Weekly Comment: Presidential clashes, tech struggles, and economic shifts

Market overview

Last week, the MSCI All Country World Index (MSCI ACWI) lost -1.3%, bringing its February performance to -0.6% and its year-to-date (YTD) performance to 2.8%.

The United States

Economic data released last week painted a mixed picture. The Commerce Department reported that the US economy grew at an annualised rate of 2.3% in the fourth quarter of 2024 – buoyed by resilient consumer spending – which advanced by 4.2% during the period. For the full year, US gross domestic product (GDP) increased by 2.8%.

Meanwhile, the Labor Department reported that applications for US unemployment benefits for the week ended February 22 rose by 22,000 to 242,000, the highest level since October. The four-week moving average increased by 8,500 to 224,000. The advance number for seasonally adjusted insured unemployment was 1.86 million, a decrease of 5,000 from the prior week.

Reacting to this news, US large cap decreased by -1.0% (1.4% YTD), marking its second consecutive week of decline. Growth stocks returned -2.6% ( -1.7% YTD) while value gained 0.9% (5.1% YTD). Tech stocks – particularly the Magnificent Seven – declined amid ongoing regulatory uncertainty and concerns that the multiyear artificial intelligence-fuelled rally could be losing steam. Shares of NVIDIA fell by -8.5% on Thursday following the chipmaker’s highly anticipated earnings report, and tariff fears continued to drag on equities as President Donald Trump reiterated plans to impose new levies on several trade partners by March 4.

Europe (excluding the UK)

Preliminary data from Germany, France, and Italy for February painted a mixed picture of inflation. Inflation held steady at 2.8% in Germany, coming in above a consensus estimate of 2.7%. Annual consumer price growth in Italy was unchanged at 1.7%, which was below expectations. In France, the rate fell to a four-year low of 0.9% from 1.8%.

The minutes of the January meeting of the European Central Bank (ECB) indicated that policymakers were confident that inflation was heading back to the 2% target but also noted “some evidence suggesting a shift in the balance of risks to the upside since December.” Some rate setters argued for “greater caution” on the size and pace of further interest rate cuts.

The MSCI Europe ex UK Index ended the week 0.3% higher (3.7% in February, 10.9% YTD), posting its longest streak of weekly gains since August 2012. Encouraging company results and gains in defence stocks helped to overcome uncertainty about US trade policy.

Germany and Italy’s large cap rose by 1.2% (3.8% in February, 13.3% YTD) and 0.6% (6.0% in February, 13.5% YTD) respectively, while France’s large cap retreated by -0.5% (2.0% in February, 10.0% YTD). The euro depreciated versus the US dollar, ending the week at US$1.04.

The United Kingdom

The Nationwide Building Society reported that UK house prices rose in January by 0.4% relative to the preceding month. Demand for homes has been fuelled by falling borrowing costs and buyers trying to finalise deals before a tax increase on some properties at the end of March.

UK large cap increased by 1.9% (2.0% in February, 8.3% YTD), while mid cap was down by -1.4% (-2.9% in February, -1.1% YTD). The British pound was little changed versus the US dollar, ending the week at US$1.26.

Ukraine/Russia Peace Talks

Last week saw significant geopolitical developments centred around the Ukraine/Russia peace talks and a high-profile meeting between Ukrainian President Volodymyr Zelensky and US President Donald Trump, along with other EU leaders. In particular, the meeting between President Trump and President Zelensky was marked by tense exchanges and heightened geopolitical tensions. The outcome of these talks remains uncertain, with US officials expressing doubts about the path to a peace deal.

The geopolitical uncertainty stemming from these discussions had a notable impact on the oil markets. Crude oil prices lost 0.8%, settling at $69.76 per barrel on Friday. The potential for a peace resolution raised the possibility of easing sanctions on Russian oil, which could increase global supply and weigh on prices. Additionally, ongoing trade tensions and tariff threats from President Trump added to the market's cautious outlook.

The reaction to the Trump-Zelensky meeting also influenced European defence stocks. The EU's response to the meeting, which included commitments to increase defence spending, sent stocks from companies like Rheinmetall, BAE Systems, and Leonardo soaring, reflecting investor optimism about increased defence budgets.

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