Weekly Market Newsletter
U.S. Markets declined in Feb
Highlights of the week
U.S. stocks fell for a second week, with tech leading the decline as Nvidia tumbled and AI rally concerns grew. Inflation remained above target, while consumer confidence dropped sharply. GDP growth held steady at 2.3%, but jobless claims rose. Treasury yields declined on weak economic data. In Europe, stocks extended gains despite mixed inflation and slowing growth. Japan’s markets fell amid U.S. tariff worries, while the yen strengthened in February. Chinese stocks dropped as the U.S. announced new tariffs and investment restrictions. Investors now await China’s Two Sessions meeting for economic policy updates.
U.S.
U.S. stocks fell for a second straight week, with the Nasdaq posting its worst weekly decline since September as tech stocks, particularly the “Magnificent Seven,” pulled back. Nvidia dropped 8.5% following its earnings report, raising concerns that the AI-fueled rally may be losing steam. Growth stocks broadly underperformed, while the Dow Jones gained 0.95%, extending its year-to-date outperformance. Trade tensions also pressured markets as former President Trump reiterated plans to impose new tariffs on key trade partners by March 4.
Inflation and Consumer Confidence
The Fed’s preferred inflation measure, the core PCE index, rose 0.3% in January, in line with expectations. Year-over-year, inflation cooled to 2.6% from 2.9% in December but remained above the Fed’s 2% target. While personal incomes climbed 0.9%, consumer spending contracted, signaling potential caution amid persistent inflation.
Consumer sentiment also took a hit. The Conference Board’s Consumer Confidence Index fell 7 points to 98.3 in February, its sharpest drop since August 2021. The expectations component, which reflects outlooks on income, business conditions, and the labor market, dipped below 80—historically a warning sign for a potential recession. Inflation expectations for the next 12 months also surged from 5.2% to 6%, amplifying concerns about slowing economic momentum.
Economic Growth and Jobless Claims
The U.S. economy grew at an annualized rate of 2.3% in Q4, driven by a resilient 4.2% rise in consumer spending. These figures were unchanged from prior estimates, confirming steady but moderating growth. For the full year, GDP expanded by 2.8%.
However, labor market data showed early signs of softening. Weekly jobless claims rose by 22,000 to 242,000—the highest since October—while the four-week moving average increased to 224,000. Continuing claims stood at 1.86 million, a slight decline from the previous week.
Treasury Yields Decline
Treasuries gained as weaker economic data drove demand for bonds. Yields declined across most maturities, with intermediate-term yields falling more than short- and long-term ones.
Europe
The STOXX Europe 600 gained 0.6%, marking its longest winning streak since 2012. Strong corporate earnings and defense sector gains helped offset uncertainty over U.S. trade.
Inflation data was mixed across the eurozone. Germany’s inflation remained steady at 2.8%, above expectations of 2.7%. Italy’s inflation held at 1.7%, below forecasts. France’s inflation rate fell to a four-year low of 0.9%, down from 1.8% in January. Meanwhile, GDP data confirmed that both Germany (-0.2%) and France (-0.1%) contracted in Q4.
ECB meeting minutes suggested that policymakers are confident inflation is trending toward the 2% target but cautioned that risks remain. Some officials argued for a more cautious approach to rate cuts, as wage growth and services inflation continue to pose challenges.
In Germany, the CDU/CSU alliance, led by Friedrich Merz, won the national election with 28.5% of the vote but fell short of a majority, leading to coalition talks.
In the UK, house prices rose 0.4% in January, supported by lower borrowing costs and buyers rushing to close deals before a property tax increase at the end of March.
Japan
Japanese stocks fell, with the Nikkei 225 down 4.18% and the broader TOPIX Index declining 1.99%. AI and semiconductor-related stocks led losses, mirroring the U.S. tech sell-off. Investors also worried about the impact of potential new U.S. tariffs on China, which could disrupt Japan’s trade and influence the Bank of Japan’s (BoJ) policy outlook.
BoJ Governor Kazuo Ueda emphasized that uncertainty around U.S. tariffs could affect the global economy and Japan’s monetary policy. The BoJ is prepared to adjust its bond-buying program if market conditions change. The yield on the 10-year Japanese government bond (JGB) fell to 1.37% from 1.43% amid softer domestic inflation data. Tokyo’s core CPI rose 2.2% year-over-year in February, slightly below forecasts, as energy subsidies helped curb price pressures.
The yen weakened slightly but logged significant gains for February on expectations that the BoJ may raise interest rates again this year.
China
Chinese markets fell after the U.S. announced fresh 10% tariffs on Chinese imports starting March 4, following earlier 10% duties imposed in February. The CSI 300 Index dropped 2.22%, and the Hang Seng Index lost 2.28%.
Adding to tensions, the Trump administration directed the Committee on Foreign Investment in the U.S. (CFIUS) to further restrict Chinese investments in strategic sectors like technology and energy. The U.S. also signaled plans to tighten semiconductor export controls and pressure Japan and the Netherlands to curb chip technology sales to China.
Other Key Markets
Hungary: The central bank kept its benchmark rate at 6.5%, citing inflation risks from tariffs and high service-sector price growth. Policymakers expect inflation to resume its downward trend but warned of potential upside risks.
Turkey: Erdogan’s ruling AKP party outlined an economic reform plan focused on growth, tax fairness, and food security. Officials also revived discussions about a constitutional amendment that could allow Erdogan to run again in 2028.