Morning Brew March 4 2025

Good morning,

are we witnessing the end of the post WW2 era right now?

The trade war has begun, with a 25% tariff on goods from Mexico and Canada and an additional 10% on Chinese goods. Retaliatory measures were announced immediately. At the same time, the Atlanta Fed's real-time GDP estimate signalled a dire warning by forecasting a GDP slump of 2.8% in the US this year. The February ISM Manufacturing PMI was disappointing, with the main figure coming in at 50.3, below the expected 50.8.

Jacob took a look at the European defence industry after yesterday's rise, which is of particular interest as the US pauses military aid to Ukraine:

European defense stocks: More ammunition left or out of firepower?

Key points:

• Long-term opportunity: The European defense sector is not just experiencing a short-term rally but may be at the start of a structural bull cycle, driven by increased military spending in Europe and strategic policy shifts toward greater defense autonomy.
• Balanced investment approach: A diversified approach can help investors manage risks while gaining exposure to the potential growth of the defense sector.
• Stay cautious: While the growth potential is strong, the theme is already up significantly, raising the question of how much longer this momentum can last amid high valuations and geopolitical risks.

On receiving the the news yesterday, markets showed nerves, and equities traded lower immediately. We are at technically interesting levels, with Nvidia now below the 200-day moving average for the first time in 2 years, and Tesla is basically right on that level. Given that Tesla is an easy target for retaliatory tariffs, the stock will be in focus.

Indexes lost: the Dow -1.5%; the S&P -1.75%; and Nasdaq -2.6%. Nvidia fell -8.25%, Tesla -2.9%, and global indexes are also lower, with the GER40 at 22,915 and the Japan 225 at 37,400 or -1.3%. The VIX jumped higher to above 24.

Gold and silver rose yesterday and are little changed after the tariffs. Gold is at 2,891, and silver at 31.68. US 10-year yields are at 4.14 due to recession fears, and the USD Index fell to 106.50. EUR/USD is at 1.0490, GBP/USD at 1.27, and USD/JPY at 149.20. Oil prices hit their lowest this year as OPEC+ plans to raise production, with WTI falling 2%. Crypto faded as quickly as it rose, with Bitcoin now at 83,700, below Friday's level.

Looking ahead, I expect almost all short-term focus to be on the trade war and the European support of Ukraine. Retaliatory measures by China, Canada, and Mexico are coming up, and only now will the impact of the tariffs become clearer. Inflation in the US is likely to jump significantly, hitting where it hurts. Reuters estimates that 2.2 trillion USD worth of goods are affected by the tariffs, meaning the tariffs will amount to approximately 500 billion USD of additional cost to consumers.

Charu wrote a great guideline for sleeping well despite uncertain markets. Traders usually enjoy volatility more than investors, so for them, times are great anyway!

Staying ahead without losing sleep

Reacting to every headline is exhausting, but ignoring risks isn’t an option. Here’s how to stay invested without the stress:

1. Focus on fundamentals, not headlines

Markets swing, but strong businesses adapt. Instead of chasing every move, focus on earnings, consumer demand, and central bank policy.

2. Think Like a business, not a trader

Companies adjust to uncertainty by shifting supply chains and passing on costs. Investors should do the same – look for adaptable sectors.

3. Hedge against uncertainty, but stay balanced

Gold, Treasuries, and European defense stocks offer stability, but too much can limit long-term growth potential. The key is balance.

4. Accept that uncertainty is the new normal

Waiting for “clearer” conditions can mean missed opportunities. Markets always have risks, but discipline wins over time. If worried about volatility, consider dollar-cost averaging (DCA) to manage risk.

Tuesday, March 4, 2025

• Australia Current Account
• Eurozone: Unemployment Rate (Jan).
• Earnings: Target, Best Buy, On, Crowdstrike,

   

  Wednesday, March 5, 2025

• Japan & China PMI
• U.S.: ADP Employment Report (Feb), Factory Orders (Jan), ISM Non-Manufacturing Composite (Feb)
  • Earnings: Abercrombie & Fitch, Footlocker, Marvell, Victoria`s Secret,

Thursday, March 6, 2025

• Eurozone: Retail Sales (Jan), ECB Meeting.
• U.S.: International Trade & Initial Jobless claims

          •       Canada: Productivity (Q4).

• JD.Com, Kroger, Macy`s, Broadcom, Costco,

Friday, March 7, 2025

        •       U.S.: Employment Report (Feb), Consumer Credit (Jan).

        •       Canada: Employment Report (Feb), Capacity Utilization (Q4).

        •       Eurozone: GDP Final (Q4).