MARKET WRAPS

Stocks:

Indexes fell Tuesday as investors processed all the implications of the latest U.S. trade tariffs and international retaliatory moves.

Swissquote Bank said a 25% tariff is expected to hit European imports in the foreseeable future, and investors have been nervous since Monday.

Andrew Wilson, deputy secretary-general of the International Chamber of Commerce, warned that the tariff war risks dragging the world into a new Great Depression .

Yet some analysts see China's response so far more as posturing, rather than a move that could lead to significant disruptions to the wider U.S. economy.

The lack of Chinese measures against tech or industrial products might suggest some holding back to avoid an all-out escalation, according to IG.

U.S. Markets:

Stocks looked set to open higher, suggesting investors had been expecting a stronger global retaliation to Trump's latest tariffs.

"There is still some market doubt as to whether all these tariffs will persist for a prolonged period of time...But we are clearly into unprecedented territory," Deutsche Bank said.

Markets were relieved that China and Canada "haven't gone further--so far," it added.

Forex:

The prospect of increased European defense spending is unlikely to provide a significant boost to eurozone growth or the euro, ING said.

Instead, softer U.S. economic data and increased Fed rate-cut expectations have largely driven the euro's recent appreciation against the dollar and the currency's outlook is a "tough call" but looming tariffs are a "real threat to an open economy such as the eurozone."

The dollar fell on concerns that Trump's trade policies could hurt U.S. economic growth, Deutsche Bank said.

The dollar has previously tended to rise in reaction to tariffs on expectations that such policies could lift inflation and limit U.S. rate cuts.

However, there's been an apparent broader shift in market perspectives on tariffs, with the focus moving towards the negative implications for growth, and this has boosted Fed rate-cut expectations, it said.

Bonds:

Eurozone government bond yields fell, reversing from Monday's rises triggered by a beat in February's flash-estimate inflation data.

U.S. activity might suffer more from the impact of Trump's policy in the short term than initially expected, favoring short-dated Treasurys , Natixis said.

It's one of a few reasons why it makes more sense to favor the short-end of the U.S. curve (2-year) than the intermediate/long end, it said.

Meanwhile, market pricing of the Fed's rate path should play only a limited role for long-dated Treasurys for now.

The 10-year Treasury-Bund yield spread broke below 170 basis points Monday, its narrowest since early October.

"Those Treasury gains were in contrast to the broader softness seen across developed markets govvies [government bonds] yesterday, with both Gilts and Bunds selling off aggressively, as the respective 10-year benchmarks both rose over 10 basis points intraday," Pepperstone said.

This comes as the market braces for a sizable increase in defense spending and ramping up of issuance to fund it, it added.

Two-year Treasurys have room to rally , Natixis said, forecasting the 2-year Treasury yield to reach 3.85% at the end of the year.

In contrast, it expects the 10-year Treasury yield to hover around Natixis's year-end target of 4.50%, with some volatility.

UOB said the 10-year Treasury yield could fall below the key support area between 3.980% and 4.060%, according to the weekly chart.

Energy:

Oil prices extended losses after news that OPEC+ will start raising output in April, combined with the new U.S. tariffs, raised fears of global economic hits and diminished crude demand.

OPEC+'s decision "is motivated by the market pivoting from a strategy wherein OPEC+ had supported prices to a more long-run equilibrium wherein OPEC+ defends market share," MUFG said.

"The negative price reaction has been further exacerbated by the risk-off mood triggered by the U.S.-led escalations in the trade war."

Meanwhile the suspension of U.S. military aid to Kyiv raises further uncertainty over the future of peace talks following his clash with Ukrainian President Volodymyr Zelensky.

Goldman Sachs agreed that OPEC+'s decision reflects a shift in strategy to regain market share .

It forecasts Brent crude to average $78 and $73 a barrel in 2025 and 2026, respectively, and WTI at an average of around $74-$68 a barrel in the same periods.

DNB Markets said Brent crude was expected to dip below the $70-a-barrel mark if OPEC+ doesn't quickly change its course.

"There is no room for additional OPEC+ oil in the market," it said, adding that, "This marks a shift in OPEC+ behavior. Whether this move was triggered by pressure from President Trump and/or expectations of declining Iranian oil export amid tighter sanctions is not yet clear."

