Week in Review: U.S. stocks sell off amid trade policy uncertainty

Major U.S. indexes fell this week, with the S&P 500 & Nasdaq Composite shedding over 3%, while the Dow Jones Industrial Average fell 2.37%, erasing most of its year-to-date gains. Trade policy uncertainty remained a key focus throughout the week, as Tuesday marked the deadline for President Donald Trump’s previously announced tariffs - 25% on Canadian and Mexican imports and 10% on Chinese imports. Later in the week, the Trump administration introduced several exemptions and delays, including a one-month exemption for goods covered under the U.S.-Mexico-Canada Agreement. However, the ongoing uncertainty and shifting policies weighed on investor sentiment.

On the U.S. economic data front, the U.S. added 151,000 jobs in February, missing the 160,000 forecast. Unemployment rose to 4.1% and wages grew 0.3%. The federal government lost 10,000 jobs. The ISM manufacturing PMI edged down to 50.3% in February, signalling a slight expansion, while new orders fell into contraction at 48.6%. The services PMI rose to 53.5%, marking eight months of expansion, with employment hitting its highest level since December 2021. Despite growth, concerns over tariffs and federal spending cuts persist.

Incoming German Chancellor Friedrich Merz backed a plan to invest over €1 trillion in defense and infrastructure, exempting defense from Germany’s strict debt limits. Initially opposed, Merz shifted his stance amid security concerns and NATO uncertainty. The announcement sent German 10-year bund yields up 30 basis points, the largest jump since 1990. Meanwhile, the EU proposed an €800 billion defense plan exempt from debt rules.

The European Central Bank (ECB) cut its key rate to 2.5% this week, calling policy “meaningfully less restrictive.” Citing “phenomenal uncertainty,” President Lagarde noted its impact on investment and exports. The ECB lowered its 2025 growth forecast to 0.9% and raised its 2025 inflation projection to 2.3%. On the market front, the Euro Stoxx 50 (+0.09%) eked out a small gain over the week, while the UK’s FTSE 100 fell 1.47%.

In Asia, Japan’s stock markets was mixed over the week, with the benchmark Nikkei 225 Index ending 0.72% lower, meanwhile the yen gained against the U.S. dollar on safe-haven demand.

Mainland Chinese stocks gained for the week as Beijing set growth targets in line with expectations and hinted at further stimulus amid the U.S. trade war. The Shanghai Composite added 1.77% while Hong Kong’s Hang Seng surged 5.91%.

On the commodity front gold traded around $2,910 per ounce on Friday, remaining close to record highs as investors reacted to weaker-than-expected jobs data, while Brent crude advanced 1.3% to settle at $70.3 per barrel Friday, after US President Donald Trump threatened sanctions on Russia if it fails to reach a cease-fire with Ukraine.

Market Moves of the Week:

South Africa's (SA) economy grew at its slowest rate in four years in 2024, as logistical challenges, weak consumer spending, drought conditions, and sluggish fixed investment hindered growth across most sectors. Gross domestic product expanded 0.6% in 2024, compared to 0.7% in 2023, increasing by a modest 0.6% q/q in the fourth quarter of 2024, below consensus expectations.

The latest Business Confidence Index in SA indicates that sentiment among companies remains stagnant, with most still largely pessimistic about operating conditions. The RMB/BER Business Confidence Index (BCI) stood at 45 in the first quarter, falling five points below the neutral level of 50. Although this marks an improvement from the same period last year and slightly exceeds South Africa's long-term trend, the Bureau for Economic Research (BER) cautioned that it remains a concerning signal.

The All-Share Index rose by 3.06% this week, driven by gains in Resources (+11.30%) and Industrials (+2.28%). The local currency strengthened against the U.S. dollar, moving to R18.20/$ from last week’s R18.67/$ level. SA government bonds remained relatively stable, as yields on the 10-year dipped 0.04% over the week.

Chart of the Week:

Hong Kong’s Hang Seng Index has surged to its highest in over three years, despite an increase of 20% in U.S. tariffs since January. The mainland CSI 300 is also up by more than 25% since the stimulus talk started in September. It has recently traded sideways as geopolitical tensions simmer, but its ability to weather the economic uncertainty is impressive. Over the last 12 months, it’s matched the S&P 500. Source: Bloomberg                 

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The views expressed in this newsletter are that of STRATEGIQ Capital, an authorised financial services provider (FSP 46624).