Take Two: ECB cuts interest rates; markets hit by tariff concerns
- 10 March 2025 (3 min read)
What do you need to know?
The European Central Bank (ECB) cut its key deposit rate by 25 basis points (bp), bringing borrowing costs down to 2.50%, as inflation eased further across the bloc. The move was widely anticipated by markets and ECB policymakers said that monetary policy was becoming “meaningfully less restrictive”. Eurozone inflation slowed to 2.4% in February from 2.5% in January, a flash estimate revealed. The figure came in slightly above expectations of 2.3% but marked a move closer to the ECB’s 2% target. Core inflation, excluding more volatile food, energy, alcohol and tobacco prices, slowed to 2.6% from 2.7%, its lowest level since 2022.
Around the world
Markets endured another bout of volatility last week as investors grappled with US President Donald Trump’s latest tariff announcements and broader concerns about the US economy. Markets fell at the start of the week as the delayed 25% tariffs on Canada and Mexico went live and an additional 10% levy was placed on China. Canada and China responded by imposing retaliatory tariffs on the US; however, Trump later delayed tariffs on certain Canada and Mexico goods until April. Over the week to Thursday’s close, the MSCI World Index was 1% lower, while the S&P 500 index was down 2%. However, the Eurostoxx 600 index gained 4%, responding to a significant loosening of the longer-term fiscal outlook for Germany – and more broadly across the Eurozone.1
Figure in focus: 52.0
Japanese business activity expanded in February, reflecting a stronger increase in private sector activity, according to the latest Purchasing Managers’ Index (PMI). The composite PMI, which includes manufacturing and services data, rose to 52.0 from 51.1 in January – a reading above 50 indicates expansion. Elsewhere, the US composite PMI fell to 51.6 from 52.7 - the lowest reading since April 2024 and the second consecutive fall. The US’s decline was in part due to a decrease in services activity to 51.0 – the slowest rate of expansion since November 2023.
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Words of wisdom
Two Sessions: The annual meetings of the Chinese People’s Political Consultative Conference and the National People’s Congress which are held concurrently. The sessions began last week and continue this week, offering insights into the Chinese Communist Party’s legislative agenda. China announced its 2025 GDP target of “around 5%”, in line with 2024, alongside fresh stimulus measures aimed in part at boosting consumption. However, many economists consider the 5% growth target ambitious considering the additional US tariffs and entrenched weakness in China’s domestic economy. AXA IM expects 4.5% growth this year, despite the increased stimulus.
What's coming up?
On Tuesday, Japan issues its final estimate for fourth quarter (Q4) GDP growth. The US publishes its latest inflation data for February on Wednesday, while the Bank of Canada meets to set monetary policy; at its January meeting, policymakers chose to cut rates by 25bp to 3%. On Thursday, the Eurozone publishes industrial production figures, and the UK follows with January’s GDP data on Friday.
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