Take Two: Fresh wave of volatility hits markets; US inflation cools
- 17 March 2025 (3 min read)
What do you need to know?
Markets endured a further bout of volatility last week after US President Donald Trump refused to rule out the possibility of a recession because of his policies. The US’s blue-chip S&P 500 index fell some 2.7% and the tech-heavy Nasdaq index fell 4% on Monday 10 March, while European and Asian stocks also lost ground but escaped the worst of the turbulence. The renewed trade war continued to escalate, with the US threatening further tariffs, prompting retaliatory actions. The MSCI World Index ended the week to Thursday’s close 3.5% down, while the S&P 500 was 3.7% lower.1
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Around the world
US annual inflation cooled more than expected to 2.8% in February, down from 3.0% in January. The data was welcomed by markets amid concerns about the potential inflationary impact of the new US administration’s trade tariffs. Core inflation, which excludes more volatile food and energy prices, eased to 3.1% from 3.3%, its lowest level in nearly four years. The softer figures could prompt the Federal Reserve (Fed) to resume its rate-cutting cycle, although the components that go into the Fed’s preferred metric for inflation were actually firmer. We expect the Fed to wait until year-end and then ease to 3.50% in 2026. Elsewhere, the Bank of Canada lowered its benchmark interest rate by 25 basis points to 2.75%, marking its seventh consecutive cut.
Figure in focus: 2.2%
Japan’s economy grew 2.2% on an annual basis in the fourth quarter (Q4), a slower pace than the 2.8% initially reported but an improvement from Q3’s 1.4% growth. The figure was revised lower on the back of a decrease in consumption, echoed in weaker-than-expected household spending reported separately last week. This marks the country’s third consecutive quarter of expansion, driven by a rebound in capital expenditure. The Bank of Japan (BoJ) is expected to hold interest rates steady at its monetary policy meeting this week in light of the slower growth and ongoing uncertainties over US tariffs.
Words of wisdom
Climate whiplash: Rapid swings between extremely wet and extremely dry weather, where droughts and floods are intensifying. A new report for clean water charity WaterAid analysed 112 cities around the world and found 15% are experiencing climate whiplash, with an intensification in both extremely wet and extremely dry periods. More than 20% were seeing extreme climate conditions reverse - areas with historically heavy rainfall are now facing droughts, and typically arid regions are now experiencing floods. The report also highlighted that cities facing some of the greatest impacts from climate change are often those with the most socially vulnerable populations.
What's coming up?
Central bank news is likely to dominate much of the week ahead; on Wednesday, the BoJ and the Fed hold their respective monetary policy meetings while the Bank of England follows with its own interest rate setting meeting on Thursday. In terms of economic updates, the latest Eurozone ZEW Economic Sentiment Index – which reflects expectations of the bloc’s six-month economic outlook – is published on Tuesday, when Canada issues its latest inflation rate update. Japan reports its own inflation numbers on Friday.
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