SVET Markets Weekly Update (February 3–7, 2025)

On Week 5, Trump’s tariffs back-and-forth was front and center, moving markets up and down depending on his geopolitical maneuvering as he threatened, imposed, or postponed levies on Mexico, Canada, China, Brazil, and the entire EU. Consequently, the dollar index made a round trip from 108 to 110 and back to a two-week high. Gold reached several ATH, while economic growth continued to slow and the trade deficit widened, reaching its highest level since March 2022. Meanwhile, the unemployment rate dropped further to 4%, strengthening Powell’s hawkish positions, which led to markets correcting sharply on Friday, with BTC, SOL, and ETH entering a technically bearish zone. The world’s economy continued to slide, and more central bankers — including those from Britain and India — shifted to a dovish stance.

On Monday, following a large downward gap opening, equities closed in the green after Trump delayed the introduction of tariffs. Nevertheless, threats of retaliation continue to loom over markets. The situation has been further complicated by the latest PMI data, which show manufacturing growth for the first time in two years, thereby strengthening the position of FOMC hawks. The dollar and oil prices oscillated widely due to Trump’s change of mind regarding the timing of tariffs and his pressure on OPEC. Meanwhile, gold reached a new ATH on the market volatility, and EU inflation rose due to higher energy costs. Lumber and gas prices surged, having a strong correlation with imports from Canada and Mexico. BTC reclaimed the $100K level, while ETH rebounded to $3K after a sharp correction to $2,000, driven by rumors that some large, politically affiliated funds accumulated significant ETH holdings.

Details

• The ISM Manufacturing PMI climbed to 50.9 in January, up from 49.2 in December, surpassing forecasts of 49.8 and marking the first expansion after 26 months of contraction. New orders, production, and employment rose, while inventories fell and price pressures increased. 1Y trend: “Up” (ISM)

Crypto

• Trump’s World Liberty Finance bought 86K ETH (worth $220M) in eight hours, raising its total ETH holdings to $420M. The purchase, made during a market downturn, has sparked speculation about strategic timing. ETH now represents 65% of its portfolio. (source)

World Markets

• The Eurozone Manufacturing PMI for January rose to 46.6, beating the preliminary 46.1 and marking the slowest decline since May 2024. Output and new orders fell at the weakest pace since May, but job losses accelerated. Input costs rose for the first time since August 2024, while output prices remained unchanged. Business sentiment improved, with growth expectations at their highest since February 2022. 1Y trend: “Down” (SPG)
• Euro Area inflation rose to 2.5% in January, up from 2.4% in December, exceeding expectations. Energy costs surged (1.8% vs 0.1%), while services (3.9%) and food (2.3%) inflation slowed. Core inflation held at 2.7%, its lowest since early 2022. 1Y trend: “Side” (Eurostat)

Currencies

• The dollar index made a round trip from 108 to 110 and back to a two-week high, after Trump suddenly delayed Mexico tariffs by a month, easing fears of sweeping trade barriers. Trump’s move supported G10 and emerging market currencies. Meanwhile, ISM data showed factory activity expanding for the first time in over two years, challenging expectations of Fed rate cuts. 1Y trend: “Up”
• The South African rand fell 2% to around 19 per USD after Trump halted aid, citing unfair land confiscation and discrimination by Pretoria. South Africa downplayed the aid cuts, reaffirming land reforms and policy stability, while power outages continued to hinder economic growth. 1Y trend: “Side”

