Take Two: Markets rebound from tariff-driven slump; Eurozone inflation rises
- 10 February 2025 (3 min read)
What do you need to know?
Markets endured another wave of volatility last week after US President Donald Trump signed off on tariffs of 25% on Canada and Mexico and 10% on China, stoking fears of a new trade war. The US’s blue-chip S&P 500 index fell nearly 2% during trading hours last Monday, while markets in Asia and Europe also endured falls. However, following some negotiations, Trump eventually deferred the levies on Canada and Mexico for 30 days while both countries improve border security. Markets welcomed the news, and the S&P 500 and the MSCI World Index both ended the week to Thursday’s close broadly flat, though in positive territory.1
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Around the world
The Eurozone’s annual inflation rate rose for the fourth consecutive month in January, to 2.5% from 2.4% in December, an official flash estimate showed. The data marks the bloc's highest rate since July 2024, as sharply higher energy costs added to price pressures. Meanwhile, core inflation, which excludes more volatile energy, food, alcohol and tobacco prices, remained unchanged at 2.7% for the fifth consecutive month. Markets anticipate the European Central Bank (ECB), which cut its deposit rate by 25 basis points (bp) to 2.75% in January, will deliver another reduction at its next meeting in March.
Figure in focus: 4.50%
The Bank of England (BoE) lowered interest rates by 25bp, bringing borrowing costs down to 4.50%, as widely expected by markets. Policymakers voted by a majority of seven to two for the cut, with two preferring a steeper 50bp reduction. Meanwhile, the BoE halved the 2025 economic growth forecast it made in November - from 1.5% to 0.75% - on the back of fragile business and consumer sentiment. However, it sharply increased its inflation projections, reflecting higher energy prices, and does not anticipate that inflation will fall back to its 2% target until late 2027. AXA IM continues to expect three further rate cuts this year, reaching 3.75% by year end.
Words of wisdom
Competitiveness Compass – A new European Commission initiative which aims to provide a framework for improving economic growth in the Eurozone, focusing on three areas for action - innovation, decarbonisation and security. It follows a 2024 report by former ECB President, Mario Draghi, on the future of European competitiveness which warned that without greater investment, Europe risks falling further behind other economic superpowers. The roadmap identifies five ‘enablers’ – simplification, lowering barriers to the European Single Market, financing competitiveness, better policy coordination and promoting skills and quality jobs.
What's coming up?
France updates markets with its latest unemployment numbers on Tuesday. On Wednesday, all eyes will be on the US, when its final inflation data for January is published. On Thursday, the UK issues preliminary data for fourth quarter (Q4) GDP growth. The Eurozone updates on employment figures and announces a second estimate of Q4 GDP figures on Friday, while the US reports monthly retail sales and industrial production data.
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