Job Data Disappoints with Tariff Uncertainties (10-14 March)

The dollar index fell for the fifth straight session, hitting a four-month low of 103.7, as tariff uncertainties and economic concerns weighed on sentiment.

While Trump suspended 25% tariffs on Mexican and Canadian goods, uncertainty persists. Traders now await the jobs report to assess labor market strength.

The euro surged past $1.085, on track for a 4.6% weekly gain, its best since 2009. The rally was fueled by Germany’s fiscal reforms, a cautious ECB stance, and a weaker dollar amid trade war fears. The ECB cut rates by 25bps and hinted at a less restrictive policy.

The yen strengthened above 148 per dollar, a five-month high, on safe-haven demand driven by global trade tensions. Japanese bond yields rose on BOJ rate hike expectations, with Deputy Gov. Uchida signaling a gradual exit from monetary easing.

The pound climbed above $1.28, supported by a weaker dollar and expectations of elevated UK interest rates. Sterling also gained on potential US-UK trade deals avoiding new tariffs and UK plans to boost defense spending, funded by development budget cuts.

Fixed Income

Bond markets saw high volatility. Germany’s debt ceiling increase pushed 10-year bond yields up 20%. U.S. 10-year Treasury yields rose 1.5%, while Japan’s 10-year bond yields hit 1.55%, a 15-year high.

EU CPI (Jan)

Eurozone inflation fell to 2.4% in Feb 2025 (Jan: 2.5%), slightly above the 2.3% forecast. Service (3.7% vs. 3.9%) and energy inflation (0.2% vs. 1.9%) eased, while unprocessed food (3.1% vs. 1.4%) and non-energy goods (0.6% vs. 0.5%) rose slightly. Core inflation fell to 2.6%, the lowest since Jan 2022, but still above the 2.5% estimate.

S&P Global Manufacturing PMI (Feb)

The US Manufacturing PMI rose to 52.7 in February 2025, exceeding the 51.6 estimate and January’s 51.2, marking the strongest expansion since June 2022. Growth was partly driven by preemptive purchasing ahead of expected tariff-related price hikes and supply disruptions. Output hit its fastest pace since May 2022, and new orders saw their biggest jump in a year, though job creation slowed. Input cost inflation reached its highest since Nov 2022, and output charge inflation hit a two-year peak, reflecting early supplier price increases.

ISM Manufacturing PMI (Feb)

The US Manufacturing PMI climbed to 52.7, beating the 51.6 forecast and January’s 51.2, marking the strongest growth since June 2022. Expansion was partly driven by preemptive purchases ahead of tariffs. Output grew at its fastest pace since May 2022, and new orders hit a one-year high, though job creation slowed. Input cost inflation reached a 15-month high, and output charge inflation hit a two-year peak, signaling supplier price hikes in anticipation of tariffs.

ADP Nonfarm Employment Change (Feb)

Private businesses added 77,000 jobs in February 2025, the smallest gain in seven months, sharply below January’s revised 186,000 and the 140,000 forecast. The service sector added 36,000 jobs, led by leisure and hospitality (+41,000), business services (+27,000), and financial services (+26,000), while trade (-33,000), education and health (-28,000), and information (-14,000) saw losses. The goods sector gained 42,000 jobs, with construction (+26,000) and manufacturing (+18,000) offsetting natural resources and mining losses (-2,000).

S&P Global Services PMI (Feb)

The US Services PMI fell to 51 in February from 52.9 in January but was revised up from the initial 49.7 estimate. Despite the revision, it marked the slowest services growth since Nov 2023. Business activity weakened due to tariff-related uncertainty, leading to a second straight month of declining export demand. New order slowdown prompted job cuts for the first time in three months. Tariff concerns also dampened business confidence, sending sentiment to its lowest since Sept 2024.

ISM Non-Manufacturing PMI (Feb)

The ISM Services PMI unexpectedly rose to 53.5 in February 2025, up from 52.8 in January and exceeding the 52.6 forecast, signaling accelerated growth in the services sector.

Key components expanded for a third straight month—the first time since May 2022—including business activity (54.4 vs. 54.5), new orders (52.2 vs. 51.3), employment (53.9 vs. 52.3), and supplier deliveries (53.4 vs. 53). Inventories (50.6 vs. 47.5) and backlog orders (51.7 vs. 44.8) rebounded, while price pressures increased (62.6 vs. 60.4).

