The Capital Circle – Week of 24 March 2025

Good morning, and welcome to The Capital Circle, your weekly financial wrap-up and outlook. I’m writing from my point of view, so don’t get offended! Grab a cuppa, and let’s circle around what’s moving the markets. Access my updated, new, free online course and help me help you decide what your future looks like!

Last Week’s Market Recap (Week of 17 March 2025)

Equities Rollercoaster: Equity markets whipsawed through the week as investors digested a mix of trade war rhetoric, central bank decisions, and corporate surprises. After a relief rally early in the week (the S&P 500 and Dow jumped ~0.6% and 0.9% on Monday), stocks struggled to maintain momentum. Concerns over escalating trade tensions – sparked by new U.S. tariffs and swift retaliations from allies – kept sentiment in check. By the week’s end, the S&P 500 had slipped roughly 2% overall, marking its fifth consecutive weekly decline. Not even a mid-week tech bounce could fully undo the damage, though it did remind us that markets can go up as well as down (who knew?).

Central Banks Steady the Ship: In a “hold what you’ve got” week for monetary policy, both the Federal Reserve and the Bank of England left interest rates unchanged. The Fed stood pat and warned that economic uncertainty had risen, even as it nudged up its inflation forecast. Across the pond, the BoE voted 8–1 to keep rates at 4.5%, quashing any premature talk of rate cuts. Governor Andrew Bailey emphasised the “deep uncertainty” clouding both the UK and global outlook. (Trade wars and fragile growth will do that.) U.K. GDP data didn’t help the mood either – January’s output contracted by 0.1%. One cheeky analyst wondered if PM Keir Starmer has been “too busy with Ukraine and US tariffs to focus on the UK economy”​. In Japan, even the famously cautious Bank of Japan signalled a possible policy shift as inflation picked up, giving the yen a boost and knocking Japanese equities lower. It’s a rare day when the Old Lady of Threadneedle Street and her central bank peers all sing “no change”, but traders knew better than to relax – the political storms were still brewing.

FX and Currency Moves: The US dollar had a wobbly week, easing broadly as traders bet the Fed’s pause could extend if the economy slows. One big winner was the British pound, which climbed to its highest level in about four months against the greenback​

Sterling touched ~$1.30, buoyed by dollar weakness and the anticipation of the UK’s upcoming budget update (more on that later). Versus the euro, the pound also steadied after a sharp slide earlier in March. Analysts at BofA noted that the sterling’s recent weakness against the euro seemed “excessive” and that the currency was “ripe for a comeback”​. In short, the pound found some love last week – proof that even in FX, every dog (or pound) has its day. Meanwhile, the euro benefited from the dollar’s softer tone, although ongoing U.S.–EU tariff sabre-rattling capped its gains. Currency traders joked that President Trump’s new nickname might as well be “Tariff Man (Reloaded)”, given his threat of 200% duties on European whisky and the EU’s retaliatory stance. All this kept the FX markets on their toes, though volatility was relatively contained compared to equities.

Cocoa’s Bitter Sell-Off: Commodities had their own drama, led by a not-so-sweet plunge in cocoa prices. Cocoa futures tumbled nearly 4% on Friday, hitting their lowest levels in about four and a quarter months. It was the culmination of a five-week slide driven by improving supply prospects. The International Cocoa Organization (ICCO) projects a global cocoa surplus of 142,000 tonnes for the 2024/25 season – the first surplus in four years. Production is forecasted to jump ~7.8% year-on-year, easing the tightness that sent prices to record highs in 2024. Ample inventories have been rebuilding as well after hitting a 21-year low in January. In other words, the market drowned in cocoa powder as bearish news piled up. Ivory Coast and Nigeria each reported strong output and exports, adding to the bearish tone. By Friday’s close, New York cocoa futures were around $7,800 per tonne – a far cry from December’s peak above $12,000. (Traders long cocoa might be feeling like Augustus Gloop in Willy Wonka’s factory right about now.)​

On the bright side, industry watchers note that last season saw the biggest cocoa deficit in over 60 years​ and climate or political risks could quickly flip the script. For now, though, chocolate makers are breathing a sigh of relief, and we’ve learned that even hot cocoa can turn ice-cold in a week.

