Opening Salvo on Tariffs
César Pérez Ruiz, Chief Investment Officer, Pictet Wealth Management.
A mixed US January job report was not seen as changing the Fed’s wait-and-see stance and did little to sway the S&P 500[i], which declined -0.23% on the week (in USD). Despite the caution inspired by some Trump initiatives, the delay to tariffs on Mexico and Canada provided some solace and while guidance from some high-profile tech-related names was mixed, the disquiet around AI spending died down somewhat. The Stoxx Euro 600[ii] continued to outperform the S&P 500, returning 0.6% last week (in euros), thanks to factors such as a weak euro and prospects for further monetary easing as well as Trump’s slowness to slap tariffs on Europe. In addition, government bond yields fell last week in Europe, whereas a rise in inflation expectations pushed short-term US Treasury yields higher. While fears of an immediate tariff war faded somewhat, gold continued to rise—in part due to physical buying by US investors. Wage data pointed to more rate hikes from the Bank of Japan, meaning the US dollar declined 3% against the yen last week.
Quote of the week
“The president wants lower rates,” Treasury Secretary Scott Bessent said. “He and I are focused on the 10-year Treasury and what is the yield of that.”
Key data
US nonfarm payrolls rose by 143,000 January, down from an upwardly revised 307,000 in December. The unemployment rate fell to 4.0% from 4.1%, while the annual increase in hourly earnings was 4.1%. The ISM purchasing managers’ index for manufacturing rose from 49.3 in December to 50.9 in January, the first time it was above 50 since 2022. The University of Michigan’s consumer sentiment index fell to 67.8 this month from 71.1 in January while one-year inflation expectations surged to 4.3% from 3.3%. Consumer price inflation in the euro area rose 2.5% in January on a year before, up from 2.4% in December. In Japan, data showed nominal full-time wages in December were 4.8% up from a year earlier, compared with 3.9% in November.
[i] 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%.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, STOXX Europe 600 (net 12-month return in EUR): 2020, -1.5%; 2021, 25.5%; 2022, -10.1%; 2023, 16.5%; 2024, 9.5%.
