Weekly Wrap: Complicated Relations - Week Ending February 14

Market Movers

• Cupid’s deal. This week, markets took in a variety of economic and geopolitical news. The US Dollar index softened 1.5% year-to-date after US trade policy actions appeared to be on hold. This pause could allow for further trade negotiations and calm the market. There are also rising market expectations of a possible Ukraine-Russia peace deal that could be discussed at this weekend’s Munich Security Conference. The S&P 500 continues to hover near all-time highs, closing the week +1.54% at 6,118.97. On the commodity front, West Texas Intermediate crude fell to its lowest level since December at $70.22, while gold climbed toward another all-time high on Tuesday, ending the week +0.74 at $2,882.26.

• Mixed signals. US retail sales slumped in January, marking a near two-year low, due to a pullback in consumer spending. Markets broadly looked past the higher-than-expected consumer price index as producer price index details ended up softer and led to downside revisions for the January print. The market is pricing in a full interest rate cut in September 2025 and a second cut by the end of 2026. Ten-year US Treasury yields pulled back from intra-week highs of 4.62%, ending the week at 4.468%.

• Brief reprieve. Hong Kong equities finished +7% on the week as investors leaned into news that China’s potential recovery could be encouraged by the country’s AI gains and hopes of further government stimulus. RMB loan and credit data came in well above expectations, while China's January CPI unexpectedly rose 0.5% year-on-year, surpassing forecasts due to a surge in Lunar New Year spending. Simultaneously, the worsening Chinese property crisis prompted government intervention to prevent the collapse of major developer China Vanke Co., with authorities assuming operational control and planning a bailout.

Macro

• Trade plan. Reciprocal tariff policy has been put on hold until at least April and no later than August. President Donald Trump called for a “Fair and Reciprocal Plan” for trade, which would match other countries’ tariffs, taxes, and non-tariff barriers (regulatory requirements, subsidies, and exchange rate policies). The broad scope and long lead time leave room for negotiation with trading partners. 

• Wait and see. Federal Reserve Chair Jerome Powell said that while significant progress has been made to reduce inflation, more work is needed, as core CPI rose 0.4% in January, the largest increase since March 2024. Costs such as car insurance, airfare, and prescription drugs contributed to the unexpected inflation jump. Powell emphasized the need to maintain restrictive monetary policy to achieve the Fed's inflation goals, despite the Trump administration's tariff policies adding uncertainty to the economic outlook.

• Shaky grounds. Britain's gross domestic product unexpectedly grew 0.1% in Q4 2024, driven by increased public spending, while the private sector contracted. This growth, exceeding forecasts, was offset by falling GDP per capita and weaker private demand. Despite the positive headline figure, underlying economic weakness persists, impacting living standards. The pound extended gains after the data release, rising 1.8% to 1.2630, its highest level year-to-date.

Micro

• AI boost. Chinese stocks performed strongly on the week, especially those linked to AI. KWEB, an ETF of Chinese internet names, was up 6% on the week, while Alibaba soared north of 15% on news it would be developing AI for iPhones sold in China.

• Retail frenzy. Retail has been an important player in the US equity market as buyers flock to the sector in the face of strong single stock volatility. This week, Super Micro Computer, Uber, and AppLovin were among the strongest performers following their Q4 earnings reports.

• Vacation mode. After strong holiday season travel, Airbnb released a positive forecast for the first three months of 2025, prompting a 14% increase in pre-market trading on Friday. Expedia’s earnings also beat expectations, leading to an initial 15% surge in the stock price. Analysts expect strong travel demand to continue. 

Checklist for the next week

• Major economic events in the US include: Initial Jobless Claims; Umich Sentiment; MBA Mortgage Applications; Housing Starts; S&P Global US Manufacturing PMI

• Major economic events around the world include: UK CPI YoY; Germany ZEW Survey Expectations; Sweden CPI; Canada CPI; UK Jobless Claims Change; Japan Core Machine Orders