T3 Monthly Insights - Feb 2025

February marked a shift in the U.S. exceptionalism narrative, as policy uncertainty and inflationary concerns pressured both corporate and consumer sentiment. The S&P 500 ended the month down 1.42%, closing at 5954.5, as fears of rising tariffs and slowing growth expectations triggered a shift from U.S. equities to international markets. The dollar weakened, with the DXY falling 1.04% to 107.24, while bonds rallied as investors reduced equity exposure.

Tariff uncertainty remained a key concern, as President Trump signaled the possibility of a 25% tariff on imports of automobiles, pharmaceuticals, and semiconductors, with rates potentially exceeding that to incentivize domestic production. This follows the imposition of a 25% tariff on steel and aluminum imports set for March and the threat of similar tariffs on imports from Canada and Mexico. Softer economic data further fueled market unease, with investors now factoring in a U.S. economic slowdown. The consumer price index rose 3% y/y, marking its largest annual increase since June 2024, while monthly inflation surged by 0.5% from December to January—the most significant gain since August 2023. Consumer confidence took a notable hit, registering its largest decline since August 2021, with the Conference Board reporting a 7-point drop in its index to 98.3, heightening concerns over the impact of trade policies and federal workforce reductions.

In the Eurozone, the Stoxx Europe 600 index outperformed Wall Street, rising more than 3% in February and gaining nearly 10% YTD, as investors shifted their focus to European assets. The euro edged up 0.13%, closing at 1.0375. However, concerns about the sustainability of this outperformance linger, especially amid the ongoing risk of U.S. tariffs on European markets. Inflationary pressures continue to challenge the European Central Bank, while geopolitical tensions have intensified following President Trump's more conciliatory stance toward Russia on the Ukraine conflict. Eurozone economic activity stagnated in February, with the HCOB Flash Eurozone Composite PMI holding steady at 50.2, just above the growth threshold.

In the UK, the FTSE 100 gained 1.57%, buoyed by strong performances in the energy and financial sectors. Sterling advanced 1.47%, closing at 1.2577. The Bank of England cut interest rates by 25bps to 4.50% in an effort to stimulate economic activity and provide relief to borrowers amid a sluggish economy, while it halved its growth forecast for the year. UK inflation unexpectedly rose to a 10-month high of 3.0% in January, but Governor Andrew Bailey remains optimistic that a slowdown in the labor market will curb wage growth and limit inflationary risks in the near term.

Geopolitical tensions, particularly surrounding U.S. trade policies and President Trump's stance on Russia and the Ukraine conflict, drove investors toward safer assets like gold. The uncertainty surrounding global economic stability fueled demand for gold, which extended its rally to $2,848.50, up 0.46% m/m. Meanwhile, a risk-off sentiment pushed speculative Bitcoin down 20% from its January peak, falling below $80,000.