Steve Miller, Chair of ISM, noted that business activity slowed slightly, but gains in other subindexes offset the decline. However, tariff concerns and federal spending cuts continue to weigh on business sentiment.

Deposit Facility Rate (Mar)

European Central Bank reduced interest rates by 25 basis points as expected during its February 2025 meeting, marking the fifth consecutive cut. This adjustment brought the key deposit rate down to 2.5%, the lowest level recorded since February 2023.

Initial Jobless Claims

For the week ending March 1, initial jobless claims fell by 21,000 to 221,000, while the 4-week average edged up to 224,250. The insured unemployment rate remained at 1.2%, with insured unemployment rising by 42,000 to 1,897,000. The 4-week insured unemployment average increased slightly to 1,866,000.

Average Hourly Earnings (MoM) (Feb)

Average hourly earnings in February rose 0.3% (+10 cents) to $35.93, following January’s 0.4% increase and matching forecasts. Production and nonsupervisory workers saw wages rise 0.3% (+9 cents) to $30.89. Over the past year, earnings have increased 4%.

Nonfarm Payrolls (Feb)

The US economy added 151,000 jobs in February, up from January’s revised 125,000 but below the 160,000 forecast. Gains were led by healthcare, financial services, transportation, and social assistance, while federal employment declined by 10,000.

Unemployment Rate (Feb)

The unemployment rate rose to 4.1% (Jan: 4.0%), slightly above expectations. The number of unemployed increased by 203,000 to 7.05 million, while total employment fell by 588,000 to 163.31 million. The labor force participation rate declined to 62.4%, and the employment-population ratio dropped to 59.9%. The U-6 unemployment rate, which includes part-time and marginally attached workers, rose to 8.0% from 7.5%.

Currencies

The dollar index fell for the fifth straight session, hitting a four-month low of 103.7, its longest losing streak in nearly a year. Tariff uncertainty continues to weigh on sentiment. Trump initially imposed 25% tariffs on Mexican and Canadian goods but later exempted autos and suspended all tariffs until April 2. Traders now focus on the jobs report to assess the economy and the impact of DOGE layoffs.

The euro surged past $1.085, its highest since Nov 5, set for a 4.6% weekly gain, its best since March 2009. The rally was driven by Germany’s fiscal reforms, a cautious ECB stance, and a weaker dollar amid trade war fears. Germany’s debt brake revision allows more defense spending and a €500B infrastructure plan. The ECB cut rates by 25bps and hinted at a less restrictive policy, with traders expecting one to two more cuts this year.

The yen rose above 148 per dollar, a five-month high, as safe-haven demand increased with Trump’s tariff shifts. Concerns over the US economy pushed traders toward the yen and Swiss franc. BOJ rate hike expectations also supported the currency. Deputy Gov. Uchida indicated further rate increases, marking the beginning of Japan’s monetary tightening cycle, though bond reductions remain limited.

The pound climbed above $1.28, its highest since Nov 12, supported by a weaker dollar and expectations of elevated UK interest rates. Traders lowered BoE rate cut forecasts to 52bps for 2025. Deputy Gov. Ramsden warned that wage pressures could keep inflation high but left room for faster rate cuts if needed. Sterling gained further on Trump’s suggestion of a tariff-free US-UK trade deal, making it less vulnerable to US tariffs. Meanwhile, Germany and the UK boosted defense spending, with Britain funding it through development budget cuts.

Commodities

Gold is set to close the week with slight gains, nearing record highs. Trump temporarily suspended 25% tariffs on most Canadian and Mexican goods, but Canada's retaliatory tariffs remain, and China’s countermeasures take effect next week. U.S. labor data showed soaring layoffs (highest since 2020) but lower-than-expected jobless claims.

Silver extended its rally, surpassing $32 per ounce in early March, fueled by a weaker dollar and rising safe-haven demand. The U.S. imposed new tariffs on Canada and Mexico, along with a 10% levy on Chinese goods, raising China's total tariff burden to 20%. In retaliation, Canada introduced 25% tariffs on CAD 155B of U.S. imports, while China announced 10%-15% tariffs on select U.S. products starting March 10, alongside new export restrictions targeting U.S. entities.

Equities

U.S. stocks had a rough week, with the S&P 500 and Nasdaq down 3% for the third straight week, while the Dow fell 2.8% after a brief rebound. Nvidia plunged 18%, while Amazon, Netflix, and Meta lost 8%. Microsoft, Google, and Apple remained flat.

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