Market snapshot: trade policy guarantees volatility

A constant flow of policy updates from the White House continues to keep markets guessing, which makes life difficult for investors. ii's head of markets analyses latest developments.

10th March 2025 08:21

Richard Hunter from interactive investor

The sole market guarantee at the moment is volatility, and US markets ended another turbulent week in the red, despite a slight reprieve in the final session.

Trade policy continues to top the list of investor concerns. One of the many reasons why markets dislike uncertainty is the inability to foresee the immediate future given the wider economic backdrop, something which is currently nigh on impossible given the fluctuating messages coming from the White House on an almost daily basis. It appears that the tariff story has further to run, with more changes along the way, which in turn will keep volatility higher until at least some of the economic dust settles.

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Caught in the middle of the confusion is the Federal Reserve, who until fairly recently seemed to have established a firm hand of the tiller, with slowing inflation and robust growth vindicating their strategy. This is now rather less certain, although comments from Chair Jerome Powell on Friday suggested a sanguine view, citing an economy which the Fed considers to be in a “good place”, with no immediate pressure for further monetary easing at present.

These comments follow a non-farm payrolls report which resulted in large swings for the main indices, with the 151,000 jobs added in February coming in shy of expectations and with the unemployment rate ticking higher to 4.1%, the immediate implication of which was a stuttering labour market.

However, investors had second thoughts since the headline figure was above the previous month’s number of 143,000, with few shocks elsewhere within the report. Nonetheless, the Fed remains fully focused on the approaching headwinds of spending and tax cuts, inflationary tariff pressures and a raft of government layoffs.

In the meantime, this week will bring a further batch of economic clues in the form of various consumer sentiment and inflation readings. In the year to date, the main indices are struggling to find form given the overall backdrop, with the Dow Jones having added just 0.6% and the S&P500 and Nasdaq having fallen by 1.9% and 5.8% respectively.

Asian markets have inevitably been drawn into the eye of the storm and, tariffs aside, the most recent set of Chinese economic data has done little to lift investor spirits. Consumer spending fell in February for the first time in over a year following weak demand, while in Japan the tariff potential on the likes of steel and aluminium kept the main Nikkei 225 between neutral and negative territory overnight.

The FTSE100 has perhaps lost some of its lustre over the last few trading sessions, where international investor attention has turned to the more aggressive spending plans which have been announced elsewhere in Europe.

While this may have diminished the attraction of the index as the obvious value play within the area, its constituents continue to provide a solid backbone given its exposure to defensive and stable sectors, while also seeing the additional benefit of the current focus on defence spending, which has resulted in gains this year of 36% for both BAE Systems (LSE:BA.) and Rolls-Royce Holdings (LSE:RR.).

This week will herald another set of data which will influence the mood of domestic investors, with GDP, industrial production, manufacturing output and retail sales updates all on the economic calendar.

Meanwhile in opening exchanges British Airways owner International Consolidated Airlines Group SA (LSE:IAG) continued its ascent, with the weakness of the oil price and a broker upgrade providing a twin boost, lifting the shares to a gain of 110% over the last year. More broadly, the two main UK indices continue to have mixed fortunes, with the 2% decline in the FTSE250 so far this year being eclipsed by a gain of 6% for the primary index.

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