Eurozone facing ‘sizeable’ activity hit from trade tensions
The eurozone economy will suffer a “sizeable hit to activity” from the rise in trade tensions, Goldman Sachs warns.
They say today that recent events support their forecast of weak Euro area growth, ongoing disinflation and continued sequential interest rate cuts by the European Central Bank.
Goldman say:
First, we expect a sizeable hit to activity from the ongoing rise in trade tensions.
While the Euro area might benefit slightly from trade diversion associated with any US tariffs on Canada and Mexico, President Trump has reiterated his plan to also raise tariffs on the EU.
They predict that “elevated trade policy uncertainty” will weigh on growth in coming months, mainly via lower investment and confidence.
“Trade diversion” refers to the possibility that manufacturers in countries facing new US tariffs decide to sell their goods in Europe rather than the US.
Goldman also warn that the eurozone labour market is slowing, with unemployment ticking up in France and Italy, and wages cooling.
Key events
Closing post
Calm has returned to the markets today, despite the anxiety caused by the new trade conflict between the US and China.
The Dow Jones industrial average is now flat, while the broader S&P 500 is now up 0.5%, as investors take the latest tariffs imposed by Washington DC and China on each others exports in their stride.
In London, the FTSE 100 share index has clawed back most of its earlier losses – and is now down just 0.1%, or 10 pints, at 8572 points.
Despite Goldman Sachs’s warnings that the eurozone faces a ‘sizeable hit’ from rising trade tensions, shares are now higher in Frankfurt and Paris.
And the pound has now recovered its earlier losses against the dollar, to trade around $1.246.
Our US Politics Live blog is covering the latest action in America:
US jobs openings fall
The number of job openings across the US fell at the end of last month, a possible sign that America’s labor market is cooling.
Job openings fell to 7.6m at the end of December, down from over 8m at the end of November, a three-month low according to Bloomberg.
The US Bureau of Labour Statistics reports:
The job openings rate, at 4.5%, decreased over the month.
The number of job openings decreased in professional and business services (-225,000), health care and social assistance (-180,000), and finance and insurance (-136,000). Job openings increased in arts, entertainment, and recreation (+65,000).
JOLTS showing some softness. Job openings fell to 7.6 mil and ratio of openings to unemployment rose. Conditions in the job market still appear solid but slowing. pic.twitter.com/rNFXmNOlrN
— Kathy Jones (@KathyJones) February 4, 2025
Palantir shares surge 26%
Shares in Palantir, the US spy tech company, have surged by a quarter in early trading after it beat expectations in is results last night.
Palantir’s shares are up 26% at $105.53, taking its gains over the last year to 382%.
Last night it reported stronger-than-expected fourth-quarter results and guidance driven by AI, including $828m in revenue, beating estimates of $776m.
Palantir was co-founded by Peter Thiel, the major Silicon Valley supporter of Donald Trump, who was singled out by prime minister Pedro Sánchez in a speech in Davos last month warning that tech billionaires want to overthrow democracy.
Trading in New York has begun in a subdued fashion.
The Dow Jones industrial average has dipped by 0.1%, or 44 points, to 44,370 points.
The S&P 500 share index has nudged slightly higher, up amost 0.1%.
Samer Hasn, senior market analyst at XS.com, says:
US stocks are set to fall further today despite the de-escalation of the trade war with the suspension of tariffs from the US on Canada and Mexico.
Meanwhile, the market is still waiting for the start of this war with China, which in turn responded with steps that will remind us of the consequences of the escalation on the US domestic front.
The Financial Times are reporting that Beijing has revived an antitrust investigation into Nvidia and is considering a new probe against Intel, as part of its response to Donald Trump’s new 10% tariff on Chinese imports.
That’s on top of the investigation into Google announced earlier today.
The FT says:
China’s State Administration for Market Regulation announced on Tuesday that it had opened an competition investigation into Google, which two people familiar with the matter said would focus on dominance of the US group’s Android operating system and any harm caused to Chinese phonemakers, such as Oppo and Xiaomi, which use the software.
Chinese regulators, who announced a similar antitrust investigation into Nvidia in December, were now also looking at launching a formal probe into Intel, said two people familiar with the situation.
However, the nature of the probe into the US chipmaker remained unclear, one of the people said, adding whether it was officially launched could be affected by the state of US-China relations. President Xi Jinping is expected to speak to Trump in the coming days.
Estee Lauder to cut up to 7,000 jobs amid tariff fears
Beauty firm Estee Lauder has announced plans to cut up to 7,000 jobs, as it braces for a global trade war.
Estee Lauder is “significantly expanding” a restructuring programme, and now expects to cut between 5,800 to 7,000 positions in a drive to cut costs by $1bn per year.
