On Week 10, markets closed out their most bearish 5 days in six months due to tariffs and a slowing economy. Meanwhile, EU stocks rose on increased defense spending and ECB easing policies. Chinese equities renewed their AI rally. Brazilian stocks are marginally up despite slowing GDP. The Indian market was mostly down due to continuing capital flight resulting from a sharp economic deceleration after prolonged record growth. BTC, ETH, and SOL remained within a bearish sideways trend amid high volatility.
On Monday, stocks went down as manufacturing activity slowed, faced with price growth due to tariffs, new orders shrank sharply, and personnel lay-offs increased.
World’s Markets:
- European corporate purchasing continued to contract at a slower pace but with accelerating job shedding for the third year, led by Spain, while Germany, France, and Italy saw lesser rates of decline. EU yearly inflation declined to 2.4% due to energy and services, while food inflation is on the rise. Defense stocks surged after the EU confirmed support for Ukraine over the weekend. EU bonds jumped as traders faced increased debts and inflationary pressure bolstered by sharply rising military budgets.
- India’s business purchasing activity expanded at a slower pace for the second year as economic growth decelerated.
- Brazil’s business activity picked up strongly for the first time in three months, driven by new business creation.
- South African factory activity dropped for the fourth month in a row, impacted by diminishing foreign trade as the country’s political tensions with America intensified.
- Chinese companies expanded their purchases for the third month in a row, struggling to meet their growing production demand.
- Indonesia’s inflation fell below zero, marking the country’s first monthly deflation in 25 years. This came after the government slashed electricity prices by 50%. Core yearly inflation remained above 2.4%.
- Turkey’s price growth continued to decelerate for the ninth month in a row, led by food. Still, at 40%, the country’s yearly inflation remains one of the highest in the world.
Commodities and Currencies:
- Gas prices jumped by 5% after the Trump-Zelenskiy debacle on Friday dampened hopes for a rapid peace deal and the resumption of gas flows to Europe.
Crypto:
- BTC, ETH, SOL, ADA, and XRP went up by more than 10% on Sunday after being included in the crypto strategic reserves. However, this sharp rise was reversed the next day, wiping out all profits in what is starting to look like a classic ‘Trump’s Pattern.’ — up-on-hopes-down-on-tariffs.
The State Of Markets: Mixed, with the surging EU defense sector and American equities dropping due to tariffs and slowing manufacturing.
Comment: Patriots Tax.
Economically, Trump’s policies might also be viewed as imposing a ‘patriots’ tax’ on the country’s consumers and entrepreneurs in the services sector, which was burgeoning during the period of external trade liberalization, while manufacturing activity migrated to countries with the lowest production costs, according to David Ricardo’s law of comparative advantage.
Now, with ‘America First’ taking over Washington, economic considerations have given way to political and military ones. These considerations require asserting American political influence over both foes and allies by weaponizing trade and forcing American corporations to re-shore for the sake of ‘national security’ and to further bolster voter support in the country’s few remaining industrial regions.
As this policy is grossly ‘anti-economic,’ it imposes a huge tax burden on consumers and decreases the international competitiveness of the remaining 75% of the American economy, effectively imposing on it a ‘military tax.’
Basically, megalomaniacal autocrats on both sides of the world now tell both consumers and entrepreneurs that they have to shut up and pay the bill for their countries’ ‘self-sufficiency’ and military readiness at the expense of their own households and businesses.
On Tuesday, equities are predominantly down as the trade war escalates, with China’s and CaMex’s tariffs taking effect today. Meanwhile, Tesla reported a 50% sales drop in China. The Economic Optimism Index, which was at a three-year high in December, continues to decline, with personal finance and general economic perceptions remaining low, while another main component, which measures consumer confidence in federal economic policies, has stayed in the pessimistic zone for the fourth consecutive year. Treasuries fell as traders anticipate a change in the Fed’s staunch anti-inflationary stance in light of the rapidly deteriorating economy.
World’s Markets:
- European stocks are in the red after the trade war started, particularly impacting the auto sector with Mexico’s hubs and banks exposed to American credit, while defense equities continued to perform well. The EU unemployment rate, which reached over 8% during the lockdown and has steadily declined since 2022, stayed unchanged at 6.2% for the second month.
- Meanwhile, the list of smaller countries benefiting from the trade war continues to expand, as Colombia’s agricultural exports — 30% of which go to America — surged by more than 40% in one month.
- South Africa’s GDP grew marginally, mostly due to agricultural sector expansion, nearly entering a recession after a decline in the previous quarter.
- Indian stocks are down for the third straight session, led by tariff-sensitive sectors such as consumer goods, auto, and pharmaceuticals.
Commodities and Currencies:
- The Japanese yen strengthened to a five-month high as investors sought refuge in untariffed safe-haven assets. Cotton prices plummeted after China included it in the retaliatory tariffs list. Natural gas prices continue to climb higher, and gold approaches an all-time high once again. At the same time, oil and the dollar continue to decline amid the expectation that the trade war will trigger a global recession.
Crypto:
- BTC, SOL, ADA, and ETH remain suppressed as traders continue to actively de-risk in response to sharply rising economic calamities and geopolitical tensions.
The State Of Markets: Down, with the exception of defense stocks, equities on all continents are falling as investors liquidate positions, going into gold, anticipating the start of the global trade war.
On Wednesday, stocks rebounded on tariff concessions as businesses abruptly slowed down hiring while private sector growth dropped to a 15-month low.
