Week of High Volatility: Trump’s Tariffs, Inflation, and the AI Boom Shake the Markets
The second week of February ended with high volatility in global markets, driven by new trade policies in the United States, inflation data that could delay interest rate cuts, and a strong push by major tech companies into artificial intelligence. Meanwhile, the recovery in the U.S. commercial real estate sector raises expectations of a potential turning point.
Below is a detailed analysis of the most relevant events and their implications for financial markets.
United States Imposes Tariffs on Steel and Aluminum: A New Trade War on the Horizon?
The U.S. president announced a 25% tariff on all steel and aluminum imports, effective March 12. This measure aims to protect domestic industries but has raised concerns about retaliatory actions from major U.S. trading partners.
Key Implications
- Impact on global trade: Countries like Brazil, India, Japan, Canada, and the European Union may respond with additional tariffs on U.S. products.
- Market reactions: The industrial and manufacturing sectors were affected, with stock declines in companies that rely on imported materials.
- Rising production costs: The U.S. automotive, aerospace, and construction industries will face higher costs, which could ultimately be passed on to consumers.
- Risk of retaliation: The U.S. administration has also proposed “reciprocal” tariffs, potentially escalating trade tensions with other nations.
Investors are now assessing whether this strategy is a negotiation tactic to secure trade concessions or a structural shift in U.S. trade policy.
Inflation Surprises the Market and Challenges the Federal Reserve’s Plans
January’s inflation data exceeded market expectations, prompting a reassessment of the Federal Reserve’s monetary policy trajectory.
Key U.S. Consumer Price Index (CPI) Data
- Headline inflation: Increased by 0.5% in January, bringing the annual rate to 3.0%.
- Core inflation (excluding food and energy): Reached 3.3%, defying expectations of a slowdown.
Financial markets reacted with a drop in Treasury bonds and reduced expectations for rate cuts this year. Before the inflation data was released, traders anticipated the Fed would cut rates in September, with a 50% chance of a second cut by year-end. However, the market now expects only one rate cut in 2025.
This persistent inflation, combined with a strong labor market, may force the Fed to maintain its restrictive stance longer than expected.
Is the Commercial Real Estate Market Bottoming Out?
After three years of decline, the U.S. commercial real estate sector is showing signs of recovery.
Key Indicators
- Positive net absorption: In Q4 2024, office space saw a positive net absorption of 3.5 million square feet, the first positive figure in three years.
- Less sublease space available: Office space available on the secondary market has declined for three consecutive quarters.
- Stable vacancy rates: While vacancy levels remain high, they have stabilized in recent months.
The return-to-office trend is driving this recovery. According to a KPMG study, 79% of CEOs expect their workforce to be back in the office full-time within the next three years, compared to just 34% in April 2024.
However, the gap between premium properties and lower-quality office spaces remains significant. Prime locations are seeing increased demand, while secondary locations continue to struggle.
Big Tech Doubles Down on Artificial Intelligence
The AI boom is pushing major tech companies to invest record amounts in infrastructure.
Key Investments in 2024 and 2025 Projections
- Microsoft, Alphabet, Amazon, and Meta invested $246 billion in 2024, a 63% increase from the previous year.
- Investments in data centers and cloud computing are expected to exceed $320 billion in 2025.
The market has responded positively to these investments, though some analysts warn that rising costs could pressure profit margins in the future. If AI fails to generate expected revenues, the depreciation of these assets could weigh on companies’ financials for years.
Additionally, Chinese AI firm DeepSeek has challenged U.S. tech giants by developing highly efficient AI models at lower costs. This has led some investors to reconsider whether massive infrastructure investments are the right strategy.
Chinese Tech Stocks Are Making a Comeback
While U.S. tech stocks have struggled in recent weeks, the Chinese sector has seen a strong rebound.
The Hang Seng Tech Index, which tracks the top Chinese tech companies, has risen 25% since its low in January, outperforming the Nasdaq 100 over the same period.
This recovery is driven by optimism surrounding AI and potential government support for China’s tech sector. With uncertainty over Trump’s tariffs and a weak Chinese real estate market, investors are betting that Beijing will take measures to strengthen its technology industry.
Key Events for the Upcoming Week
The economic calendar for next week is packed with significant data releases and events that could impact the markets:
- Monday: Japan’s Q4 GDP report.
- Tuesday: UK labor market report and Eurozone economic sentiment data. Corporate earnings from Baidu, Medtronic, and Arista Networks.
- Wednesday: UK inflation data and the release of the Federal Reserve’s latest meeting minutes.
- Thursday: China’s interest rate decision and Eurozone consumer confidence data. Earnings from Alibaba, Walmart, Block, and Booking Holdings.
- Friday: Japan’s inflation data, UK retail sales, and global PMI releases.
Conclusion
Financial markets are facing a series of challenges that are creating short-term uncertainty. The impact of Trump’s tariffs on global trade, persistent U.S. inflation, and massive investments in artificial intelligence are shaping a landscape where volatility remains the norm.
The commercial real estate sector appears to be stabilizing, but the global economic outlook still depends on key central bank decisions and evolving trade tensions.
Next week will be crucial in setting market direction, with events that could influence investor expectations in the coming months.
Disclaimer
The information and data published in this report were prepared by the market research department of FXRK. Publications and reports of our research department are provided for informational purposes only. Market data and figures are indicative, and FXRK does not trade any financial instrument or offer investment recommendations and decisions of any type. The information and analysis contained in this report have been prepared from sources that our research department believes to be objective, transparent, and robust.
