Monthly Market Report – February 2025

The new tariffs announced by Trump, the election outcome in Germany, and the imminent peace deal in Ukraine have driven market volatility higher in February.

Donald Trump’s repeated comments about imposing new tariffs were one of the key market drivers in February. Initially, they were seen as a negotiation tool for new trade agreements, allowing markets to overlook their negative economic impact. However, in the second half of the month, this perception shifted, turning tariffs into a negative catalyst for stock markets.

The list of tariffs announced in February includes:

  • A 25% tariff on steel and aluminum.
  • The announcement of reciprocal tariffs (the U.S. will match all tariffs currently imposed on its exports).
  • A 25% tariff on European goods, particularly automobiles.

Another major event this month was the outcome of the German elections and its impact on the country’s debt ceiling. The victory of the center-right CDU party and the decline of the Social Democratic Party (SPD) of Chancellor Scholz were confirmed. However, the most significant factor was the result of the far-right AfD party. The rise of fiscal policies and their effect on Germany’s debt levels will be key factors to monitor in the coming weeks.

On the macroeconomic front, inflation figures once again saw a slight uptick. U.S. inflation stood at 3.0%, above the expected 2.9%. The European equivalent followed the same trend, reaching +2.5%, above both the previous and forecasted +2.4%, marking the fourth consecutive inflation increase.

In equities, the performance gap between Europe and the U.S. widened significantly. The S&P 500 ended February in negative territory, bringing its 2025 return to +1.24%, while the European Euro Stoxx 50 rose in February, accumulating an +11.59% return for the year. Two key reasons stand out:

  • Expectations of a peace agreement between Ukraine and Russia. Additionally, value stocks in Europe are outperforming growth stocks in 2025.
  • The "Magnificent 7" were clear detractors of returns, with NVIDIA down (-11.49%) and Tesla (-10%).

The U.S. fixed-income market performed well in February. The 10-year U.S. Treasury yield hit a low of 4.19%, driven primarily by ongoing comments from the U.S. Treasury regarding deficit and debt control.

In contrast, European bond curves were more volatile, lacking a clear direction. The German 10-year benchmark closed the month with a yield of 2.38%, slightly below its initial level of 2.45%.

Finally, the EUR/USD exchange rate ended February with little overall change despite significant fluctuations. The pair hit a low of 1.015 before rebounding to 1.053. Meanwhile, WTI crude oil posted its second consecutive negative month (-3.64%), closing at $67.22 per barrel.

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