February 2025 / WEEKLY GLOBAL MARKETS UPDATE
Global Markets Weekly Update
U.S. job growth falls short of estimates in January
Review the performance of global stock and bond markets over the past week, along with relevant insights from T. Rowe Price economists and investment professionals.
U.S.
Stocks end the week lower amid tariff uncertainty
Major indexes declined during the week, although the S&P 500 Index held up best, falling just 0.24%. Stocks opened sharply lower to start the week in response to the prior Friday’s announcement from President Donald Trump stating that the U.S. would be implementing 25% tariffs on imports from Mexico and Canada, along with 10% levies on Chinese imports, as of February 1. However, by the end of the day Monday, Trump had agreed to postpone tariffs on Mexico and Canada for 30 days, which provided some relief and seemed to help stocks recover some of their early losses by the end of the week.
Meanwhile, earnings-related headlines seemed to be the other notable driver of sentiment as investors digested another busy week of releases. According to data from FactSet, 77% of S&P 500 Index companies that have reported fourth-quarter results through Friday have posted consensus-topping earnings, with an average growth rate of 16.4% (compared with estimates for 11.9% earnings growth). Of the companies that have reported thus far, 63% have also surpassed sales expectations.
Manufacturing activity expands for the first time in 27 months
The week’s economic data releases kicked off on Monday with the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI), which indicated that factory activity in the U.S. expanded in January for the first time since 2022. However, on a call with reporters following the data release, ISM Manufacturing Business Survey Chair Timothy Fiore noted that potential tariffs represent a “huge threat” to a sustained recovery in the U.S. manufacturing sector.
Later in the week, the ISM reported that its Services PMI for January declined from December, although the reading remained in expansion territory at 52.8 (readings above 50 indicate expansion).
Labor market shows signs of gradual cooling
The highlight of the week’s economic calendar arguably came from Friday’s closely watched nonfarm payrolls report. The Labor Department reported that the U.S. economy added 143,000 jobs in January, down from an upwardly revised reading of 307,000 in December and below economists’ expectations for 170,000. The unemployment rate also declined unexpectedly, to 4.0% from 4.1% in the prior month.
In other labor market-related news, the Bureau of Labor Statistics reported on Tuesday that U.S. job openings fell to a three-month low of 7.6 million in December, which seemed to provide support for the narrative that the U.S. labor market is stable but gradually cooling. Likewise, Thursday’s initial jobless claims data indicated that new claims for unemployment increased by 11,000 to 219,000 in the week ended February 1, while continuing claims rose to 1.89 million from 1.85 million in the prior week. Both readings were slightly above consensus expectations.
Treasuries gain on labor market data
The week’s softer-than-expected employment data seemed to help drive positive returns for U.S. Treasuries as yields across most maturities decreased from where they ended the prior week. (Bond prices and yields move in opposite directions.) T. Rowe Price traders observed that the market is also starting to price in the impact that tariffs could have on global growth and disinflationary pressures. Municipal bonds performed well alongside Treasuries.
Issuance in the investment-grade corporate bond market was higher than expected during the week, and just under half of the deals were oversubscribed. According to our traders, the high yield market saw above-average volumes, and investors remained focused on new issuance, which continued at a steady pace despite some weakness amid the initial reaction to tariff headlines early in the week.
Index | Friday's Close | Week’s Change | % Change YTD |
---|---|---|---|
DJIA | 44,303.40 | -241.26 | 4.13% |
S&P 500 | 6,025.99 | -14.54 | 2.45% |
Nasdaq Composite | 19,523.40 | -104.04 | 1.10% |
S&P MidCap 400 | 3,206.60 | -32.44 | 2.74% |
Russell 2000 | 2,279.71 | -7.98 | 2.22% |
This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.
Source of data: Reuters, obtained through Yahoo! Finance and Bloomberg. Closing data as of 4 p.m. ET. The Dow Jones Industrial Average, the Standard & Poor’s 500 Stock Index of blue chip stocks, the Standard & Poor’s MidCap 400 Index, and the Russell 2000 Index are unmanaged indexes representing various segments of the U.S. equity markets by market capitalization. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock exchange and the National Market System. Frank Russell Company (Russell) is the source and owner of the Russell index data contained or reflected in these materials and all trademarks and copyrights related thereto. Russell® is a registered trademark of Russell. Russell is not responsible for the formatting or configuration of these materials or for any inaccuracy in T. Rowe Price’s presentation thereof.