Metals:

Gold futures rose reflecting the highest levels of uncertainty this year in the U.S. market, XS.com said.

Lithium Outlook

A lower cost curve should make it harder for lithium to rally and instead lead to flat prices in the absence of any more meaningful supply cuts, Morgan Stanley said.

Copper Outlook

While the copper market is clouded by uncertainty over potential tariffs, the metal's outlook is positive , according to UBS.

That's due to limited mine-supply growth, a potential developed-world manufacturing recovery, strong structural demand from electrification and low inventories.

EMEA HEADLINES

EU Chief Offers Member States Urgent Plan to Boost Defense Spending

European Commission President Ursula von der Leyen said she is offering the bloc's member countries an urgent plan to encourage them to quickly ramp up security and defense investments, hours after President Trump ordered a freeze on military aid to Ukraine.

One element includes triggering an escape clause in EU law that suspends certain adjustments countries need to make to reach fiscal targets during an economic crisis. The EU president said this would allow member states to "significantly increase defense spending" and make it easier to provide urgent military equipment to Ukraine.

Aramco Expects Lower 2025 Dividend After Net Income Fall

Saudi Arabia's national oil company Aramco said it expects to pay lower shareholder returns in 2025 after a fall in net profit last year.

Saudi Arabian Oil Co., known as Aramco, said net income for 2024 fell to $106.2 billion from $121.3 billion in 2023.

Thales Raises Dividend After Earnings Rise

Thales raised its dividend after reporting an increase in earnings which exceeded expectations, as orders over the course of last year rose.

The French aerospace-and-defense company on Tuesday said that it made 1.42 billion euros ($1.49 billion) in net profit last year, compared with 1.02 billion euros a year prior, on sales which grew 12% on year to 20.58 billion euros. On an organic basis, sales grew 8.3%.

Kuehne + Nagel Shares Slip After Disappointing Quarter for Sea Logistics

Kuehne + Nagel shares fell Tuesday as earnings at the freight forwarder's sea logistics business disappointed investors and dragged on the group's overall profitability.

Sea logistics had a rise in fourth-quarter earnings as it benefited from continued efforts to manage costs. But volumes fell and profitability per container that it shipped declined from the third quarter, leaving earnings at the unit shy of forecasts.

GLOBAL NEWS

China Retaliates Against U.S. With Tariffs, Controls on U.S. Companies

China hit back at the U.S. with a slate of retaliatory measures in response to the Trump administration's latest tariff increase, escalating a trade war between the world's two largest economies.

The coordinated action across government bodies-including a series of new tariffs on American products as well as controls on U.S. companies-was announced just as the White House's additional 10% levy on all Chinese products came into effect.

Asia's Defense Stocks Climb on Hopes of More European Arms Spending

Defense stocks in key Asian markets jumped on Tuesday, buoyed by expectations that European nations will boost security spending amid fears that the U.S. could reduce its military presence.

The rally in Asian defense stocks, following the advance by European peers overnight, came as European leaders met over the weekend and pledged to boost military spending to help deter further Russian aggression in Ukraine. The special London summit on Sunday followed the rift between Presidents Trump and Volodymyr Zelensky over the U.S. push to end the war in Ukraine.

U.S. Pauses All Military Aid to Ukraine

The U.S. will pause all military aid to Kyiv until President Trump determines that Ukrainian President Volodymyr Zelensky is making a good-faith effort toward peace negotiations with Russia, according to a White House official.

"The president has been clear that he is focused on peace. We need our partners to be committed to that goal as well. We are pausing and reviewing our aid to ensure that it is contributing to a solution," a White House official said in a statement.

Trump Tariffs Usher in New Era of Protectionism

The U.S. economy entered a new era at 12:01 a.m. Tuesday, as President Trump's tariffs on imports from Mexico and Canada took effect. The new tariffs on imported goods ended decades of free trade among the three countries, and stood to disrupt entire industries.

The 25% tariffs will be levied on imports from Mexico and Canada, with the exception of energy products such as crude oil and natural gas, which will be tariffed at 10%. Canada said it would impose retaliatory tariffs.

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(END) Dow Jones Newswires

March 04, 2025 05:19 ET (10:19 GMT)

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