Weekly Comment: Trump's trade tactics shift stocks

Market overview – Richard Carter, Head of Fixed Interest Research

Last week, the MSCI All Country World Index (MSCI ACWI) experienced a modest rise of 0.1%, bringing its year-to-date (YTD) gain to 3.4%.

United States

President Donald Trump's announcement of 25% tariffs on imports from Mexico and Canada, and 10% levies on Chinese imports, effective February 1, brought a sharp decline in US stocks at the start of last week. However, by the end of Monday, Trump agreed to postpone the tariffs on Mexico and Canada for 30 days, which helped stocks recover some of their early losses. By the end of the week, US large cap was down by 0.2%, with a YTD increase of 2.5%. Growth stocks decreased by 0.3% (1.7% YTD), while value shares dropped by 0.2% (4.4% YTD). Tech-heavy stock benchmarks retreated by 0.5% (1.1% YTD).

Earnings-related headlines were another significant driver of sentiment. According to FactSet, 77% of US large cap companies that reported fourth-quarter results through Friday exceeded consensus earnings estimates, with an average growth rate of 16.4%, compared to the estimated 11.9%.

The highlight of the week’s economic calendar was Friday’s nonfarm payrolls report, which showed the US economy added 143,000 jobs in January, down from an upwardly revised 307,000 in December and below economists’ expectations of 170,000. The unemployment rate unexpectedly declined to 4.0% from 4.1%.

Europe (excluding the United Kingdom)

The MSCI Europe ex UK Index ended the week 0.7% higher (7.7% YTD), defying concerns about US trade policy and stalling economic growth. Major stock indexes rose, with German large caps up 0.3% (9.4% YTD), France’s up 0.3% (8.2% YTD), and Italy’s up 1.6% (8.8% YTD). The euro weakened against the US dollar, ending the week at US$1.03, down from US$1.04.

In the eurozone, annual consumer price growth remained above the European Central Bank’s (ECB) target for the third consecutive month in January, accelerating to 2.5% from 2.4% in December. Core inflation held at 2.7%, while services price inflation was 3.9%.

United Kingdom

In the UK, large caps rose 0.3% (6.5% YTD), while mid caps lost 0.6% (1.1% YTD). The British pound was little changed against the US dollar, ending the week at US$1.24.

The Bank of England (BoE) cut its benchmark interest rate by 25 basis points to 4.5%, citing sufficient progress in subduing inflation and wage growth. The Monetary Policy Committee voted 7–2 in favour of the move, with two members supporting a 50 basis point reduction due to a sharper-than-expected economic slowdown. The BoE halved its forecast for UK economic growth this year to 0.75% and projected that inflation would stay above target until 2027, six months longer than previously forecast. Governor Andrew Bailey indicated that the BoE might lower borrowing costs further, depending on future economic conditions.

Trump's Tariffs

President Donald Trump announced the implementation of 25% tariffs on imports from Mexico and Canada, and 10% tariffs on Chinese imports, effective February 1. The tariffs are part of a broader strategy to address national security concerns related to illegal immigration, the influx of synthetic opioids, and trade imbalances. However, Trump agreed to postpone the tariffs on Mexico and Canada for 30 days, providing temporary relief to the markets.

Additionally, Trump announced 25% tariffs on all steel and aluminium imports, including from Canada and Mexico. Responding to the news, China imposed retaliatory tariffs on certain US goods, including a 15% tariff on imports of US coal and liquefied natural gas (LNG), and 10% tariffs on oil, farm equipment, and some automobiles. China also announced export controls on rare earth minerals and metals crucial to the US tech and green energy industries.

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