Weekly Financial Market Commentary and Analysis: March 3 - March 7

U.S. President Donald Trump announced last week that he would impose a 25% tariff on Mexican and Canadian goods on March 4, while imposing an additional 10% tariff on Chinese imports, bringing the cumulative tariff to 20%. The decision is aimed at addressing the problem of drugs such as fentanyl flowing into the United States, but it also marks a further escalation of global trade tensions. Trump's tariff measures could have far-reaching effects on the global economy. Tariffs on Mexico and Canada could undermine the North American free trade system, while tariffs on Asian giants could trigger a new round of trade wars and further disrupt global supply chains. In addition, European countries may also face pressure from Trump's "reciprocal tariff" strategy.

Market volatility swept the market last week as traders ended a disappointing February, which wiped out this year's gains. According to CNN's Fear and Greed Index, the sentiment driving the market for the fourth consecutive day on Friday was "extreme fear." The S&P 500 added 1.59% on Friday. The Dow Jones Industrial Average rose 601.41 points, or 1.39%. The Nasdaq Composite Index rose 1.63%. In February, the S&P 500 fell about 2.2%, the Dow fell about 1.6%, and the Nasdaq fell about 4%.

Gold prices are expected to record their first weekly decline this year last week, as bulls took profits after setting a record high. At the same time, President Trump's remarks on tariff policy and the strengthening of the US dollar also put pressure on gold. Gold prices fell 2.72% last week, trading near a low of $2,833 per ounce. Trump announced that the tariff plan for Canada and Mexico will take effect on time on March 4, and his remarks on imposing additional tariffs on Chinese goods have reduced the market's safe-haven demand for gold.

Silver prices rose to a weekly high of $32.760 last week, and then the safe-haven demand for the US dollar in the foreign exchange market was driven by risk aversion. It caused silver prices to pull back to below $31,000 before the weekend.

The dollar briefly rose after Trump announced that he would impose a 25% tariff on Mexican, Canadian and Chinese goods on March 4, breaking through the 107 mark. However, the dollar index as a whole closed negative in February, the worst performance since August. This shows that the market has concerns about the health of the US economy, and weaker-than-expected economic data has increased expectations of a Fed rate cut, thereby dragging down the dollar.

The EUR/USD exchange rate fell significantly in last week's trading. Currently, the euro has fallen below the key level of 1.04. This price has played an important role many times before, and the decline to this level at this time is in line with expectations. In short, the current market trend continues the volatile pattern since early December last year, and there has been no significant change.

Against the US dollar, the yen recorded a monthly gain of more than 3.6% at the end of February, the best performance since July last year. Optimism about Japan's economic outlook has driven market expectations of a rate hike by the Bank of Japan.

Last week, the trend of the pound attracted attention, and the current price is close to the 200-day moving average, an important technical indicator that investors often use to judge long-term trends. Due to the peculiarities of the 200-day moving average, the market will be watching closely to see if this level can hold support.

Meanwhile, the Australian dollar fell in late February, hitting its lowest point in more than three weeks. The Australian dollar has been under pressure from the global economic slowdown, the recent weakness in commodity prices and the rise in risk aversion in the market. The Australian dollar fell nearly 2% this week, and although it rose about 0.3% on a monthly basis, the overall trend is still challenging, especially against the backdrop of weakening global risk sentiment, and the Australian dollar may continue to be under pressure in the short term.

Tariff risks hit market sentiment. Crude oil prices fell for the first time in four months, and oil prices faced sharp selling pressure as Trump's latest tariff threats exacerbated concerns about global growth. WTI spot crude oil closed at $69.87 per barrel and recorded its first monthly decline since November 2024. WTI crude oil fell 3.8% this month. Brent crude oil futures are now at $72.70 per barrel, down 1.19%.

