USD gained and other major currencies were weaker following a heated exchange between Ukrainian President Zelenskiy and US President Trump, which raised a risk of a break in the US support to the Ukrainian war efforts.
Share markets
Despite global political tensions and weaker US consumer spending data, US equity market bounced back up on Friday, with the S&P500 index gaining 1.6%, which helped to limit the weekly decline to only about 1%. Technology stocks, led by a 4% recovery in NVIDIA, where the strongest contributors on the day, however, they remained at the bottom of the list in terms of weekly returns. Before the US trading hours, reacting to the US threat of further increase in tariffs on China and unimpressive NVIDA earnings announcement, which rattled the tech stocks globally, Asian markets made significant losses – the Nikkei 225 indexin Japan and Hang Seng in Hong Kong both lost about 3%. Sentiment was more balanced in European markets, with Euro Stoxx 50 down only 0.2%, while FTSE 100 in the UK gained more than 0.5%. The domestic equity market was 1.2% in red extending the downward trend seen since the middle of February. It lost around 4.5% over that period and is now broadly flat on the year-to-date basis.
Interest rates
Major government bonds rallied on Friday, led by Treasuries in the US, where concerns about growth outlook were amplified by Friday’s week personal consumer expenditures data. The 10Y US Treasury yield was down 5bp to 4.21%, while the 2Y yield lost 6bp dipping below 4% for the first time since around mid-October. The markets are pricing in almost 70bp of monetary policy loosening by the end of this year, up from around 45bp at the beginning of last week. Yields were more resilient in the European markets. Ahead of this week’s ECB policy meeting where another 25bp cut is fully expected, the 10Y Bund yield was down only 1bp as German HICP inflation for February remained unchanged at 2.8%. Meanwhile, in the UK, an equivalent Gilt yield eased 3bp to 4.48% despite quite hawkish comments from the BoE Deputy Governor Dave Ramsden. Domestically, Australian government bonds yields were 3-5bp lower across the curve, but bond futures are signalling a possibility that they might increase again at the opening of this week.
Foreign exchange
Videos and news headlines of the fiery argument in the oval office between Ukrainian President Zelenskiy and US President Trump raised a risk of a break in the relationship between the two countries, which is critical for the Ukrainian efforts defending their country against Russia. Against the backdrop of rising tensions, the USD index gained 0.3% on Friday reaching the highest level in about two weeks. Most other major currencies were under pressure as result. Yen depreciated 0.7% to 150.9, as Tokyo CPI figures came in below expectations. AUD was similarly weaker, losing 0.4% to 0.621, having hit 0.64 slightly more than a week ago. EUR was flat, despite additional downward pressure from the S&P Global Ratings announcement of French sovereign credit outlook downgrade into negative.
Commodities
Crude fell into end of the month with the prospect of tariffs commencing this week hitting sentiment. The April WTI contract closed at $69.8. Attempts to broker a ceasefire between Russia and Ukraine added to the weakness, with WTI price down around 4% over the last month. Metals finished lower with copper down 0.3% at $9,358 and aluminium down 1.1%. Comments from Coca-Cola CEO highlighting that his company can move towards using more plastic bottles if aluminium cans become more expansive suggested that the impact from US aluminium tariffs on finished consumer goods in the US will be only limited. Iron ore prices continued falling, hitting a six-week low. China’s National People’s Congress commences on Wednesday and the focus in iron ore and steel markets will be on whether moves to reduce capacity are announced. The correction in gold continued into the end of the week, with prices down 2.7% on the week to $2,857, the lowest since early February.
Australia
Friday’s private sector credit data reported an increase of 0.5%mth in January, in line with our and consensus expectations and below the 0.6%mth pace seen in the prior four months. All major credit components saw weaker growth. Housing credit increased by 0.4%mth, down from 0.5%mth pace seen previously. Other personal credit was flat, while business credit rose 0.7%mth, the slowest in four months. Annual growth was unchanged at 6.5%yr, but the three- month growth pace eased slightly from the peak of 1.8% to 1.6%. We expect that private credit growth will moderate further as weaker momentum in the housing market will feed into lower housing credit growth, while higher uncertainty might at least to some extent impact business decisions to invest and borrow. However, lower interest rates will be providing some support to credit growth over 2025 and beyond. The overnight announcement of the CoreLogic home value index for February reported a 0.3%mth rise in Australian house prices. Following 0.2%mth declines in the prior two months, the increase marked a return of somewhat more positive sentiment in the market, likely driven by expectations of lower interest rates. All major cities except Darwin reported gains, with top end of the market supporting prices in Sydney and Melbourne.
China
China’s official NBS manufacturing and service PMIs were constructive in February at 50.2 and 50.4, up from 49.1 and 50.2. For manufacturing, output, new orders and employment all lifted in the month. For services, new orders and employment edged lower. With US trade policy creating additional uncertainty, authorities are likely to provide additional material support to China’s domestic economy over the next month or two.
New Zealand
The Monthly Employment Indicator (MEI) reported a 0.3% rise in the number of filled jobs in January. While that was the steepest increase since late 2023, it is worth highlighting that this series tends to be revised down from its initial release. For example, the December growth rate was revised down from 0.1 to -0.1%. The recent monthly volatility was driven by the education sector, where varying time periods over the summer make seasonal adjustment tricky. Excluding education, jobs have been rising gradually in the last three months, having fallen steadily in the prior six-month period.
United States
In a busy end of the week for new economic data on Friday, US personal spending growth for January was materially weaker than expected on a nominal basis falling 0.2%mth. Adjusted for price effects, it was down 0.5%mth, which was the lowest growth rate in almost four years. This is despite a stronger than expected rise in personal income of 0.9%, twice the average of 2024. Taken together, these outcomes point to caution amongst consumers over the outlook. The message is consistent with recent releases of the US consumer sentiment data, which showed as sharp decrease in consumer confidence. The headline and core PCE deflators both rose 0.3% in the month, as expected. For the later, it was the steepest increase in three months and among the steepest in the last twelve- month period. Nevertheless, both deflators reported easing annual inflation, to 2.5% and 2.6%, down from 2.6% and 2.9% in December.
Among other data, the advanced estimate of the US goods trade balance showed that deficit increased further in January, from $122.0bn to $153.3bn, by far the highest on record. Further details will be available once the full trade figures for January are released at the end of this week, but the increase is likely to be a result of importers front-running tariff implementation. Meanwhile, wholesale inventories unsurprisingly jumped 0.7% as retail inventories edged 0.1% lower. The Chicago Business Barometer rose for a second consecutive month in February, recovering from 39.5 to 45.5, the highest level since last June, however, still in a contractionary territory. The Kansas City Fed services index remained lacklustre in February at 2, up from -4 in January.