It says this “expanded plan” will fund a return to sales growth, lift operating margins, and allow it to “continue to manage external volatility, such as potential tariff increases globally”.
The company announced the planned job cuts in its latest financial results, which show a 6% fall in net sales in the last quarter, and a fall in profit margins.
It adds:
The Company continues to monitor the effects of the global macro environment, including the risk of recession; currency volatility; inflationary pressures; supply chain challenges; social and political issues; competitive pressures; legal and regulatory matters, including the imposition of tariffs and sanctions; geopolitical tensions; and global security issues
Donald Trump’s attention is likely to soon turn to the European Union, predicts Lindsay James, investment strategist at Quilter Investors.
Trump has already claimed the EU treats the US “very badly”, and military spending – as well as trade levels – are a sore point.
James explains:
As well as being upset that EU countries still spend far less than the US on defence, at 1.9% of GDP in 2024 vs around 3.4% in the US, at a time when it is the EU rather than the US that is being threatened, spending on energy is also likely to be a sore subject.
In 2024 Europe has sought to evade sanctioned Russian gas by instead importing its unsanctioned LNG at the expense of US volumes. In 2024 US LNG imports to Europe fell 15% year on year whilst Russian imports rose 11%. This funded the Russian war machine to the tune of 7.3bn euros, whilst the EU simultaneously relied on the US to supply ammunition that is in desperately short supply, following years of underfunding of its defence capability and capacity.
“With Germany two years into a mild recession, parties such as the AfD, which are openly calling for Nordstream to be restored, are now second place in the polls with around 25% of the vote, closing the gap with the CDU to just two points in recent polls. With the global LNG market expected to move into surplus in 2025, as the dominant supplier, the US will be keen to ensure Russia does not strengthen its foothold into European markets, particularly given the winds of political change that are now being felt across the continent.
Christine Lagarde, as Head of the ECB, has already urged leaders to buy more US LNG and weaponry in order to avoid tariffs. The alternative is likely to be a further hit on the already weak European automotive sector, with over a fifth of EU car exports going to the US. With this sector representing approximately 7% of GDP and a similar proportion of the workforce, EU leaders would be well advised to listen.
Oil price falls after tariffs delayed
The oil price has fallen back today, amid relief that the US delayed tariffs on Canada – which sends most of its oil exports across its southern border – and Mexico.
The US crude oil price has dropped by 2.25% to $71.53 per barrel, while Brent crude is down 1.4%. Both benchmarks rose yesterday as the markets anticipated that a trade war would cause supply disruption.
Today’s falls may also reflect concerns that the new US-China tariffs will weaken economic growth.
Razan Hilal, market analyst at City Index, says “bearish sentiment dominates crude oil,” adding:
Crude oil dipped below $72 following a short-lived rally on tariff concerns. The next key support levels to watch are $69.50 and $66.
A deeper decline could signal the start of a more extended bearish trend.
Shares in gambling group Entain have jumped by 8% after its US sports betting arm, BetMGM, announced it expects to make a profit this year.
BetMGM, joint owned by Entain and MGM Resorts, told shareholders that it expects the 2025 financial year to be EBITDA positive, with net revenue of $2.4bn to $2.5bn.
In a financial update, BetMGM also reports it made a loss of $244m in 2024.
Adam Greenblatt, chief executive officer of BetMGM, says:
“2024 was a year of investment and rebuilding of momentum for BetMGM.
Our successful strategic refinement saw BetMGM exit the year with encouraging run rates across our key metrics and Q4 EBITDA trend towards breakeven on a normalized basis. Our leading iGaming business continues to grow strongly and deliver attractive returns.
The financial markets are calmer today than during yesterday’s gyrations, and Jefferies’ analyst Brad Bechtel suspects some complacency is setting in.
Bechtel writes:
The dust settled a bit on the tariff noise with the Mexican and Canadian situations postponed for 30 days. The assumption in markets seems to be that the issue is resolved, and we can all move on but I am not so sure it will be that easy.
The market is also glossing over the reality that the 10% tariffs on China did in fact come into effect as of midnight last night, NY time, and China quickly responded with levies of it’s own. It also announced it was looking into the activities locally of Google.
China’s tone, in terms of headlines and public comments, remains one in which they seem willing to work with Trump and the US while pushing back lightly on the implementation of tariffs. Their response with taxes and tariffs of their own indicate they will push back that way as well.
Another day, another defeat for Saba.
The New York hedge fund has been rebuffed by another UK investment trust, Henderson Opportunities Trust, whose shareholders have rejected a proposal to oust four existing directors and install two Saba representatives.
Henderson reports that 65.36% of the total votes cast were voted against the Resolutions, which is quite unanimous given Saba controlled almost 25% of the companys shares, and 33.66% of votes cast.