Commodities

• Gold hit a new record $2,820 per ounce as trade uncertainty persisted. Trump delayed Mexico tariffs but imposed levies on China and Canada, fueling safe-haven demand. Markets expect two Fed rate cuts this year, while the BoC, ECB, and Riksbank also cut rates. 1Y trend: “Up”
• WTI crude futures oscillated near $73 per barrel as OPEC+ confirmed gradual output hikes and dropped the EIA from its monitoring sources. Tensions with Trump, who urged OPEC to boost supply to counter high prices, persist. New tariffs added trade uncertainty. 1Y trend: “Side”
• Lumber futures soared above $630 per thousand board feet, hitting a high since October 2022, after Trump imposed tariffs on Canada, a key wood supplier (30% of lumber). The 25% tariff, alongside existing 14.5% duties, pressures domestic supply. Meanwhile, expectations of Fed rate cuts eased mortgage rates below 7%, supporting construction demand. 1Y trend: “Up”
• Natural gas futures surged 10%, recovering from last week’s decline. The announcement of tariffs on Canadian and Mexican oil raised supply disruption concerns. Natural gas imports from Canada are expected to decline due to the tariffs. The EIA reported a significant gas withdrawal from storage due to extreme cold weather. 1Y trend: “Up”

Comment: What’s Up With Trump’s Tariffs?

Trade tariffs increase costs for businesses and consumers, often leading to market volatility. Export-reliant sectors like manufacturing, technology, and retail may face immediate declines. Over time, supply chain shifts, inflation, and reduced corporate margins can harm growth-oriented stocks. A prolonged trade war risks global economic slowdown and potential recession, pressuring equities further.

Winners may include domestic industries like healthcare, while export-heavy sectors and industries relying on imported materials could suffer. Investors may shift to safer markets, alternative assets, or automation-focused sectors. Long-term impacts include global supply chain decoupling, regional trade agreements, and emerging market growth as alternatives to China.

Bearish outcomes likely dominate, with reduced earnings and recession risks. However, domestic investments and technological adaptation could provide selective opportunities. Historical parallels like the Smoot-Hawley tariffs highlight significant risks, though fiscal measures might offset some effects. Strategic diversification and inflation-resistant assets can help mitigate potential losses.

On Tuesday, equities closed in the green, boosted by weaker job openings data and falling factory orders. Gold reached a fresh all-time high due to tariffs and the quantitative easing measures of central banks worldwide. The Indian rupee continues to devalue in response to China’s counter-tariffs and capital outflows as the local economy decelerates. The yuan also weakens. BTC, SOL, and ETH are slowly recovering after the flush crash on Feb 2.

Details

• Job openings fell to 7.6M in December 2024, missing expectations. Decreases were seen in several sectors, including professional services, healthcare, and finance. Hires increased, while separations rose slightly. 1Y trend: “Down” (BLS)
• Manufactured goods orders fell 0.9% to $578.5B in December 2024, worse than the expected 0.7% drop and the sharpest decline since June. Transportation goods sank 7.4%, led by a 45.7% plunge in nondefense aircraft orders, while primary metals dipped 0.5%. 1Y trend: “Side”

Crypto

• ETH ETF trading volume surged to a record $1.5B, up 23% from the previous high of $1.22B on Dec. 19, 2024. BlackRock’s ETHA led with $736M, while spot ETH ETFs saw $84M in net inflows, totaling $10B in assets. BTC ETFs faced $235 million in outflows.

Currencies

• The offshore yuan fell to 7.32 per dollar as China imposed tariffs on USA imports, including 15% on coal and LNG and 10% on crude oil and cars, retaliating against Trump’s levies. 1Y trend: “Up, Depreciating”
• The Indian rupee slipped to 87.07 against the USD as China’s retaliatory tariffs fueled trade tensions, weighing on emerging markets. Crude oil’s rise and foreign outflows added pressure. Traders await India’s economic data and the RBI’s policy meeting for inflation and currency stability measures. 1Y trend: “Up, Depreciating”

Commodities

• Gold reached a fresh ATH above $2,840 per ounce, driven by safe-haven demand amid escalating trade tensions. Trump’s tariffs on China and Beijing’s retaliation fueled concerns about global growth. Lower interest rate expectations from the Fed, supported by weaker job openings data and falling factory orders, further boosted gold. 1Y trend: “Side”

On Wednesday, equities increased, supported by falling business optimism and slowing services growth, despite business employment exceeding forecasts. Nvidia and Amgen surged, while Alphabet and AMD dropped due to weak earnings. Imports hit a record high amid expectations of tariffs. EU private businesses showed growth for the first time in six months. Gold reached a new ATH, again. China’s services activity slowed. BTC, SOL, and ETH remain in limbo following the crash caused by Trump’s tariffs.

