Market Commentary 4th March 2025 – from Charlie Hancock

Prime Minister Kier Starmer met with US President Donald Trump last week, with reports suggesting that the meeting was progressive. Trump told reporters during a press briefing that there is a good chance of the two nations agreeing a new trade deal without the use of any tariffs. Starmer and Trump also discussed the ongoing conflict between Russia and Ukraine, with Starmer acknowledging Trump’s concerns around NATO countries not spending enough on defence. Starmer stated that Europe “must step up”.

Mortgage lender Nationwide reported that house prices rose by more than expected in February, with a year-on-year increase of 3.9%. Nationwide stated that housing market activity has remained resilient in recent months, despite ongoing affordability challenges.

Initial inflation estimates for February showed that inflationary pressures generally eased across the Eurozone. Germany saw headline inflation of 2.8%, while France’s inflation rate fell to the lowest level seen since 2021, with year-on-year price increases of 0.9%. Minutes from the European Central Bank (ECB)’s January policy meeting showed that policymakers were confident inflation was heading back to their 2% target.

Germany’s 2025 national elections saw a coalition of the Christian Democratic Union (CDU) and the Christian Social Union (CSU) win the largest share of the vote. The far-right AfD grew their vote share significantly from the previous federal election, while the outgoing chancellor Olaf Scholz’s SDP party secured just 16.4% of the vote, marking the party’s worst performance since 1945.

Comments from President Trump regarding tariffs continued to prompt volatility in US equity markets last week. Trump stated that he would be announcing tariffs of 25% on goods imported from the European Union, including cars. Trump added that the European Union was created “to screw the United States” and that bloc has “done a good job of it”.

US economic data was mixed. The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) index, showed that annual inflation was 2.6% in January, with inflation slowing from the 2.9% recorded for December. Data showed that consumer spending declined in January, indicating that consumers were in a cautious mood.

Tensions between the US and China escalated last week, with President Trump announcing additional 10% tariffs on Chinese imports with effect from 4^th March. An official from China’s Ministry of Commerce stated that China would “counter with all necessary measures to defend its legitimate rights and interests”. Meanwhile, Bloomberg reported that the US is drawing up plans for tighter controls on exports of semiconductor technology to China.

Concerns around global trade tensions appeared to dent confidence on Japanese equities. Investors also reacted to a softer than expected inflation print, with the data prompting debate around how quickly the Bank of Japan (BoJ) will be able to hike interest rates. Core consumer price inflation in the Tokyo area was 2.2% year-on-year in February, slowing from the 2.5% recorded for January.

Investors increased their exposure to developed market government bonds last week amidst growing uncertainty around the global economic outlook, which contributed to Gilt yields moving lower.

Data showing that inflation in the Eurozone continued to soften in January contributed to Eurozone government bond yields declining.

GBP / EUR – Current 1.2124 Previous 1.2082

The Pound moved 0.46% lower against the US Dollar last week, with demand for the greenback rising amidst growing uncertainty regarding global trade. Against the Euro, the Pound rose by 0.35%.