Global markets under pressure as trade war risks but PCE is here

Global stock markets came under renewed selling pressure on the last trading day of February, with risk-off sentiment dominating as investors braced for the fallout from escalating trade tensions. U.S. equities led the decline, while European and Asian markets followed suit, reflecting heightened uncertainty over impending tariff measures.

The sharp deterioration in sentiment followed confirmation that the U.S. will impose 25% tariffs on imports from Mexico and Canada starting March 4. More significantly, reciprocal tariffs scheduled for April 2 have drawn market attention, with U.S. President Donald Trump threatening to extend similar duties to European Union imports. This move raises the specter of a broader trade conflict, fueling investor anxiety over global economic stability.

U.S. inflation cools slightly, keeping Fed on guard

The latest U.S. inflation data offered a mixed picture, with the Personal Consumption Expenditures (PCE) price index rising 0.3% month-over-month in January, unchanged from December. Core PCE, the Federal Reserve’s preferred inflation gauge, edged up to 0.3% from 0.2%.

On an annual basis, headline PCE slowed to 2.5% from 2.6%, marking its first decline in four months. Core PCE also eased to 2.6% from 2.8%, aligning with market expectations. While the data indicates gradual disinflation, it remains above the Fed’s 2% target, reinforcing the central bank’s cautious stance on future rate adjustments.

BoJ’s Uchida: Bond market reflects economic outlook

Speaking in parliament, Bank of Japan Deputy Governor Shinichi Uchida addressed the recent rise in Japanese government bond (JGB) yields, stating that the increase “reflects the market’s view on the economic and price outlook, as well as overseas developments.”

Uchida reassured investors that there is no change in the BoJ’s stance on short-term interest rates or government bond operations. He emphasized that the central bank’s large-scale bond holdings continue to exert a strong monetary easing effect, supporting the economy. When questioned about the potential for further rate hikes and bond tapering, Uchida deferred to market forces, stating that yield movements are ultimately “up to markets to decide.”

Fed’s Harker: One inflation report won’t shift policy

Philadelphia Federal Reserve President Patrick Harker reinforced the Fed’s cautious approach, emphasizing that a single inflation report should not dictate policy moves in either direction.

While acknowledging that January’s inflation data came in hotter than expected—the fastest increase in 18 months—Harker urged policymakers to remain patient. “We should not be moved to act based on one month’s data,” he said, reaffirming that the Fed’s current policy rate remains sufficiently restrictive to control inflation while maintaining economic stability.

Despite ongoing inflation concerns, Harker expressed confidence in the broader economic outlook, stating, “I am of a position that we let monetary policy continue to work.” His comments suggest that the Fed is unlikely to rush into rate cuts unless inflation shows a more sustained downtrend.