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Date: 11th February 2025.


Market Update: Tariffs, Inflation, and Investor Sentiment Shape Global Markets.



Trading Leveraged products is Risky


Asian equities and US stock index futures experienced declines. At the same time, gold surged to a record high, reflecting investor caution following President Donald Trump’s announcement of new tariffs on US imports of steel and aluminium. Stock markets in Hong Kong and mainland China faced selling pressure, contributing to a regional downturn. Futures contracts for the S&P 500, Nasdaq 100, and Euro Stoxx 50 also traded lower. Meanwhile, Japanese markets remained closed due to a public holiday.


Gold, often seen as a safe-haven asset duringeconomic uncertainty, extended its rally for a third consecutive session, briefly surpassing $2,942 before paring some gains. The US dollar index maintained its Monday gains, signalling sustained strength amid market volatility. The precious metal has surged about 11% this year, setting successive records as Trump’s disruptive moves on trade and geopolitics reinforce its role as a store of value in uncertain times.


US Steel and Metals Sector Reacts to Tariffs


Shares of US Steel Corporation surged as much as 6% following Trump’s announcement, as domestic metals producers saw a boost from the prospect of increased business and stronger pricing power. Canada, Brazil, and Mexico, the top steel suppliers to the US, are expected to be significantly impacted by these trade restrictions.


Trump stated that the new tariffs, effective in March, aim to revitalize domestic production and job growth. However, he also suggested the possibility of further tariff increases, adding to market uncertainty.





Investor Concerns Over Tariffs and Trade War Escalation


Investors are grappling with the implications of Trump’s tariffs, particularly in distinguishing between policy announcements and concrete actions. The uncertainty surrounding additional levies and potential retaliatory measures has reignited fears of an intensifying global trade war. Tariffs on Chinese goods are already in effect, and concerns persist about further economic fallout.


According to Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, the key challenge in portfolio strategy now lies in identifying assets that can effectively hedge against tariff risks. Speaking to Bloomberg Television, he noted, “The big challenge is that this is going to be much more difficult from here because the tariffs are very specific.”


Key Economic Data and Federal Reserve Testimony in Focus


Beyond trade tensions, investors are closely watching this week’s critical economic reports and statements from Federal Reserve officials. Fed Chair Jerome Powell is set to testify before Congress, while fresh inflation data will provide further insight into price trends. According to the New York Federal Reserve’s Survey of Consumer Expectations, inflation expectations for both the one-year and three-year outlooks remained steady at 3% in January. Short-term US inflation expectations have now risen above longer-term projections to their widest gap since 2023, signalling potential shifts in monetary policy.


Inflation data, Powell’s congressional testimony, and tariffs are poised to drive the market today.


A reprieve from negative surprises, such as the impact of DeepSeek, ongoing tariffs, and consumer sentiment concerns, could push S&P 500 to break out of its two-month consolidation.





Currency and Commodity Markets React


The currency market also reflected shifting investor sentiment. The Japanese Yen remained largely unchanged. Meanwhile, the British Pound weakened after a report from the Financial Times cited Bank of England policymaker Catherine Mann’s concerns that weakening demand is beginning to outweigh inflationary risks.


Gold’s continued ascent has been accompanied by significant inflows into bullion-backed exchange-traded funds. Global holdings have risen in six of the past seven weeks, reaching their highest levels since November. Banks have forecast that gold could test the $3,000 mark, with Citigroup predicting it could hit that level within three months and J.P. Morgan Private Bank projecting a year-end target of $3,150.


Market Resilience Amid Trade Uncertainty


Despite ongoing tariff tensions, equities have demonstrated resilience, leading some analysts to caution that further trade escalations could trigger renewed market pullbacks. Strategists at Deutsche Bank AG, including Binky Chadha, suggested that historical patterns indicate sharp but short-lived equity selloffs during geopolitical events, with markets typically rebounding before any formal de-escalation occurs. They projected that, in such scenarios, equity markets could decline by 6%-8% over a three-week period before recovering in a similar timeframe.


China’s Growing Gold Reserves and Market Influence


China’s central bank expanded its gold reserves for the third consecutive month in January, signalling an ongoing commitment to diversifying its holdings despite record-high prices. In addition, China introduced a pilot program allowing 10 major insurers to invest up to 1% of their assets in bullion for the first time. This initiative could translate into as much as 200 billion Yuan ($27.4 billion) in potential gold investments.


Key Market Events to Watch This Week


* Fed Chair Jerome Powell’s semiannual testimony before the Senate Banking Committee today
* Speeches by Fed officials Beth Hammack, John Williams, and Michelle Bowman today
* US Consumer Price Index (CPI) report, Wednesday


As global markets continue to navigate economic uncertainties, investors remain watchful of trade developments, monetary policy signals, and inflation trends that could shape the financial landscape in the coming weeks.


Always trade with strict risk management. Your capital is the single most important aspect of your trading business.


Please note that times displayed based on local time zone and are from time of writing this report.


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Andria Pichidi
HFMarkets


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