Weekly house view | Trade war
The week in review
Last week was book-ended by disruption in AI and the spectre of a tariff war. Early in the week, US indexes were briefly hit by the emergence of a new AI model in China that appeared to achieve comparable—or superior— performance to US rivals at a fraction of the cost. While 4Q earnings and upbeat guidance from a number of tech-related firms managed to steady things, the Nasdaq’s[i] performance lagged that of the S&P 500[ii] last week (-1.63% versus 0.99% in USD). Broad European stocks indexes outperformed their US peers last week, as they have since the start of the year. Despite healthy US GDP data, and inflation coming in as expected, the Treasury market remained relaxed and was unfazed by the Fed’s decision to keep rates on hold. A well-telegraphed cut by the ECB and the promise of more to come meant that European governments had a positive week, as did credit. However, a tipping point for markets was the Trump administration’s announcement this weekend of tariffs on Canadian, Chinese and Mexican imports, causing a spike in the US dollar and equity futures to fall.
Geopolitics
Trump’s move to hit Canada, Mexico and China with tariffs, and threaten the EU as well, prompted vows of retaliation, risking a full-blown trade war.
Key data
First estimates put annualised GDP growth in the US at 2.3% in Q4, down from 3.1% in Q3. Overall, US GDP expanded by 2.8% in 2024, down slightly from 2.9% in 2023. Personal income in the US rose 0.4% month-on-month in December, the same rate as personal spending. The personal consumption expenditure (PCE) index rose 2.6% on an annual basis in December, up from 2.4% the previous month. Core PCE was unchanged at 2.8%. First estimates show euro area GDP was flat in Q4, down from quarter-on-quarter (q/q) growth of 0.4% in Q3. The headline CPI rose to an annual 3.4% in the Tokyo area in January from 3% in December, while core CPI rose to 2.5% from 2.4%.
[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Nasdaq Composite (net 12-month return in USD): 2020, 44.9%; 2021, 22.2%; 2022, -32.5%; 2023, 44.6%; 2024, 29.6%.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%; 2024, 25%.
[iii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, China CSI 300 (net 12-month return in USD): 2020, 38.4%; 2021, -1.0%; 2022, -26.5%; 2023, -10.9%; 2024, 14.9%