Details

• Private businesses added 183K jobs in January, surpassing December’s 176K and forecasts of 150K. Services led with 190K hires, while goods-producing sectors lost 6K jobs. Pay growth was 4.7% for job-stayers and 6.8% for job-changers. 1Y trend: “Up” (ADP)
• The trade deficit widened to $98.4B in December, the highest since March 2022, as imports surged 3.5% to $364.9B and exports fell 2.6% to $266.5B. The 2024 deficit rose 17% to $918.4B, with the largest gaps recorded with China ($-295.4B), the EU ($-235.6B), Mexico ($-171.8B), Vietnam ($-123.5B) and Canada ($63.34B). 1Y trend: “Down, Increasing”
• The ISM Services PMI fell to 52.8 in January, below forecasts of 54.3, signaling slower growth. Business activity and new orders rose less, while employment and exports improved. Poor weather and tariff concerns were cited, but current impacts were minimal. 1Y trend: “Up” (ISM)
• The Economic Optimism Index rose slightly to 52 in February, below expectations of 53. Confidence in Federal Economic Policies improved to 48.8, but remained pessimistic for the 42nd month. The Six-Month Economic Outlook fell to 51.1, while the Personal Financial Outlook dropped by 6.8% to 56.0. 1Y trend: “Up” (Tech)

Crypto

• Trump signed an executive order to create a sovereign wealth fund, potentially enabling government investment in BCT. Treasury and Commerce will lead the effort, with BTC advocates like Senator Lummis and Wayne Vaughan highlighting its significance for crypto markets. (source)

World Markets

• The Eurozone Composite PMI rose to 50.2 in January, marking the first private sector expansion since August 2024. Services grew (51.3), while manufacturing contracted more slowly (46.6). Input costs hit a 21-month high, raising output charges, but firms remained optimistic. 1Y trend: “Down” (PMI)
• China’s Caixin Services PMI fell unexpectedly to 51.0 in January, the slowest expansion since September, as new business growth eased, employment dropped, and price inflation slowed. Input costs rose, but selling price increases moderated. Sentiment improved slightly but remained subdued. 1Y trend: “Down” (PMI)

Comment: What’s Up With Megalomaniacs?

As management technologies have progressed, particularly with the advent of personal computers and the Internet in the 1960s, the executive branch of government has gained a powerful new tool to centralize its control over citizens. Today, as corporate social networks harvest vast amounts of private data from people around the globe, this control has become Orwellian and is routinely misused by those at the top of the government hierarchy. This situation poses an extreme danger, not only to all forms of democratic and decentralized governance but also to the future of humanity itself. Transforming our world into a machine that produces thrills and extravagant experiences for a handful of megalomaniacs represents one of the bleakest forms of dystopia imaginable.

To counter this trend, it is imperative to urgently reduce the executive powers granted to individuals across all branches of government and to transfer those powers to elected representative bodies. The highest office in the land should be abolished altogether. Our planet no longer requires rulers; instead, it needs collective housekeepers who prioritize the well-being of the entire community.

On Thursday, major indices ended mixed, with the S&P and Nasdaq rising and the Dow falling, following job reports that showed both job cuts and layoffs increasing. Ford and Honeywell dropped, while Philip Morris and Eli Lilly surged. Bank stocks gained. The dollar rose after a remark by Bessent prioritizing the lowering of Treasury yields over cutting Fed rates. The Bank of England and the Bank of Mexico reduced rates in response to slowing economies. Chinese markets continued their rally, driven by DeepSeek, with tech stocks rising on enthusiasm for local AI advantages. Meanwhile, BTC, SOL, and ETH, with the latter testing a critical support level, remained in the red as bearish sentiments persisted after the recent flash crash.

