The sudden change in the US President’s plan to implement tariffs starting March 4 instead of next month has unsettled the markets, leading traders to reevaluate their risk portfolios and safeguard their capital.
This resulted in a sell-off in Asian markets, with Japan’s stock market falling by 3 percent and Hong Kong’s by nearly 2.8 percent. Despite this, European and US markets closed positively.
The asset market is facing significant pressure, with Bitcoin plummeting nearly 27 percent before rebounding by 5 percent. Gold saw a decline of over 3 percent in value before a slight correction, finishing at US$ 2858.
In contrast, US bonds, DXY and the US Dollar emerged as the true beneficiaries. US 10-year yields fell for the seventh consecutive week, decreasing by 17 basis points to 4.26 percent. The recovery in the fixed income market could be attributed to bonds being a safe and highly liquid asset.
With rising inflation eroding purchasing power, currently, the returns on bonds held until maturity are considerably higher.
US economic indicators suggest that growth and business activity are tapering. Additionally, there is a heightened concern that the Department of Government Efficiency’s (DOGE’s) decision to cut government jobs, which could negatively impact the job market and decrease consumer spending.
This creates a concerning outlook with the upcoming tariffs, as their introduction could potentially worsen inflation or hinder growth by increasing costs for businesses.
Ultimately, this situation may persist for a while, although improvements in the fiscal landscape are likely in the future.
Meanwhile, the tariff issue complicates matters on the US economic front. The Federal Reserve’s favoured inflation measure, Personal Consumption Expenditure (PCE), has slowed as anticipated, which has bolstered hopes of an interest rate cut in June.
Fed funds futures, previously reflecting a 63% chance for a rate decrease, now indicate a 69% likelihood of such a move.
This writer anticipates that market sentiment this week will remain uncertain and fragile, awaiting the consequences of the tariff increases.
It remains to be seen how China, Canada, Mexico, and Europe will respond. Although there was a rebound in the US market on Friday, traders are likely to stay vigilant regarding the outcome of the tariff situation, which is the primary driver of market dynamics.
Last week, the focus on the PCE data shifted following the unexpected announcement from the Trump administration to act early.
The financial markets might be facing another unpredictable week ahead. Despite a significant recovery in the US stock market, Asian markets might also take similar actions.
However, clarity is still lacking, as much will depend on the flow of global information and the reactions of other markets.
Gold prices are likely to remain volatile. If central banks decide to make purchases, it could provide support for the metal. Nonetheless, there remains potential for a correction, and central banks worldwide have their own economic and research teams that will be analyzing the overall effects.
Both traders and investors will be keenly observing asset market trends to gauge sentiment and direction. On the other hand, oil was the only major commodity that did not see a significant reaction last Friday.
Next week, the European Central Bank is expected to announce its interest rate policy, with an increased likelihood of a rate cut due to the ongoing economic downturn.
Beyond these considerations, the focus will also be on developments in Middle Eastern politics and issues related to Russia and Ukraine.
In calmer conditions, attention will shift to the US economy, with employment data being the key economic indicator to watch for the week.
WEEKLY OUTLOOK — March 3-7
GOLD @ $ 2858— The downside risk remains intact if gold doesn’t break $ 2895. A drop below $ 2828 could lead to test $ 2800-10 or $2785. Otherwise, keep an eye on $ 2910.
EURO @ 1.0375— Euro is expected to remain under 1.0470. A drop below 1.0305 could see a decline towards 1.0240. On the other hand, if it rises, the level to watch would be 1.0510.
GBP @ 1.2575— Pound Sterling is likely to stay below the resistance level of 1.2670. If it falls below the support level of 1.2480, it may drop to around 1.2330-40. However, if it moves above the resistance level, it could rise to 1.2710.
JPY @ 150.60— USD has support at 148.50. However, on the up if it breaks through 151.90, it will likely push towards 152.60. If not, keep an eye on 147.80.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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