Introduction
Thursday, February 13, 2025, saw global markets digesting a swirl of contrasting headlines. Heightened US inflation data spurred caution among investors worried about the Federal Reserve’s policy path, while renewed hopes for an end to the Ukraine war injected a note of optimism. Meanwhile, potential reciprocal tariffs announced by President Trump continued to raise questions over international trade relations. Below is an in-depth look at how these dynamics are influencing currencies, bonds, and equities around the world.

1. US CPI Data Fuels Rate-Hike Concerns

Inflation Accelerates
January’s US CPI beat expectations: a 0.5% monthly gain brought annual inflation to 3.0%. Analysts had predicted 0.3% and 2.9%, respectively. Shelter costs, alongside higher gasoline and food prices, contributed heavily to the data. Core CPI also rose 0.4% on the month, suggesting underlying inflation pressures remain sticky.

Fed Outlook
Federal Reserve Chair Jerome Powell reiterated that while progress has been made toward the 2% inflation target, the latest data underscore that the fight is not over. He reminded markets that the Fed would remain “data-dependent,” emphasizing the importance of Thursday’s PPI report in shaping the outlook. Futures markets, which had priced in the possibility of rate cuts later this year, are now more uncertain, with many traders pushing expectations for policy easing into late 2025 or beyond.

2. Tariff Talk in the Spotlight

“Reciprocal Tariffs”
President Trump’s vow to sign an order imposing reciprocal tariffs has kept global markets on edge. Although some officials like House Speaker Johnson hinted at potential exemptions, the overarching message points to a period of heightened trade tensions. Economists warn that these measures could stoke additional inflation, exactly what the Fed hopes to avoid.

Implications for Global Supply Chains

• Europe: EU officials signaled they prefer negotiation over immediate retaliation, reflecting a desire to contain any fallout on trade within the bloc.
• Asia-Pacific: Japan and other major US trade partners remain alert. Tariffs could affect everything from automotive exports to consumer electronics, adding an extra layer of uncertainty for multinational corporations.

3. Possible Breakthrough in Ukraine

Trump Speaks with Putin and Zelenskiy
A phone call between President Trump, Russian President Vladimir Putin, and Ukrainian President Volodymyr Zelenskiy hints at diplomatic efforts to end the protracted conflict in Ukraine. While these talks are still at an early stage, the news has buoyed market sentiment, particularly in Europe.

Market Reaction

• Equities: Risk-on sentiment emerged in late trading sessions. European bourses edged higher, with the DAX and CAC 40 both improving moderately on optimism that an end to the war might lift economic prospects.
• Energy Prices: Oil fell by more than 2% on the possibility of reduced tension in Eastern Europe. A resolution could potentially ease supply constraints, adding downward pressure on crude.

4. Currency and Bond Markets

Dollar Dips on Diplomacy Hopes
The US dollar initially rallied after the CPI print, then gave back gains as news of Ukraine peace talks gained traction. EUR/USD moved above 1.04, and other risk-linked currencies also saw modest gains.

Treasury Yields Climb
Despite the late-day easing in the dollar, yields remained higher overall. The 10-year Treasury yield touched 4.62% before settling near 4.60%, reflecting heightened expectations for a prolonged Fed pause. The 2-year yield also rose, flattening the curve as investors priced in the potential for rates to stay elevated well into 2025.

5. Equity Sector Performance

US Markets Close Mixed

• Dow Jones: Fell 0.5%, with energy names lagging following the drop in oil.
• S&P 500: Down 0.3%, reflecting general caution over inflation and trade uncertainty.
• Nasdaq: Ended flat to slightly higher, supported by consumer staples and select tech firms.

Asia-Pacific and European Stocks
Asia’s major indexes showed resilience, helped by hopes of geopolitical détente and a temporary lull in tariff fears. The Nikkei 225 rallied 1.3%, while South Korea’s Kospi gained nearly 1.0%. In Europe, the mood was cautiously optimistic, with inflation releases and industrial production data still pending.

Conclusion

As of Thursday, February 13, 2025, global markets find themselves caught between opposing forces. On one hand, a stronger-than-expected US inflation reading could extend the Federal Reserve’s hawkish stance, putting downward pressure on stocks and raising bond yields. On the other hand, any tangible progress toward ending the Ukraine war has the potential to boost risk appetite and ease global commodity flows, especially for oil. Layered atop these themes are looming reciprocal tariffs from the US administration, which could yet reshape trade dynamics in the months ahead. All these moving parts underscore a period of elevated volatility and underscore why investors are tracking every new economic data point and geopolitical headline with added urgency.