PKB's Market Espresso.
February 12, 2025

Tariffs, tariffs and more tariffs

Trump has announced a fresh round of tariffs targeting all US imports of steel and aluminum, including finished products

• The 25% tariff will take effect on March 12^th and could lead to potential retaliation from trading partners
• The White House believes such measures would lift domestic production and bring more jobs to the US – Trump has already signaled that the rate on metal tariffs could go higher
• Analysts say that the duty will be largely passed on to US consumers if no major countries are exempted – for now only Australia may receive a break given its large imports of US-made aircrafts

Powell – No rush to lower rates

While speaking in front of Congress, Chair Powell signaled once again that the central bank is in no hurry to begin cutting back on rates

• Powell affirms that labor market remains in balance and is not a source of inflationary pressure – cutting too soon could severely hinder progress on inflation
• Recent Non-farm payroll data showed an increase of 143k jobs in January (below expectations) with unemployment rate down to 4%
• The Federal Reserve remains on a “wait and see” mode and is looking for more details on the potential impact of President Trump’s economic policy plans on the economy

Change of leadership?

• There has been significant rotation happening beneath the surface of the US markets
• The technology sector is the only one with a negative performance since the beginning of the year, while all other sectors (where valuations are lower) have risen, some even by more than 6%. This could signal the beginning of a market rebalancing

Source: PKB elaboration on Bloomberg Data

Chinese technology is gaining strength

In recent times, China’s tech sector has experienced positive developments, driven by several key factors:

• Advancements in AI Technology: Chinese startups, such as DeepSeek, have rapidly advanced in artificial intelligence, developing models that rival leading Western counterparts
• Increased Investment in Domestic Manufacturing: Under President Xi Jinping, China has invested in domestic industries to reduce reliance on foreign technology
• Growth in Electric Vehicle (EV) Market: Companies like BYD have significantly expanded their presence in the EV sector. BYD’s introduction of affordable autonomous-driving technology has widened its lead over competitors, including Tesla, in the domestic market

Guess what’s shining and climbing? Gold!

February has traditionally been a strong month for precious metals, and 2025 appears to be no exception. Several factors are supporting gold prices—and to some extent, silver as well:

• Geopolitical uncertainties continue to push investors toward diversification, with safe-haven assets playing a key role
• Central banks, facing a loss of confidence in their currencies due to mounting debt burdens, are increasing their purchases of real assets to offset these risks
• Meanwhile, China has recently launched a pilot program allowing its 10 largest insurance companies to invest up to 1% of their assets in gold, potentially injecting over $25 billion into the market.