Details

• Job cuts rose to 49,795 in January, up from December’s 38,792 but down 40% YoY, marking the lowest January total since 2022. Tech led with 7,488 cuts, while the West saw the most layoffs. 1Y trend: “Down” (Challenger)
• Initial jobless claims rose to 219K in late January, exceeding forecasts of 213K, while recurring claims climbed to 1.886M. The data suggests a slight softening in the labor market, with notable increases in New York and California. 1Y trend: “Up” (DOL)

World Markets

• The Bank of England cut its benchmark rate by 25bps to 4.5% in February, the third cut since August 2024. All nine MPC members voted for the cut, with two favoring a 50bps reduction. Growth concerns outweighed persistent inflation, prompting a dovish shift. 1Y trend: “Down” (BoE)
• The Eurozone Construction PMI rose to 45.4 in January, the slowest decline since February 2023. Germany and France saw softer drops, while Italy grew slightly. Housing activity fell most, input costs hit a 12-month high, and firms remained pessimistic. 1Y trend: “Side” (SP)
• Chinese stocks surged, with the Shanghai Composite up 1.3% and Shenzhen Component rising 2.26%, hitting one-month highs. AI and robotics stocks led gains, driven by DeepSeek’s breakthrough and easing trade war concerns. Tech firms like 360 Security and BY Company soared. 1Y trend: “Up”

Currencies

• The dollar index rose to 108, ending a three-day decline, as traders assessed economic and trade policies. Treasury Secretary Bessent emphasized 10-year yields over Fed rates, while the Fed held rates steady. Markets expect two 2025 rate cuts. 1Y trend: “Up”

Comment: What’s Up With the New Mercantilism?

The shift from market liberalism to “new mercantilism” became obvious to everyone after Trump’s tariff shock. The fact is that the era of geopolitical confrontation we have been slowly entering over the past decade does, indeed, require new economic strategies from governments. However, no one knows what that new, “patriotic economics” must be.

History shows that highly centralized governments often prefer the simplest — and often the most misguided — economic “strategies” in times of war, as illustrated by Napoleon’s continental blockade or England’s attempts to close international trade for the U.S. after the Revolution. These economic measures are inherently mercantilist, where local manufacturers are granted every possible advantage while ‘bad, spying foreigners’ are excluded from the domestic markets. Classically, it limits competition, increases governments controls and feeds inflation while “patriotic” industrialists and bankers which are positioned close to ruling political elites thrive.

From the perspective of the Treasury, mercantilism seeks to ‘bring gold into the coffers’ by ensuring positive trade balances. This is a playbook that has existed for 300 years among both royal and democratically elected autocrats. In the post-gold standard era, when fiat money became dominant, the strategy evolved to include devaluing local currencies to boost exports, ostensibly giving local producers a price advantage when selling their products abroad.

But will this approach work in contemporary markets, where services — rather than manufacturing — prevail, and carry-trades as well as foreign direct investment (FDI) play a far more significant role in defining ‘winners’ than mere trade balances? I doubt it. Yes, you can lower borrowing costs by issuing more Treasuries, but this method won’t attract the investments that are largely influenced by interest rates and corporate profits, not to mention the economic growth that is impossible to accelerate in “closed” markets beyond the rate of population growth without drastically increasing government spending and triggering inflation. This ultimately leads to the ‘Impossible Trio’ — economic growth, government spending, and exchange rate stability — which cannot coexist harmoniously.

We have already seen how the pursuit of economic ‘self-sufficiency’ has played out in China, which has teetered on the edge of stagnation for the past three years as Xi prioritized politics over economic well-being. It’s clear that when you initiate a trade war, you cannot expect your goods to be welcomed by adversaries, many of whom you have alienated through your actions. This was the case during the Napoleonic and American Revolutionary Wars, when most trade shifted underground and growth relied heavily on government war efforts. A similar pattern emerged during WWI and WWII, when industries were forcibly militarized, with growth occurring in direct proportion to government investments in tanks and bombers.