Europe
In local currency terms, the pan-European STOXX Europe 600 Index ended 0.60% higher—just off a recent record level—defying concerns about U.S. trade policy and stalling economic growth. Major stock indexes rose. Italy’s FTSE MIB gained 1.60%, Germany’s DAX added 0.25%, and France’s CAC 40 Index tacked on 0.29%. The UK’s FTSE 100 Index increased 0.31%.
BoE cuts rates for third time since August
The Bank of England (BoE) cut its benchmark interest rate by a quarter point to 4.5%, saying it had made sufficient progress on subduing inflation and wage growth. The Monetary Policy Committee voted 7–2 in favor of the move, with two members backing a half-point reduction due to a sharper-than-expected economic slowdown. The BoE halved its forecast for UK economic growth this year to 0.75%. According to the BoE’s latest projections, inflation is set to stay above target until 2027—six months longer than previously forecast. Governor Andrew Bailey said that he expected the BoE to be able to lower borrowing costs further, adding that “we will have to judge meeting by meeting, how far and how fast.”
Eurozone inflation stays above target
Annual consumer price growth in the eurozone stayed above the European Central Bank’s (ECB) target for a third consecutive month in January, accelerating to 2.5% from 2.4% in December. Core inflation—which excludes food, energy, alcohol, and tobacco prices—held at 2.7%. Services price inflation, which policymakers monitor closely, came in at 3.9%. ECB President Christine Lagarde said the rise in the inflation rate was anticipated and largely reflected base effects from energy prices a year ago.
German factory orders surge
Factory orders in Germany jumped 6.9% in December, rebounding from a 5.4% drop the month before and exceeding consensus expectations for an increase of 2.0%. The breakdown of the data showed a sizable increase in other vehicle construction, capital goods, and consumer goods orders. Orders were still 3.0% lower, however, compared with the same month in 2023. Meanwhile, industrial production contracted 2.4% in December, hitting its lowest level since May 2020, when the first waves of the coronavirus pandemic hit the country. Automotive output fell 10%, while machine maintenance and assembly dropped 10.5%.
Japan
Japan’s stock markets lost ground over the week, with the Nikkei 225 Index falling 2.0% and the broader TOPIX Index down 1.8%. The latest hawkish comments from the Bank of Japan (BoJ) led the yen to strengthen to the high end of the JPY 151 against the U.S. dollar range, from 155.2 at the end of the previous week. The strength of the yen weighed on the profit outlooks of Japan’s export-heavy industries.
The yield on the 10-year Japanese government bond rose to 1.28%, from the prior week’s 1.23%, on expectations of further interest rate increases by the BoJ this year. The central bank’s base case is that it will raise interest rates if the economy and prices (as well as wages) develop in line with its forecasts. The case for further rate hikes was supported by data showing a sharp rise in nominal wages in December and the second consecutive month of positive growth in real (inflation-adjusted) wages, although the surge was largely due to a significant increase in companies’ winter bonuses. Separate data showed that household spending rebounded by more than expected in December. The BoJ has repeatedly emphasized the need for real wages to rise so that private consumption can follow an uptrend.
The summary of opinions from the BoJ’s January meeting, where it raised interest rates for the third time within a year, showed that policy board members had discussed the divergence in the monetary policies of the BoJ and the U.S. Federal Reserve (Fed). With the monetary policies moving in opposite directions, large fluctuations in markets, particularly foreign exchange markets, have been a concern. It was noted that, with the Fed expected to temporarily pause its policy interest rate cuts, this has led to increased flexibility in the BoJ’s monetary policy.
China
Mainland Chinese stock markets rose in an abbreviated trading week as evidence of strong consumer spending over the Lunar New Year holiday offset President Trump’s decision to slap a 10% tariff on Chinese imports. The onshore benchmark CSI 300 Index advanced 1.98% and the Shanghai Composite Index added 1.63% from Wednesday to Friday, according to FactSet. Stock markets in mainland China were closed from January 28 to February 4 for the nationwide holiday. In Hong Kong, the benchmark Hang Seng Index advanced 4.49%, its best weekly performance in four months, driven by gains in technology companies.
