Weekly Review: Trade Tensions Fuel Market Volatility

Global markets experienced heightened volatility, with the Nasdaq recording its steepest decline since September as technology stocks tumbled. The so-called "Magnificent Seven", particularly NVIDIA, suffered sharp losses, while trade tensions resurfaced as Donald Trump reaffirmed plans to impose new tariffs by March. The S&P 500 briefly erased its year-to-date gains before rebounding, as broader markets shifted to a risk-off stance amid economic uncertainty and weaker consumer confidence.

In the United States, House Republicans sought to extend Trump’s 2017 tax cuts, proposing a $4.5 trillion reduction plan. However, economic indicators pointed to a weakening outlook, with consumer confidence plunging to its lowest level since 2021. Fourth-quarter GDP growth slowed to 2.3%, while inflation eased to 2.6%, though it remained above target. Despite rising incomes, consumer spending declined, reflecting heightened caution amid economic uncertainty.

The labour market also weakened, with jobless claims reaching a four-month high. Layoffs at major firms including Starbucks, Meta, and Southwest Airlines signalled corporate cost-cutting measures. Meanwhile, the housing market presented mixed signals - home prices rose, yet sales slumped. Trade tensions escalated further as the US imposed new tariffs on Canada, Mexico, and China. Given these uncertainties, the Federal Reserve is expected to maintain a cautious stance.

In other news, Trump and Zelensky clashed at the White House, with Trump urging Kyiv to negotiate with Russia or risk losing US support. The confrontation overshadowed a US-Ukraine minerals deal, as Trump accused Zelensky of lacking gratitude for US aid, warning he was "gambling with World War Three". Zelensky stood firm, rejecting compromises, while Trump insisted Kyiv must make concessions. Russia, which invaded Ukraine in 2022, controls 20% of Ukrainian territory.

In Europe, the economic slowdown deepened, with Germany slipping into a second consecutive quarter of contraction. Eurozone inflation fell, and France’s inflation rate reached a four-year low. The European Central Bank (ECB) remains confident that inflation is easing, but it warned of risks to economic growth. Meanwhile, in the United Kingdom, house prices rose by 0.4% in January, supported by lower borrowing costs.

In Asia, Japan’s inflation cooled, while industrial production rebounded. In China, markets saw most of their weekly declines on Friday, following Trump’s announcement of an additional 10% tariff on Chinese imports from 4 March, alongside 25% tariffs on Canada and Mexico. Beijing is expected to retaliate ahead of its annual "Two Sessions" political event, where key economic priorities and targets will be outlined. Analysts anticipate China will maintain a 5% GDP growth target while raising its fiscal deficit ratio to 4% of GDP.

Markets mostly softened this week. In the US, the Dow Jones gained 0.95%, while the S&P 500 and Nasdaq fell 0.98% and 3.47%, respectively. European markets were mixed, with the Euro Stoxx 50 down 0.21% and the FTSE 100 up 1.74%. In Asia, the Nikkei 225 fell 4.18%, the Hang Seng declined 2.29%, and the Shanghai Composite dropped 1.72%. Developed market bond yields declined, while Bitcoin retreated 11.51% to $85,339.

Market Moves of the Week:

South Africa’s headline inflation edged up from 3.0% in December to 3.2% in January, aligning with market expectations. Despite inflation remaining relatively subdued, the South African Reserve Bank (SARB) has refrained from cutting interest rates. SARB Governor Lesetja Kganyago cited global uncertainty - particularly concerns surrounding Trump’s trade policies - as a key risk. However, with inflation projected to rise only gradually toward 4.5%, the midpoint of SARB’s target range, there appears to be scope for a more accommodative stance.

On the policy front, the Hospital Association of South Africa has launched a legal challenge against the contentious National Health Insurance (NHI) Act, questioning its constitutionality and financial viability. Meanwhile, the ANC’s Fikile Mbalula dismissed calls for an “Austerity Budget,” reaffirming the party’s commitment to maintaining public spending.

The local market faced pressure this week, with the JSE All Share Index declining by 3.34%. All three major sectors ended in the red - resources dropped 6.87%, industrials fell 3.49%, and financials slipped 1.26%. By Friday’s close, the rand weakened to R18.67 against the US dollar.

Chart of the Week:

Markets initially anticipated higher yields and a stronger dollar as a natural response to Trump’s tariffs and pro-growth policies. However, Treasury Secretary Scott Bessent has been vocal on three key objectives: lowering the dollar, the 10-year yield, and oil prices. Achieving these alongside tax cuts, deregulation, and a trade war would suggest a resilient economy. Notably, while all three spiked after election day, they have steadily declined since inauguration – suggesting that the strategy might be taking effect. Source: Bloomberg

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The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any Strategiq product. This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy. All charts and tables are shown for illustrative purposes only.

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