(Reuters) The tone for financial markets was set by U.S. President Donald Trump's broad tariffs on Mexico, Canada, and China over the weekend, upcoming U.S. jobs data, and an evaluation of the new AI landscape prior to the corporate results of big tech corporations.
European lenders will also release their findings, and the Bank of England will make a judgement on interest rates.
This week's global market outlook is provided by Tommy Wilkes and Amanda Cooper in London, Saqib Ahmed and Lewis (JO:LEWJ) Krauskopf in New York, and Kevin Buckland in Tokyo.
1/T DAY
Everyone is assessing the possible effects of Trump's tariffs, including foreign powers, Fed officials, bond investors, and currency speculators.
Trump announced on Saturday that he will put 10% tariffs on Chinese goods beginning on Tuesday and 25% tariffs on Mexican and the majority of Canadian imports.
Canada has threatened to impose 25% tariffs in retaliation for $155 billion worth of American goods. China has promised countermeasures, while Mexico has stated that it intends to impose reciprocal duties.
As China returns this week from Lunar New Year celebrations, markets will be watching the response from the second-largest economy in the world.
Investors in Europe are also reconsidering the idea that higher trade conflicts might be prevented.
Secondly, should I go or should I stay?
The February 7 monthly U.S. jobs data comes as investors evaluate the likelihood of additional interest rate reduction and the potential for the labour market to be drastically altered by the new policies of the Trump administration.
Treasury yields skyrocketed after December's blowout jobs report cast doubt on the Fed's ability to further loosen monetary policy. Market concerns were allayed by encouraging inflation data, but a strong January jobs report might reverse that.
Fed Chair Jerome Powell stated that until inflation and employment indicators warrant it, he is not in a rush to lower interest rates once more.
Trump's labour market policy, which includes a crackdown on immigration and plans to reduce the federal workforce—with the White House providing financial incentives to 2 million federal employees to resign—is the major uncertainty, though.
3. TECH-TONIC CHANGES
Investors now have a fresh viewpoint to think about after years of speculating about what might eventually slow the AI-investment steamroller: the rise of China's AI phenomenon DeepSeek, which has challenged preconceived notions about the amount of money and processing power required to develop cutting-edge models. The stock of Nvidia (NASDAQ:NVDA) suffered a historic decline in market value as a result of this change. However, DeepSeek is also casting doubt on the competitive advantages of the top seven tech stocks, known as the Magnificent Seven, and undermining the overall dominance of American technology. Investors will have the opportunity to assess if the current turbulence in the AI market is a sign of impending difficulties or a chance to reinvest in this quickly expanding industry when Mag 7 members Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) release their earnings results on Tuesday and Thursday, respectively.
FOR A SQUEEZE, 4/IN
With fourth-quarter results from French lenders BNP Paribas (OTC:BNPQY), Societe Generale (OTC:SCGLY), and Credit Agricole (OTC:CRARY), as well as Switzerland's UBS and Spain's Santander (BME:SAN), European bank profits are picking up speed this week.
With the support of booming investment banking revenues, most lenders should still have extracted enough additional cash from rising interest rates to increase their profits and sustain a two-year share price rally. Investors will keep an ear out for any indications that a recent surge in deal-making is not yet over.
But there are still obstacles to overcome. As the U.S. economy continues to grow, there is economic weakness at home, and falling interest rates put pressure on the gap between what banks make on loans and what they pay on deposits.
Deutsche Bank (ETR:DBKGn) of Germany raised some eyebrows when it announced a steep decline in profits and abandoned a crucial cost target, which caused its stock to plummet.
5. CHOICE TIME
To determine interest rates, the Bank of England will meet on Thursday. Economists tend to believe that a quarter-point decrease is likely, but markets aren't quite pricing it in yet.
Data from the UK is deteriorating; several employment indicators indicate that the labour market is showing cracks, and consumer spending unexpectedly decreased over the crucial holiday shopping season. The BoE anticipates that growth will flatline in the final quarter of 2024, as it did in the third.
Despite promises by Finance Minister Rachel Reeves to boost growth, a number of institutions predict that the British economy would struggle to grow by even 1% this year.
Additionally, earlier this month's bond market volatility caused the government's 10-year borrowing prices to reach their highest level since 2008. Although they have since dropped, gilt yields are still uncomfortably higher than 4.5%, more than in any G10 economy except New Zealand.
(Additional reporting by Dhara Ranasinghe; compilation by Karin Strohecker; editing by Frances (BCBA:BBARm) Kerry and Bernadette Baum; graphics courtesy of Sumanta Sen, Vineet Sachdev, Prinz Magtulis, and Kripa Jayaram.)
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