Powell warning lifts dollar, although tech stocks continue to hold up US markets

• Mixed affair in Europe after Powell laid out slower rate pathway for 2024
• Trump warns of Chinese trade tariffs
• UK services PMI revision further strengthens the growth story

European markets have kicked off the week on an uncertain footing, as traders weigh up the fallout from a week that ended with a dramatic surge in payrolls. Weekend commentary from Jay Powell sought to reign in expectations once again, with the US dollar rising into a seven-week high as a result. Coming off the back of a bumper 353k NFP reading, Sunday’s comments Powell saw the Fed chair lay out expectations for just three rate cuts this year. A far cry from the five expected by markets. Nonetheless, with the S&P 500 and Nasdaq both closing at record highs, traders will hope that any realignment of interest rate expectations will impact fixed income and FX markets over equities. However, the S&P 500 continues to be carried by a select few companies, with Friday’s incredible 20% rise for Meta representing the biggest one-day increase in value on record ($197bn). All well and good for now, but the lack of breadth within this market continues to raise questions of what happens when tech runs out of steam.

Donald Trump laid out plans to impose 60% tariffs on Chinese imports if he comes back into power, highlighting the fresh hurdles markets would need to overcome in the event of a second Trump term. Trump’s four-year stint in the White House saw him take aim at China, utilizing trade tariffs to show that he means business. While many in the markets had remembered his term for its incessant focus on seeing markets hit record highs, this will serve as a reminder of the continued concerns that the strained US-Chinese relationship had on expectations for global growth.

Today’s UK services PMI revision helped further bolster the outlook for the pound, with the newly improved January figure of 54.3 representing the strongest sector performance since May 2023. Concerns around the UK growth outlook have faded in recent months, with the UK composite PMI now higher than the US, Canada, and eurozone. For all the talk of the UK underperforming under the weight of Brexit trade friction, the overreliance on the services sector has helped drive outperformance. For the Bank of England, this provides the basis for continued patience, with rates expected to remain on hold until June.