World’s Markets:
- Economic activity in Europe remained steady for a second month, with the exception of France, which continues to decelerate, and Germany, which lingers on the edge of recession. At the same time, job cuts accelerated across the EU, and producer prices jumped to a two-year high as energy costs rose drastically.
- Brazilian equities are up on anticipated tariff easing.
- The Indian market is flat supported by China’s growth.
- Chinese stocks are in the green as the CCP maintains its growth target of approximately 5%.
Commodities and Currencies:
- The dollar is down as gold nears an ATH amid continuing de-risking.
Crypto:
- BTC, SOL, and ETH rebounded alongside stocks, while ADA is lagging on rumors that Hoskinson was left out of the White House Crypto Summit.
The State Of Markets: Mostly Up, markets corrected on technicals added by tariffs’ relief.
On Thursday, equities are in deep red, falling to a four-month low as job cuts skyrocketed to 170K — the highest monthly total since 2009 — with 62K government workers laid off by DOGE, followed by retail (39K) and tech (14K). Additionally, the trade deficit reached a new record of -131B due to tariffs, with imports surging to an ATH of 400B, primarily for metals, pharmaceuticals, and computers.
World’s Markets:
- The ECB cut its rate to 2.65 from 2.9, as expected. It also projected inflation at 2.3% in 2025 and 1.9% in 2026, with GDP growth projected at 0.9% (2025) and 1.2% (2026). EU retail sales continued to slow, while construction activity — especially residential — dropped the steepest in three months, led by France. EU stocks are up on tariff relief, led by autos.
- Brazilian equities are mixed, while Indian equities are rising on relief from levies.
- Chinese stocks are also rising, driven by tech, including a 9% surge in Alibaba prices due to AI development, supported by the People’s Congress focusing on innovations.
Commodities and Currencies:
- The dollar slipped but then recovered a bit on technicals, remaining under pressure from slowing economic growth and tariffs.
Crypto:
- BTC, SOL, and ETH are down following stocks, with ADA leading the way with an 8% drop.
The State Of Markets: Mixed, with America’s equities continuing to fall due to tariffs and an economic slowdown, EU stocks are rising on defense spending, while Asian markets are in the green due to a renewed tech rally.
On Friday, stocks rebounded on Powell’s remarks about the strength of the economy despite unemployment rising to 4.1%, while it jumped to 8% (from 7.5%) — the highest since October 2021 if part-timers are counted.
World’s Markets:
- The EU economy grew by 1.2% YoY in Q4 — the fastest since 2023 — driven by growing consumption, led by Spain and followed by France and Italy, while German GDP shrank. EU stocks closed lower under the weight of the banking and retail sectors.
- The Brazilian economy showed growth of 3.4% in 2024 — the best since 2021 — but decelerated on a quarterly basis across both industry and services. Meanwhile, the country’s trade balance turned to a deficit due to plummeting resource exports and a 30% jump in manufacturing imports. Markets reacted with a decline but then rebounded on technical factors.
- Indian stocks remained unchanged, but capital flight continues.
- Chinese equities closed lower as exports dropped more than expected due to the trade war.
Commodities and Currencies:
- Oil prices increased after Trump threatened to impose sanctions to stop the war. The dollar remains near a 4-month low after five days of decline — the longest streak in a year. Gold is trading near its ATH. Food prices increased globally, led by sugar and dairy products.
Crypto:
- BTC, ETH, and SOL continued to fluctuate within a converging triangle, with bearish traders’ sentiment prevailing after “Trump’s tariffs crush.
The State Of Markets: Mostly Down, with American equities experiencing a technical correction upward, also helped by Powell’s remarks, despite worsening macroeconomic conditions, while the rest of the world’s markets either declined or stalled due to the trade war.
On Week 11, investors will monitor domestic inflation, job openings, and consumer sentiment, UK GDP, and Germany’s trade balance. Canada’s rate decision, China’s CPI, and India’s inflation will also be key, alongside industrial data from Turkey and the Euro Area.
Comment: Well-Wishing Horseman Of Apocalypse.
If the plan of the White House is to cause a full-scale recession by crushing the markets and increasing inflation in order to spark the ‘American ingenuity,’ which then will make ‘America Great Again,’ this plan might be called Apocalyptic. Here’s why.
To have a breakthrough on a country level, there must be preliminary conditions that will make it possible. The number of those conditions is very limited: sheep, educated and very productive labor, an abundance of readily available and easily accessible natural resources, a regulatory environment with very low taxes and the absence of bureaucratic barriers for entrepreneurship, an increasing uninterrupted flow of investments, and, most importantly, very large and growing markets (external or internal) that will be able to consume all produced products and services.
At present, none of those conditions are present in America. Labor is very expensive, easily available resources are very limited, and their extraction is very costly. The regulatory environment is very complex and non-inviting, especially for SMEs. Internal consumption is only 50% of national GDP, so it will be necessary to open external markets to boost current GDP further, which is not possible due to a growingly hostile geopolitics. The only readily available factor is investments, but if the current Administration intends to crash stocks, this resource will be depleted. The notion that DOGE will free SMEs from regulation has not yet been realized and, by the look of it, won’t be realized soon.
So, if the current Washington Administration’s plan is, indeed, to orchestrate the recession (I am not sure if that is true or not) to ‘clear the field’ for genius entrepreneurs, it might be compared to the plan of Emperor Nero, who burned the Rome to free places for his new edifices and, of course, to amuse and immortalize himself at the same time.
