Week ending 14th March 2025.

It’s been another week full of trade rhetoric. Mid-week, the US imposed 25% tariffs on steel and aluminium imports. The duties were announced in mid-February as stock market investors cheered President Trump’s ‘America first’ agenda which saw only Mexico, Canada, and China come under initial pressure. Canada is the biggest exporter of both steel and aluminium to America. However, the White House on Tuesday rowed back on a threat to double the country’s tariff to 50%. The EU took less than 10 minutes to respond with countermeasures, which will take effect on 1st April.

UK business secretary Jonathan Reynolds said on Wednesday morning that while he was disappointed, there would be no immediate retaliation by the UK government as negotiations continue over a wider trade deal with the US.

US inflation data came as a welcome distraction for investors. Annual inflation eased to 2.8% in February, down from 3% in January, beating the forecast of 2.9%. The core rate, excluding goods and energy, rose 3.1%, down from 3.3%. Egg prices surged 10.4% due to the avian flu outbreak, while energy prices rose more modestly by 0.2%, compared to 1.1% in January.

Though inflation remains persistent, this small dip suggests it may be resuming its downward trend, potentially giving the Federal Reserve room to consider easing rates. However, the Fed is expected to keep rates steady at its March 18-19 meeting. Chair Jerome Powell emphasized that the economy remains stable and the Fed can afford to wait before taking action.

This stability should reassure investors that the Federal Reserve continues to prioritize a balanced approach to monetary policy, ensuring financial markets remain steady. Data later in the week also reinforced that inflation is steady and may be cooling further. US producer price inflation also slowed, with the Producer Price Index (PPI) for final demand in the US rising 3.2% year-over-year in February. This marked a slowdown from January’s 3.7% increase and fell just short of the anticipated 3.3%.

The UK economy unexpectedly contracted by 0.1% in January, falling short of expectations for 0.1% growth. This marks a setback for the government ahead of Chancellor Rachel Reeves’ “Spring Statement” on March 26, where she is set to outline economic plans and forecasts from the Office for Budget Responsibility. The decline was primarily driven by a sharp drop in industrial output compared to December. Despite this, Reeves has emphasized the need to act “further and faster” to stimulate the economy. With growth remaining a top priority, this data highlights the ongoing challenges in achieving that goal. However, investors should remain optimistic, as policymakers are actively implementing measures to support economic recovery, ensuring a resilient outlook for the UK market.

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On Thursday, Bank of Japan Governor Ueda struck an optimistic tone when discussing consumer spending. He reinforced the Bank’s commitment to scaling back its sizable balance sheet – a notable effort to further reduce monetary stimulus. Despite rising living costs weighing on domestic consumption for some time now, Ueda also suggested confidence that expanding wages—coupled with their prediction of easing inflation—will help drive economic momentum. The Bank is expected to meet next week, with market participants pricing in a pause in rate hikes but a potential increase in May, contingent upon inflation trends and uncertainty surrounding U.S. trade policies.

Mark Carney was sworn in as Canada’s prime minister on Friday, ending Justin Trudeau’s nine-year tenure. He takes office amid a trade war with the U.S. and is expected to adopt a firm stance against President Trump, as shown in his response to recent U.S. tariffs on Canadian steel and aluminium.

To come next week, we have Chinese retail sales and unemployment data, US retail sales, and the Bank of Japan’s interest rate decision.

Nicola Tune, Portfolio Specialist