Shares in Australia and Japan opened lower after the S&P 500 lost 1.6% Thursday, erasing its gains for the year. The Nasdaq 100 declined 2.8%, as tech stocks weighed on US benchmarks. Shares in Nvidia fell 8.5% in a sign its earnings results disappointed. An index of the so-called Magnificent Seven slipped 3%, the biggest decline since December. Treasuries were steady Friday after selling slightly at the long end of the curve Thursday while short-dated US government debt advanced.
Gains for the dollar followed comments from US President Donald Trump stating that 25% tariffs on Canada and Mexico would come into force from March 4, while Chinese imports would face a further 10% levy. Economists say tariffs may hurt US growth, worsen inflation and possibly spark recessions in Mexico and Canada. If there’s no last-minute reprieve, the moves will see taxes ramped up on well over $1 trillion of imports.
“Tariffs are back in the crosshairs, and a market that had reduced its sensitivity to recent tariff headlines has had to reconsider that reaction function,” Chris Weston, head of research at Pepperstone Group wrote in a note.
The US economy advanced at a healthy pace and inflation was more stubborn than initially estimated at the end of 2024, data showed on Thursday. Gross domestic product increased at an unrevised 2.3% annualized pace in the fourth quarter. The primary growth engine — consumer spending — advanced at a 4.2% pace.
“Investors want lower rates from the Fed, but they don’t want to get there by seeing a notable deterioration in the underlying economy,” said Bret Kenwell at eToro. “At the very least, if the economy is going to slow, investors will want to see inflation slow down too.”News of the impending tariffs on Canada and Mexico, the two largest suppliers of crude to the US, sent oil prices higher. West Texas Intermediate rose 2.2% Thursday to above $70 a barrel. Gold was set for its first weekly loss of the year.The yen weakened slightly against the greenback Friday as inflation in Tokyo slowed more than expected, although it is unlikely to deter the central bank from considering more hikes to its benchmark interest rate.
Bank of Japan Governor Kazuo Ueda reiterated the central bank’s stance to intervene in the debt market in exceptional cases of rapid increases in bond yields. Ueda was speaking at this week’s gathering of economic policymakers in Cape Town.
In Asia, Indian officials are exploring ways to lower tariffs on a wide range of imports, including cars and chemicals, in a bid to evade Trump’s threatened reciprocal levies. The proposals would go much further than previous tariff reductions, like on high-end motorcycles and bourbon whiskey.
Data set for release includes fourth-quarter gross-domestic product figures for India and trade for Sri Lanka.
PCE Inflation
Federal Reserve Bank of Cleveland President Beth Hammack said interest rates are not “meaningfully restrictive” and should be held steady for some time as officials wait for evidence inflation is returning to their 2% target.
The comments come ahead of the Fed’s preferred inflation metric due later Friday, which is expected to cool to the slowest pace since June. However, glacial progress on taming price pressures overall will keep policymakers cautious about lowering interest rates further.
The core personal consumption expenditures price index — which excludes often-volatile food and energy costs — probably rose 2.6% in the year through January in Commerce Department data due on Friday. Overall PCE inflation likely eased on an annual basis as well, according to the median estimate in a Bloomberg survey of economists.
“Indications that price pressures may be catching a second wind even before the potential impact of additional tariffs should send a cautionary message about the near-term inflation outlook,” said Jim Baird at Plante Moran Financial Advisors.