Bitcoin's losses intensified in Asian trading hours before the weekend, falling 25% from its all-time high set six weeks ago as traders began to reverse bets made after Trump's election. Bitcoin fell 5.13% to $80,000.8, its lowest level since November 11. The move is part of a broader decline in cryptocurrencies: Ethereum, Solana and XRP have also plummeted in recent days. The sell-off highlights the dramatic change in fortunes of digital assets, which had seen a sharp rise after Trump's election. Bitcoin hit an all-time high of $109,241 on Trump's inauguration on January 20, but has since continued to fall, due to concerns about Trump's confrontational stance and broader concerns about the US economy.

As investors become increasingly concerned about the outlook for economic growth amid stubborn inflation, risk aversion is quietly heating up on Wall Street; U.S. Treasury prices have been pushed up by safe-haven funds, with two-year and 10-year Treasury yields hitting new lows for the year. Among them, the 2-year US Treasury yield fell 1.91 basis points to 4.1725%, the 5-year US Treasury yield fell 2.66 basis points to 4.2352%, the 10-year US Treasury yield fell 2.32 basis points to 4.3984%, and the 30-year US Treasury yield fell 1.47 basis points to 4.655%.

Outlook for this week:

At the beginning of March, global investors will usher in an extremely busy week. There are traditional economic events such as the US non-farm payrolls report and the European Central Bank's interest rate decision, as well as a series of geopolitical issues such as Trump's tariffs, the Ukraine issue, and the Gaza issue. At the same time, as the most important event this week, the world-renowned 2025 National People's Congress will be held in Beijing.

Let's start with economic data. This week, the market will usher in the February US non-farm payrolls report. Although the employment growth rate in January was lower than expected, the decline in unemployment and the increase in wage growth supported the Fed's narrative of "not rushing to cut interest rates." For the non-farm report, the next few months will face strong uncertainty - no one can tell for sure how the "Department of Government Efficiency" will affect the data. After the non-farm report is released, Fed Chairman Powell will speak in the early hours of Saturday Beijing time.

It will take at least several months for the reduction of federal government jobs to show up in the data. Meanwhile, the US February PMI data released by ISM this week may confirm that the weak growth trend since the beginning of the year is still continuing.

At this juncture, Trump is still waving the tariff stick recklessly, which will only accelerate the process of the US economy under pressure to decline. Consumer confidence has weakened due to concerns about spending power and government austerity measures, and more headlines about tariffs will not help improve this situation.

On the other hand, the European Central Bank's interest rate decision will be the most important economic event in the eurozone. The market generally expects a 25 basis point rate cut at that time, and the deposit rate will fall to 2.5%. However, it is still unclear whether there will be further rate cuts in the future, so Lagarde's speech will be the focus of attention.

Whether the ECB can continue to cut interest rates also has an important non-economic factor - how the Ukraine issue progresses. European leaders will meet several times in the coming days to discuss how to deal with the Ukraine issue, or how to deal with the US government's change of position on this issue. At the same time, the EU's proposed plan to increase defense spending may also trigger inflation - the premise is that EU member states can reach a consensus despite different opinions.

At the same time, how (or whether) Zelensky can repair his relationship with Trump will also be the key point to determine the direction of the Ukraine issue.

This week, it is not just the EU that will meet to discuss "how to deal with Trump". An emergency Arab summit on the Palestinian issue will also be held in Egypt on March 4. What worries Middle Eastern countries is that US President Trump has repeatedly expressed his hope that the United States "takes over" and "owns" the Palestinian Gaza Strip for a long time. As of press time, the first phase of the ceasefire agreement in the Gaza Strip has expired, and it is unclear how the situation will develop.

The US dollar has risen in the short term due to Trump's tariff remarks, especially against the backdrop of rising risk aversion. But concerns about a slowdown in the US economy, especially recent weak economic data, may cause the US dollar to continue to be under pressure. At the same time, the performance of the yen and the pound is relatively outstanding, especially when Japan's economic outlook is more optimistic and the market expects that the pound will face less pressure to raise interest rates. EUR/USD will remain weak in the short term, and technical support and resistance levels will become key references. The market is paying attention to the upcoming economic data from Germany and the United States, as well as the policy dynamics of the European Central Bank and the Federal Reserve.

