Stocks keep on falling. Opportunity is knocking?

Stocks keep on falling.

The FTSE 100 was the best performing index of the week with a 0.1% gain. Other than that, it was a fairly brutal week for the market.

British Chancellor Rachel Reeves delivered the annual Spring Statement, confirming a raft of further spending cuts. The Office for Budget Responsibility (OBR) also halved its UK economic growth forecast for 2025 to 1% and called for higher unemployment and inflation this year.

However, the OBR upgraded its economic growth projections for each year from 2026 through 2029. Also positive was the news that UK inflation came in a touch lower at 2.8% in February, down from 3% in January, keeping alive the possibility of a May interest rate cut.

On the geopolitical front, there were also encouraging developments. Early in the week, Ukrainian President Zelenskyy noted that talks between Ukraine and the U.S. had been constructive. This was followed by an announcement on Tuesday of a partial ceasefire between Russia and Ukraine, focusing on a cessation of naval hostilities in the Black Sea and the suspension of attacks against energy infrastructure.

Europe

The pan-European STOXX Europe 600 Index ended about 1.4% lower as Trump announced a fresh round of U.S. trade tariffs. This made for a disappointing week overall for European markets, which had started the week in positive territory on the back of encouraging economic updates and geopolitical news. France’s CAC 40 Index fell -1.6%, Germany’s DAX dropped even more with a decline of -1.9%, and Italy’s FTSE MIB eased -0.8%.

European stocks briefly trod water early in the week but ultimately waned after Trump announced on Wednesday new 25% tariffs on all autos and auto parts coming into the US, commencing next week. The blanket application was a worst-case outcome for Europe as hopes were that certain countries might receive an exemption. The US president subsequently doubled down, threatening further tariffs should the EU retaliate with countermeasures.

Economic and geopolitical news offer some reason for optimism. The eurozone private sector expanded for the third straight month in March. With services already in growth territory, manufacturing production increased for the first time in two years.

In Germany, the Ifo Business Climate Index rose in March, marking its highest level since July 2024. Business sentiment is trending higher following parliamentary approval of the German government's plans to increase defence and infrastructure spending.

The US

US stock indices declined during the week, largely driven by weakness in the information technology and communication services sectors, while value stocks outperformed growth shares for the sixth consecutive week. Traders noted that markets seemed to start the week “cautiously optimistic,” with relatively muted but broadly positive moves as investors focused on the possibility of the Trump administration taking a more measured approach to its next round of tariffs.

However, several new tariff announcements, including President Trump’s announcement on Wednesday of a 25% levy on all non-US-made automobiles, as well as concerns around a broader economic slowdown and weakening consumer sentiment weighed on stocks later in the week, sending major indexes into negative territory.

Adding to these concerns, the Bureau of Economic Analysis reported that its core personal consumption expenditures price index (the Fed’s preferred measure of inflation) rose 0.4% in February, up from January’s reading of 0.3%, while inflation-adjusted consumer spending rose just 0.1% compared with estimates for a 0.3% rise. On a year-over-year basis, the core PCE rose 2.8%, remaining well above the Fed’s long-term inflation target of 2%. The data release appeared to help drive stocks lower on Friday to finish the week near their worst levels.

Consumer expectations hit a 12-year low

Meanwhile, the Conference Board reported that its consumer confidence index declined for the fourth consecutive month in March to 92.9, down from February’s reading of 100.1. The expectations portion of the index, which measures consumers’ short-term outlook for income, business, and labour market conditions, dropped 9.6 points to 65.2, reaching its lowest level in 12 years and remaining below 80, which could indicate a recession ahead, for the second consecutive month. The report noted that optimism about future income “largely vanished, suggesting worries about the economy and labour market have started to spread into consumers’ assessments of their personal situations.”

Similarly, the University of Michigan released the final March reading for its Index of Consumer Sentiment, which plunged 12% month over month to 57.0. The expectations index dropped 18% as “consumers continue to worry about the potential for pain amid ongoing economic policy developments,” according to Surveys of Consumers Director Joanne Hsu. Notably, year-ahead inflation expectations increased to 5.0% from 4.3% in February. The March reading was the highest since November 2022 and the third consecutive monthly increase of 0.5 percentage points or more.

Asia

Japan’s stock markets also fell over the week, with the Nikkei 225 Index registering a loss of -1.48% and the broader TOPIX Index down -1.67%. The Trump administration’s announcement of a 25% tariff on auto imports into the US, set to take effect on April 3, weighed on the shares of Japanese carmakers and other exporters. Concerns about an escalating trade war dampened sentiment further, with the prospect of trading partners of the US imposing retaliatory tariffs. The yen weakened against the dollar to the middle of the 150 rang, from the prior week’s 149.3, on expectations that the timing of the Bank of Japan’s next interest rate hike could subsequently be pushed further out.

Japan’s Prime Minister Shigeru Ishiba said that the impact on the country’s key auto industry and the economy of the latest US tariff announcement would be “very big” (autos make up roughly one-third of Japan’s total exports to the U.S.) and that appropriate responses must be considered, with all options on the table.

Mainland Chinese stock markets ended the week little changed amid a light economic calendar and corporate earnings that generally met expectations. The onshore benchmark CSI 300 Index edged up 0.01% and the Shanghai Composite Index shed 0.40% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index declined 1.11%.

On the economics front, profits at industrial firms shrank 0.3% in the first two months of the year over the year-ago period, China’s statistics bureau reported. The contraction fell short of economists’ forecasts for an increase in industrial profits and underscored the urgency for China to bolster domestic demand amid the threat of higher U.S. tariffs. Last week, a former vice chair of China’s state economic planner said that China should seek to raise consumption to 70% of gross domestic product (GDP) by 2035 from about 55% currently. Consumption in China should increase between 5% and 8% as a share of GDP over the next five years, the official told participants at the Boao Forum, an annual global investor gathering in China, Bloomberg reported.

Boosting consumption is the Chinese government’s top economic priority for 2025 as Beijing seeks to counter rising geopolitical tensions and diminishing returns on investment at home. China recently set an annual economic growth target of about 5% for the third straight year, an ambitious goal that analysts believe will require significant stimulus.

The Week Ahead

The coming week brings the start of April and this means it’s April Fool’s Day followed by Trump’s Tariff’s Day. The irony is not lost on us.

On Monday we’ll get a UK House Price update as well as Retail Sales and CPI from Germany. Tuesday is EU CPI and US Manufacturing PMI.

Wednesday is ‘Liberation Day’. Quite why it’s called that is anyone’s guess but with it comes blanket tariffs for the anything going into the US. This includes up to 60% on some Chinese goods and the potential for retaliation from the rest of the world.

Thursday sees results from Moonpig and PMI updates from the UK, EU and US as well as jobless claims in the US.

Finally, Friday is non-farm payrolls which is normally a major figure, but right now it pales into insignificance given Trump’s hardline on trade.

We hope agreements are reached, but if not, there will be some volatility, and continued opportunity for our more active strategies bit in particular our long/flats, which have started the year with incredible performances.

Disclaimer: The views expressed in this article are the author’s own and should not be considered in rendering any legal, business or financial advice.

Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to the corresponding past performance.

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