In short, wartime is ideal for mercantilism, but it falters under other geopolitical regimes. So, are we heading toward the global war? Hopefully not, given the enormous stockpiles of nuclear weapons. It may be that the dangerous games autocrats have recently begun playing worldwide will lead to numerous localized, ‘decentralized’ conflicts without resulting in total disruptions of trade and travel. Almost everyone who follows politics and economics seems to expect this outcome. But is this realistic? Looks like we are playing a high-stakes game of poker.

On Friday, markets are down due to additional tariff threats and rising unemployment, while consumer sentiment has dropped to a six-month low. The dollar is up on the tariff news. The Bank of India cut its rates for the first time in five years due to a slowing economy. BTC, SOL, and ETH are in the red, with some traders turning bearish based on technical indicators.

Details

• The unemployment rate fell to 4.0% in January, its lowest since May, with 6.85M unemployed. Employment rose slightly to 163.9M, labor participation hit 62.6%, and the U-6 rate remained at 7.5%. 1Y trend: “Up” (BLS)
• The University of Michigan consumer sentiment dropped to 67.8 in February, the lowest since July 2024, with declines in current conditions and expectations. Inflation expectations surged to 4.3%, the highest since November 2023, amid concerns over rising prices and worsening buying conditions for durables. 1Y trend: “Down” (ISR)

Crypto

• The SEC delayed its decision on approving options for BlackRock’s iShares ETH Trust ETF (ETHA), following a rule change proposal last August. A final decision is expected by April 9. (source)

World Markets

• Germany’s December 2024 trade surplus rose to EUR 20.7B, exceeding forecasts, driven by a 2.9% export surge to EUR 131.7B, mainly to EU countries and Russia (+14%). Imports grew 2.1% to EUR 111.1B. Full-year surplus hit EUR 241.2B. 1Y trend: “Down” (DE)
• The RBI unanimously cut its repo rate by 25 bps to 6.25% in February, the first reduction since May 2020, to support slowing growth. It also lowered SDF and MSF rates, kept CRR at 4%, and projected FY2025–26 GDP growth at 6.7%. 1Y trend: “Side” (RBI)
• France’s trade deficit narrowed to €3.9B in December 2024, the smallest since November 2020, as exports rose 4% to €52.3B (~+30% to the Middle East), driven by transport equipment and refined petroleum. Imports fell 0.8% to €56.2B, with declines in energy products. 1Y trend: “Up” (FR)
• The FAO Food Price Index fell 1.6% to 124.9 points in January, driven by sharp declines in sugar (-6.8%) and vegetable oil (-5.6%) prices. Dairy prices rose 2.4%, hitting a new high lead by cheese (+7.6%), while cereals edged up 0.3%. Meat prices dropped 1.4%. 1Y trend: “Up” (FAO)

Currencies

• The dollar index rose to 108.2 amid potential lower outflows as Trump threatened new tariffs on countries with trade levies, particularly impacting EU imports. Fed rate cut expectations faded due to strong wage growth and low unemployment. 1Y trend: “Up”

On Week 7, investors will focus on the CPI report and Powell’s congressional testimony, alongside producer prices, retail sales, and industrial production. Earnings from McDonald’s, Coca-Cola, and others will be watched. Globally, key data includes China’s CPI and PPI, UK and Euro Area GDP, and rate decisions in Russia and the Philippines.

Comment: What’s Up With Markets?

We have had an extended period of politically enhanced exuberance in all markets, characterized by exaggerated expectations about both AI and crypto. Now, as a gloomy economic reality sinks in, we are facing a natural price adjustment that might last weeks or months, but this doesn’t change the fundamentals. Crypto is not going back into the box where Gensler wanted it to be. AI and other technologies will also continue to evolve rapidly.

We are facing delays due to slowing production and services exacerbated by hectic politics, which forces the Fed to keep interest rates high. However, the pressure on Powell will only mount, and he will eventually back off (as other central bankers all over the world already did). Then, we will be left with volatile geopolitics, but markets will rebound long before WW3 starts, anyway :)

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