3.0% year-on-year growth in January, from 2.5% the previous month and the fastest rate since March 2024. Meanwhile, wages excluding bonuses in the three months to December 2024 rose 5.9% year-on-year, up from the 5.6% increase in the previous quarter.
- Before the release of the inflation data, the BoE lowered its benchmark interest rate by 0.25% to 4.5%. The Monetary Policy Committee voted 7-2 in favour of the decision, with the two contesting members preferring a 0.5% reduction to combat stagnant economic growth.
- The economy grew by an unexpected 0.1% in the fourth quarter of 2024, according to the Office for National Statistics (ONS). It reported that a decline in production partly offset growth in the services and construction sectors. Gross domestic product (GDP) expanded 0.9% in 2024, up from 0.3% in 2023.
- The Competition and Markets Authority (CMA) made a public address after the UK government said it needed support on growing the economy. The address proposed new measures to drive growth, business confidence, and wider investment. Jonathan Reynolds, the Secretary of State for Business and Trade, said the government would welcome a “strategic steer” and CMA Chief Executive Sarah Cardell responded by promising “a package of carefully considered proposals for rapid change.” The address also came after significant pressure on regulators by ministers to do more positive steps in their role, rather than blocking deals that would help drive growth.
German politics deliver economic clarity as Eurozone also avoids stagnation
- The conservative alliance of the Christian Democratic Union of Germany (CDU) and the Christian Social Union in Bavaria (CSU), won the national election in Germany with 28.5% of the vote. The far-right Alternative for Germany (AfD) came second with a stronger-than-expected 20.8%. A key duty for new Chancellor Friedrich Merz is to form a coalition government with other parties, such as the Social Democratic Party, and work on removing a self-imposed ‘debt brake’ to boost economic growth.
- Minutes from the late January European Central Bank (ECB) meeting highlighted worries about potential trade restrictions and growing uncertainty. Policymakers were confident that inflation was heading back to the ECB’s 2% target, but noted “a shift in the balance of risks to the upside since December.” Members indicated greater caution on the size and pace of further interest rate cuts, particularly if financial tariffs continue and the German debt brake is released.
- The eurozone economy grew by a meagre 0.1% in Q4 2024, according to Eurostat, the EU’s statistics office narrowly missing stagnation, which was expected by economists. The German and French economies shrank by 0.2% and 0.1% respectively, while Spain’s economy grew by 0.8%, gaining 3.5% over the course of 2024.
In summary
Global equities delivered mixed results in February, as the US market fell due to concerns over an economic slowdown and the amount of spending on artificial intelligence (AI) without a clear return on investment. Despite the economic pain in Europe, markets continued their recent revival and were boosted by defence companies, as President Trump suggested withdrawing America’s NATO contributions. China was the standout region, boosted by softer-than-feared financial tariffs and a relatively strong earnings season in January – led by strong results in Chinese tech stocks and the DeepSeek announcement that unsettled Western AI giants. Sentiment was further boosted after a well-publicised meeting between China’s President Xi Jinping and tech entrepreneurs, which signalled the government is focused on supporting the private sector.
Bonds proved their worth once again in February, offering meaningful diversification from equities. However, uncertainty over interest rates were a headwind for the asset class, as there appears to be a disconnect between bond trader expectations and the actions of central banks. The potential return of inflationary pressures also added to volatility. US government bond yields fell back markedly, with the ten-year US Treasury starting February yielding 4.54% while finishing the month at 4.21%. By contrast, the ten-year UK government bond started February with a yield of 4.54% and finished the month only marginally lower at 4.48%.
Gold continued to break records in February and again reached an all-time high at nearly $3,000 per ounce before finishing the month at $2,848. With a higher degree of uncertainty within global markets, gold can act as a ‘safe haven’ asset, which explains much of its recent ascent.
A well-diversified portfolio remains one of the most effective strategies for managing risk and capturing growth opportunities across different regions and asset classes. Our investment partners continue to monitor the benefits of spreading investments across equities, bonds, and alternative assets like gold, to ensure our investors can better weather market volatility and position themselves to achieve longer-term objectives.