Travel and retail spending over the Lunar New Year holiday, a key consumption period for China, pointed to improved domestic demand. Box office receipts over the eight-day holiday jumped 18% to USD 1.3 billion over last year’s holiday, Bloomberg reported, citing data from ticketing site Maoyan. The number of domestic trips rose to a record 501 million during the holiday, up 5.9% from last year, while spending on domestic trips rose 7% to the equivalent of USD 94.4 billion, according to China’s Ministry of Culture and Tourism.
Despite the solid holiday sales data, other readings signaled weakness in the broader economy. The Caixin China General Services Purchasing Managers’ Index (PMI) slipped to 51 in January, down from 52.2 in December. Though the PMI reading surpassed the 50 level that separates growth from contraction, it revealed that the pace of expansion in business activity and new orders both slowed to their lowest rates in four months, according to an economist at Caixin. Earlier in the week, Caixin reported that its manufacturing PMI slowed to 50.1 in January, down from December’s 50.5 reading and missing economists’ forecasts. The readings from Caixin, a private survey, came a week after China’s official manufacturing PMI unexpectedly contracted in January.
Other Key Markets
Mexico
Trump’s tariffs postponed for a month while officials negotiate a “deal”
On February 1, U.S. President Trump announced 25% tariffs on all Mexican goods. This was in addition to tariffs of 25% on Canadian imports (except for energy products, at 10%) and 10% on Chinese imports (in addition to the tariffs that are already in place). Trump’s order contained an escalation clause should there be any retaliation, and conditions for the removal of tariffs included Mexico taking “adequate steps” to address illegal migration and drug trafficking. Trump said that the tariffs would be implemented a few days later on Tuesday, February 4, fueling speculation that there would be a last-minute deal. This turned out to be the case, with Trump agreeing to postpone tariffs for a month in exchange for Mexico’s cooperation on stemming illegal immigration and the flow of drugs to the U.S.
Despite expressing opposition to Trump’s announcements and being prepared to respond with her own set of measures, Mexican President Claudia Sheinbaum has been cooperative overall. Following a phone call on Monday—which she classified as “good” and Trump as “very friendly”—Sheinbaum offered an additional 10,000 troops to defend the U.S.-Mexico border and combat drug trafficking with a focus on fentanyl. In exchange, Trump postponed tariffs until March 3, allowing time for the U.S. Secretaries of State, Treasury, and Commerce to negotiate with Mexican officials to achieve a “deal.”
T. Rowe Price emerging markets sovereign analyst Aaron Gifford believes that Sheinbaum will continue to be cooperative, though he notes that there are some red lines that she won’t cross. For example, Sheinbaum has repeated multiple times that Mexico will not forgo its sovereignty and independence. She has also been clear that any tariffs implemented by the U.S. will have to be reciprocated 1-for-1, thus significantly increasing the odds of a full-blown trade war should Trump follow through with his threats. As a result, Sheinbaum has called for the U.S. and Mexico to work together. She has also signaled the importance of the North American trade union in competing against China, attempting to align with another one of Trump’s priorities.
So far, the reaction locally to Sheinbaum’s response has been mixed. Some are praising the president for a quick resolution to the trade conflict, while others are calling her weak for caving in so quickly. Gifford believes that the real question is whether Trump will be satisfied with what Mexico ends up delivering.
Czech Republic
Policymakers implement a “cautious interest rate cut”
On Thursday, the Czech National Bank held its scheduled monetary policy meeting and reduced its main policy rate, the two-week repo rate, by 25 basis points (0.25%), from 4.00% to 3.75%. The decision, which was generally expected, was unanimous among all seven bank Board members.
According to the central bank’s post-meeting statement, policymakers characterized their action as a “cautious interest rate cut” because the most recent economic indicators suggest that “short-term inflationary risks” have yet to materialize. They continue to consider the economy to be growing “below its potential,” and they consider external demand to be “subdued” due to “the decline in European industry,” which is facing “high energy prices, structural problems and uncertainty relating to U.S. trade policy.”
As for possible future rate cuts, policymakers noted that key interest rates “remain significantly positive in real terms and are still dampening lending activity in the private sector…and, in turn, long-term inflation.” However, they intend to approach “any further monetary policy easing with great caution” and believe it is possible for monetary policy to “remain slightly restrictive for longer than expected.…”
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