The US tariff policy and the risk of a global trade war have significantly suppressed the Australian dollar. As an export-oriented currency, the Australian currency is highly sensitive to the performance of the Chinese economy, and the escalation of the trade war may further increase its downward pressure. In the future, the trend of the Australian dollar will depend on the progress of the trade war, China's response measures, and the monetary policy adjustments of the Reserve Bank of Australia.

Trump's decision once again highlights the uncertainty in the global energy market. Although oil prices rebounded in the short term due to supply concerns, in the long run, slowing economic growth, trade concerns and geopolitical risks may affect the trend of oil prices. Oil prices will continue to be affected by multiple factors such as changes in supply and demand, the international political situation, and the global economic slowdown. Investors should carefully assess market risks.

The current correction in the gold market is mainly due to the negative impact of Trump's tariff policy on the market, and the safe-haven demand for gold has failed to effectively support the continued rise in prices. However, the macro environment of the market still supports gold, especially against the backdrop of global economic uncertainty and rising inflation expectations. The bullish trend of gold may gradually resume in the coming months, and investors should be prepared in the support area to capture potential upside opportunities.

Conclusion:

In the short term: The global trade situation faces new challenges. Trump's new round of tariff measures not only targets Mexico and Canada, but also China, marking a further escalation of global trade tensions. This decision may have a serious impact on the North American economy and the global supply chain, and may also trigger retaliatory measures from other countries. In the future, how the global trade situation will evolve depends on whether countries can resolve differences through negotiations and avoid a full-scale trade war.

In the short term, market concerns about the trade war may boost risk aversion, which is good for gold. If tariff measures trigger a full-scale trade war, the global economy may fall into recession, and gold as a safe-haven asset will be supported in the long term. If countries reach an agreement through negotiations to ease trade tensions, risk aversion may weaken, and the support for gold prices will decline.

Overview of important overseas economic events and matters this week:

Monday (March 03): Final value of Eurozone SPGI Manufacturing PMI in February; Final value of UK SPGI Manufacturing PMI in February; Eurozone Harmonized CPI Annual Rate in February - Unadjusted Initial Value (%); US ISM Manufacturing PMI in February; Final value of US SPGI Manufacturing PMI in February

Tuesday (March 04): Japan's unemployment rate in January (%); Australia's current account in the fourth quarter (billion Australian dollars); Eurozone unemployment rate in January (%); Reserve Bank of Australia releases minutes of monetary policy meeting in February

Wednesday (March 05): Australia's AIG Manufacturing Performance Index in February; Australia's fourth quarter seasonally adjusted GDP quarterly rate (%); UK SPGI Services PMI in February; US ADP employment change in February (10,000); US durable goods orders in January revised value (%); US factory orders in January revised value (%); US February ISM non-manufacturing PMI

Thursday (March 06): Australia's January goods and services trade account (billion Australian dollars); Eurozone January retail sales monthly/annual rate (%); ECB announces interest rate decision; ECB President Lagarde holds monetary policy press conference; US initial jobless claims for the week ending March 1 (10,000); US January wholesale inventory monthly rate final value (%); US January durable goods orders monthly rate, US January existing home sales index monthly rate; Federal Reserve releases Beige Book on economic conditions

Friday (March 07): Eurozone fourth quarter seasonally adjusted GDP quarterly rate final value (%)

Saturday (March 08): US February non-farm payroll population change seasonally adjusted (10,000); US February unemployment rate (%); US February average hourly wage annual rate (%); Federal Reserve Chairman Powell speaks before the 2025 US Monetary Policy Forum luncheon at the University of Chicago Booth School of Business

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