Stocks Struggle Amid Tariff Uncertainty and Anticipated Economic Data

Latest tariff developments have injected caution into the market, with stocks exhibiting weakness. Traders await key inflation data and testimony from Federal Reserve Chair Jerome Powell this week.

Global Markets

The European Stoxx 600 index remained stable, while futures contracts for the S&P 500 and Nasdaq 100 declined. Asian equity gauges also fell, dragged down by Hong Kong and mainland China shares. Gold reached a fresh record high, while the US dollar index maintained gains since Monday's announcement of tariffs on steel and aluminum imports.

Investor Concerns

Investors express uncertainty over the potential consequences of President Trump's tariffs on global trade, corporate earnings, and inflation. Despite the implementation of tariffs on China, the uncertainty surrounding further levies raises concerns about retaliatory actions that could escalate a global trade war.

Asset Allocation

Goldman Sachs' Christian Mueller-Glissmann recommends seeking assets that can provide protection, given the increased difficulty in navigating the specific tariffs.

Fiscal and Monetary Policy

Treasury yields witnessed a slight rise, while the British pound depreciated. Bank of England's Catherine Mann emphasized that weak demand is outweighing inflation risks.

Economic Data and Federal Reserve

Investors will monitor the release of inflation data this week, as well as Chair Powell's congressional testimony. According to the New York Fed's Survey of Consumer Expectations, expected inflation rates over the next year and three years remain unchanged at 3%.

Asian Markets

China's equity market experienced whipsawing trade following a rally earlier this year driven by tech stock demand. BNP Paribas' Jason Lui highlights the role of DeepSeek, a Chinese AI alternative, in the recent surge but notes the potential impact of upcoming policy announcements during next month's National People's Congress.

Oil and Trade Escalations

Oil prices have risen after shrinking Russian production eased concerns over a surplus. Deutsche Bank strategists warn that the resilience of stocks despite tariffs may entice further trade escalations, leading to equity pullbacks. They recommend a similar playbook as that employed during geopolitical shocks, which typically results in sharp but short-lived selloffs with eventual recovery.

Market Outlook

UBS Wealth Management's Hartmut Issel suggests a diversified allocation including US stocks, high-grade bonds, and gold to mitigate tariff risks.

Key Events This Week

* Tuesday: Fed Chair Powell testifies before Senate Banking Committee
* Wednesday: US CPI release, Fed Chair Powell testifies before House Financial Services panel
* Thursday: Eurozone industrial production, US initial jobless claims and PPI
* Friday: Eurozone GDP, US retail sales, industrial production, and business inventories

Market Moves

* Stoxx Europe 600: Little change
* S&P 500 futures: -0.3%
* Nasdaq 100 futures: -0.4%
* MSCI Asia Pacific Index: -0.4%
* Brent crude: +0.9%
* Gold: +0.2%