Market Update – 19th March 2025.

China’s economy showed promising signs in early 2025, with retail sales rising 4%, driven by the government’s strong efforts to boost domestic consumption and mitigate trade tensions with the US. Industrial production also grew by 5.9%, and fixed asset investment exceeded expectations with a 4.1% increase, adding a positive momentum to the outlook. While challenges like rising unemployment (5.4%) and a slowing property sector remain, it appears that Beijing’s focus on stimulating demand and pushing for a 5% growth target remains steadfast. The news comes ahead of the dozens of foreign CEOs attending the China Development Forum in Beijing this month, signalling China’s push to attract foreign investment amid trade tensions and highlighting further efforts to stimulate domestic consumption.

Over in the US, retail sales rose by 0.2% in February, signalling modest resilience in consumer spending. Online shopping and health goods boosted the numbers, while restaurants and petrol stations experienced declines. The modest uptick is positive for the economy although it reflects consumers taking caution amid inflation and trade uncertainties (including tariffs and federal workforce reductions). The key question now is whether this data adds to a picture of the economy that pushes the Federal Reserve to execute another interest rate cut when they meet on Wednesday. The market is currently pricing in no change in rates following recent comments from Fed chair Powell that the economy is holding up well.

Yesterday, European stocks climbed after German legislators approved a significant increase in funding for defence and infrastructure. On Tuesday, Germany’s government amended its constitution, easing strict borrowing restrictions to enable a substantial rise in military expenditures. In response to the decision, Chancellor Scholz stated that enhancing Europe’s role within NATO would, in turn, reinforce a broader trans-Atlantic alliance.

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On Tuesday, Russia agreed to a limited ceasefire on energy and infrastructure as part of a US-led initiative to end its invasion of Ukraine. Moscow and Kyiv would stop targeting each other’s power plants and electrical grids, paving the way for negotiations on a potential halt to fighting in the Black Sea—followed by discussions on a full ceasefire and a peace agreement in the three-year-old war. In response, oil futures fell as the possibility that the US will ease sanctions on the flow of crude from Moscow was lifted. However, both countries soon launched airstrikes on each other’s infrastructure, with Zelensky reporting that some Ukrainian hospitals were hit.

Nvidia announced its new generation of artificial intelligence chips, designed to power future advancements in robotics and self-driving cars at their annual conference. Nvidia’s sales are up more than sixfold since its business was transformed by the release of OpenAI’s ChatGPT in late 2022. Interestingly, however, its shares fell more than 3% following the announcement. While modest, the fall highlights investor caution amid economic uncertainties of the likes linked to Trump’s tariffs.

Still to come this week we have China’s prime loan rate decisions, UK unemployment data, the Bank of England’s interest rate decision and Japan’s inflation rate.

Nicola Tune, Portfolio Specialist