7 March 2025
Markets Gyrate Over Tariff Developments
A review of the week’s top global economic and capital markets news.
AUTHOR
Jamie Coleman
Senior Strategist, Strategy and Insights Group
For the week ending 7 March 2025
As of midday Friday, global equities were lower on the week as the Trump administration continued its plays cat and mouse with tariff policy game, keeping investors on edge. The Nasdaq Composite Index fell into a correction on Thursday, dropping 10.6% from its mid-December peak. The yield on the US 10-year Treasury note dipped as low as 4.11% on Tuesday before rebounding to 4.25% on Friday and was thus little changed from the week before. The price of a barrel of West Texas Intermediate crude oil fell $1.75 from last Friday amid reports that OPEC+ will lift its production caps on some members. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 22.3 from 21 a week ago.
MACRO NEWS
US jobs data hit close to mark
The US economy added 151,000 jobs in February, an uptick from the 125,000 gains in January. Given the recent policy gyrations in Washington, the range of economists’ estimates was unusually wide, but payroll growth fell just short of the 160,000 median. Heading into the data release, the “whisper number” among traders was 125,000. The unemployment rate ticked up to 4.1%, though the underemployment rate, which includes those working part time for economic reasons, rose to 8%, a sign of slack in the labor market compared with the period immediately following the pandemic. Average hourly earnings rose 0.3%, in line with expectations. The US federal government shed 10,000 jobs in February, the report showed.
Germany throws off debt shackles
Incoming German Chancellor Friedrich Merz has agreed to a plan with its likely coalition partner that could see Germany spend more than €1 trillion in the coming years on defense and infrastructure. Since 2009, Germany’s “debt brake” has limited government borrowing to 0.35% of GDP a year, a fraction of the Europe Union’s 3% limit. A reformed debt brake would not apply to defense spending. Though opposed to lifting the debt cap during the recent campaign, Merz changed his mind as the realization that Europe must do more to ensure its security and concerns grew over the United States’ commitment to NATO. It is thought that the infusion of spending will help lift German economic growth measurably in coming years. The yield on the German 10-year bund rose over 30 basis points after the announcement on Wednesday, the biggest one-day jump since the runup to reunification in 1990. In addition to the German plan, European Commission President Ursula von der Leyen presented European leaders with an €800 billion plan to increase defense spending during emergency talks in Brussels on Thursday. Under the plan, defense spending would not count against EU debt and deficit rules.
Tariffs spark turmoil
The on-again, off-again US tariff policy repeatedly whipsawed markets this week as President Trump implemented and then modified elements of the 25% duties levied on imports from Canada and Mexico. Trump put the tariffs in place on Tuesday and by Wednesday had announced a one-month exemption for cars that comply with USMCA content requirements. On Thursday, he extended the same exemption to all imports from Canada and Mexico that comply with the agreement. Tariffs on goods imported from China were increased by 10% on Tuesday, bringing the total to almost 30%. During a joint session of Congress on Tuesday, Trump acknowledged that the tariffs might cause “a little disturbance” in the economy. On Thursday, he said recent stock market weakness had not precipitated his reversal on tariffs against North American trading partners.
QUICK HITS
The US services sector gained steam in February, with the employment subindex rising to a three-year high of 53.9.
Eurozone Q4 GDP was revised up to 1.2% year over year from an earlier 0.9% estimate, helped by firmer consumer spending and business investment.
Ukrainian President Volodymyr Zelensky said Ukrainian officials will meet with their counterparts from the US in Saudi Arabia next week. Zelensky said he is urging a ceasefire with Russia on attacks from the air and sea, a proposal put forward by French President Emmanuel Macron.
Trump announced Friday that he’s considering large scale sanctions and tariffs on Russia in an effort to bring them to the negotiating table to end the war in Ukraine.
On Thursday, the European Central Bank cuts its deposit rate to 2.5%, as expected. Expectations of future cuts have been dialed back after the German debt brake news.
Sunday, Trump announced the creation of a strategic crypto reserve for the United States that will include bitcoin, ether and lesser-known coins.
President Von der Leyen said this week that the European Union will grant carmakers a three-year window in which to hit carbon dioxide emissions targets that were originally set for this year.
Federal Reserve Bank of New York President John Williams said this week that the Fed is beginning to factor tariffs into its price forecasts and that he has somewhat higher prices in his outlook, though he still expects inflation to fall to 2% over time. He said he doesn’t see the need to change policy, but he expects growth to slow from last year’s pace. Inflation expectations are something to watch closely, Williams said. He said he is not worried about Fed independence.
China is targeting 5% economic growth in 2025 the government announced and said it will run a larger-than-average 4% budget deficit. Amid strong headwinds from US tariffs, achieving the same growth target as in 2024 will be difficult.
The Trump administration is preparing an executive order to revitalize US shipbuilding and counter China’s maritime dominance.
A consortium led by BlackRock announced it will buy the port operations of Hong Kong–based CK Hutchinson, which operates terminals at each end of the Panama Canal.
The Fed’s Beige Book showed that contacts were more concerned about supply shocks from tariffs and tougher immigration enforcement than about interest rates.
This week, Arab leaders endorsed an Egyptian reconstruction plan for the Gaza Strip, though the White House said it opposes the strategy.
Bank of England Governor Andrew Bailey signaled on Wednesday he was concerned about the possibility of weakening demand in the UK economy, a key reason he believed the country should stay on track for slowing inflation.
According to the S&P Global Ratings, global government borrowing is expected to reach a record $12.3 trillion this year. The total global debt stock is expected to reach $76.9 trillion.
On Friday Trump said he had written to Iran urging nuclear talks.
Canada added only 1,100 jobs in February after a 76,000 spike in January. The unemployment rate held steady at 6.6%.
THE WEEK AHEAD
Monday: Europe investor confidence, US NY Fed inflation expectations
Tuesday: Japan GDP, US small business optimism, JOLTS
Wednesday: US CPI, Canada rate decision
Thursday: eurozone industrial production, US PPI
Friday: UK GDP, industrial production, US University of Michigan survey
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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.
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