Market Update

Weekly Market & Economic Update
Trade tensions dominated the headlines once again this week. Mid-week, the U.S. imposed 25% tariffs on steel and aluminum imports, following through on measures announced in mid-February. Initially, only Mexico, Canada, and China faced pressure under President Trump’s "America First" agenda, which had been met with optimism by stock market investors. Canada, the largest supplier of both metals to the U.S., was particularly impacted. However, on Tuesday, the White House softened its stance, backing down from an earlier threat to double tariffs to 50%.
The European Union wasted no time in responding, announcing countermeasures within 10 minutes. These retaliatory tariffs are set to take effect on April 1.
In the UK, Business Secretary Jonathan Reynolds expressed disappointment but confirmed that Britain would not take immediate retaliatory action, as negotiations over a broader trade deal with the U.S. continue.
Inflation & Interest Rate Outlook
Amid the trade uncertainty, U.S. inflation data provided a welcome distraction for investors. Annual inflation eased to 2.8% in February, down from 3% in January, and below expectations of 2.9%. The core inflation rate, which excludes food and energy, also slowed to 3.1% from 3.3%. However, egg prices surged 10.4% due to the ongoing avian flu outbreak, while energy prices rose modestly by 0.2%, down from January’s 1.1% increase.
While inflation remains stubborn, this slight decline suggests a possible return to a downward trajectory, potentially opening the door for future rate cuts. However, the Federal Reserve is widely expected to leave interest rates unchanged at its March 18-19 meeting. Fed Chair Jerome Powell reiterated that the economy remains stable, giving policymakers room to wait for greater clarity before adjusting policy.
Further supporting this cautious approach, U.S. producer price inflation also showed signs of easing. The Producer Price Index (PPI) for final demand rose 3.2% year-over-year in February, down from January’s 3.7% increase and slightly below the expected 3.3%.
UK Economic Slowdown & Policy Response
In the UK, economic data disappointed, with GDP unexpectedly contracting by 0.1% in January, missing forecasts of 0.1% growth. This poses a challenge for the government ahead of Chancellor Rachel Reeves’ "Spring Statement" on March 26, where she will present new economic forecasts from the Office for Budget Responsibility. The decline was largely driven by a sharp drop in industrial output from December levels.
Despite the setback, Reeves emphasized the government’s commitment to acting "further and faster" to stimulate growth. While challenges persist, investors can take some reassurance in the government’s active efforts to support the economy, ensuring a more resilient outlook for UK markets.
Bank of Japan Signals Policy Shift
On Thursday, Bank of Japan Governor Kazuo Ueda struck an optimistic tone regarding consumer spending. He reaffirmed the Bank’s commitment to gradually scaling back its extensive balance sheet—an effort to rein in monetary stimulus. While rising living costs have weighed on domestic consumption, Ueda expressed confidence that increasing wages, combined with easing inflation, would help drive economic momentum.
The Bank of Japan is set to meet next week, with markets expecting a pause in rate hikes. However, a potential rate increase in May remains on the table, depending on inflation trends and ongoing uncertainties surrounding U.S. trade policies.
Canada’s Leadership Shift
In a major political development, Mark Carney was sworn in as Canada’s prime minister on Friday, ending Justin Trudeau’s nine-year tenure. Carney takes office at a critical moment, as tensions with the U.S. escalate over trade. He is expected to take a firm stance against President Trump, as reflected in his response to the recent U.S. tariffs on Canadian steel and aluminum.
Final Thoughts
With ongoing trade disputes, shifting inflation trends, and changing political landscapes, markets remain volatile. However, central banks and policymakers are taking a measured approach, helping to stabilize financial conditions. Investors should continue to focus on long-term fundamentals rather than short-term market reactions.