Market Update – 5th March 2025.

China’s Caixin manufacturing PMI climbed to 50.8 on Monday, marking its strongest expansion in three months and exceeding expectations. Since last October, the private-sector PMI has consistently stayed above the 50-point threshold that distinguishes growth from contraction.

The survey showed that new export orders increased at their fastest pace since April, suggesting rising demand from overseas buyers. This uptick in foreign interest may be linked to U.S. importers rushing to secure Chinese goods ahead of both potential and actual tariff hikes imposed by the US. On Tuesday, President Trump imposed a further 10% levy on Chinese goods.

On Tuesday, the Trump administration implemented hefty 25% tariffs on Canada and Mexico, a move that some economists warn could ignite a global trade war. This concern grew as Canada swiftly retaliated with its own tariffs, and there is speculation that Mexico will announce similar measures by Sunday. The U.S. decision triggered a short period of market turbulence, heightening investor fears about potential economic fallout. As a result, the dollar weakened as investors sought refuge in safe-haven treasuries, driving yields down.

Following a highly tense meeting between President Zelensky and Trump last week, Trump halted all military aid to Ukraine while communication between the two leaders  stalled. However, on Tuesday, Trump revealed that Zelensky  reached out to him to confirm that Ukraine is ready to reinstate the minerals agreement and, subsequently, the restoration of U.S. aid to Ukraine. Market participants have closely followed the current situation with curiosity, but it has had little impact on the markets. While the suspension of aid to Ukraine drove European defence stocks higher, reinforcing expectations of increased defence spending and expedited support for Ukraine, traders appear more focused on concerns over tariffs.

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In February, inflation in the Eurozone declined to 2.4%, a slight drop from January’s 2.5% but still higher than the 2.3% forecasted by economists. This slowdown was primarily driven by weaker energy price inflation and an exceptionally low 0.9% inflation rate in France.

With the economy struggling with sluggish growth —marked by a manufacturing downturn and restrained consumer spending—the European Central Bank (ECB) is expected to lower its key interest rate by 25 basis points again at its next meeting.

Over in Ireland, manufacturing PMI rose to 51.9 in February 2025 from 51.3 in January, marking the fastest factory growth since February 2024. New orders saw their strongest increase in three years, while output rose steadily, driven by domestic demand.

We appreciate the past week has been turbulent with market noise and geopolitical chaos. It’s understandable to feel unsettled, but predicting short-term movements in global equity markets is inherently difficult. The path for equities is rarely smooth, yet history shows that the best way to maximize returns is not by timing the market but by maximising time in the market.

Similar market dynamics played out during the early years of the first Trump administration, particularly in 2018, when trade tensions with China and Canada triggered short-term volatility. While tariffs created temporary headwinds, markets adapted, a U.S.-China trade deal emerged, and momentum returned. There are even silver linings amidst the uncertainty. The recent drop in oil prices—following OPEC+’s decision to boost production from April—acts like a tax cut, potentially increasing disposable income and stimulating economic activity. While volatility may persist for the short term, history reminds us that markets are resilient, and opportunities often emerge in ambiguous times.

Still to come this week we have Eurozone retail sales, the ECB’s interest rate decision and US jobs data.

Nicola Tune, Portfolio Specialist