Tesla’s Wild Ride (and Pep Talk): No weekly recap would be complete without Tesla, which once again found a way to be the centre of attention. Tesla’s stock started the week under pressure – continuing a slide that has seen it lose over 50% of its value since mid-December​ amid falling sales and Elon Musk’s extracurricular adventures in politics. By Thursday, shares had sunk to around $236 (cue some burnt fingers for recent dip-buyers)​. But in true Tesla fashion, the narrative flipped heading into the weekend. Elon Musk convened a surprise all-hands meeting late Thursday night (broadcast live on X, naturally) and delivered a simple message: “Hang on to your stock.”​

Musk struck an uncharacteristically earnest tone, acknowledging “rocky moments” but insisting Tesla’s future is “incredibly bright and exciting,” with products on the horizon that “no one has even dreamed of”. During the hour-long town hall at the Texas Gigafactory, he touted Tesla’s achievements (over 7 million vehicles produced globally) and upcoming projects – including the “Cybercab” robotaxi and the humanoid Optimus robots – which he plans to build by the “legion” to revolutionise transport and manufacturing​. Notably, Musk avoided any political pontificating (despite his recent role in a White House advisory post), keeping the focus on Tesla. By Friday, investors seemed somewhat reassured. Tesla stock jumped over 5% to around $249​, buoyed by Musk’s vote of confidence and perhaps a collective sigh of relief that he’s refocusing on the company. One Wedbush analyst applauded Musk for “showing important hand-holding” in a time of crisis​ – a sign that even Wall Street appreciates a CEO who can play cheerleader when needed. Of course, challenges remain (for one, Tesla’s Cybertruck just got hit with a large recall​), and not everyone is convinced the turnaround will be swift. But for the moment, Musk’s late-night pep talk put a floor under Tesla’s share price and gave loyalists renewed hope. In trading terms, he effectively told everyone to HODL, and for now, they listened.

This Week’s Outlook

Equities – Cautiously Optimistic or More Volatility?: As we kick off the week of 24 March, traders are bracing for another round of potential turbulence. The big question: can stocks find their footing after recent sell-offs, or will trade spats and growth jitters continue to weigh? Trade developments will be front and centre. Markets are watching if the U.S. and its trading partners step back from the tariff brink or double down. Last week’s tariff crossfire (U.S. vs. EU, and U.S. vs. Canada) raised the spectre of a full-fledged trade war​, so any conciliatory signals or behind-the-scenes negotiations could spark relief rallies. Conversely, if President Trump presses ahead with more import taxes (or if Europe retaliates further), equities might stay on the back foot. Keep an eye on Washington and Brussels headlines – they could be this week’s surprise bullish or bearish catalyst. Geopolitics aside, the earnings calendar is relatively light, but a few corporate updates (and any stray profit warnings) could still sway sentiment. After the rollercoaster we’ve had, many investors wouldn’t mind a boring week. 🏖️ Witty aside: At this point, “no news” might truly be “good news” for stocks – the fewer surprises, the better! On the technical side, watch for the Nasdaq trying to lead a rebound (tech stocks showed pockets of strength despite the chaos​). If last Friday’s bounce in Tesla and other beaten-down names picks up steam, we could see a short-term rally. But any rally will need confirmation – volumes and breadth – to suggest it’s more than just an oversold pop. Overall, expect a serious tug-of-war between dip-buyers and risk-off sellers this week. Volatility likely isn’t done with us yet, so buckle up (again).

FX – Pound’s Moment? Dollar Doldrums to Continue?: In the currency arena, the US dollar’s recent weakness may extend if data confirm a slowing economy. The Fed’s pause puts the onus on data – and right now the greenback lacks a clear bullish narrative. Key U.S. reports in the coming days (more below) could either reinforce the dollar’s drift or give it a jolt. Meanwhile, the British pound enters the week with a spring in its step. Sterling traders are chatting over their tea about two big events: Wednesday’s UK inflation report and the Spring Statement (an update on public finances) by Chancellor Rachel Reeves on 26 March​. UK CPI is expected to show further cooling – forecasts see headline inflation easing to ~2.7% year-on-year​, which would be a welcome development. If the data indeed come in soft, it could reinforce the BoE’s decision to stand pat. Paradoxically, gentler inflation might actually support the pound if it boosts confidence that Britain’s cost-of-living crisis is waning and fiscal policy can do more of the heavy lifting. On that note, Reeves’ fiscal update will be closely watched: any surprise stimulus or better-than-expected borrowing figures could give sterling a lift (or conversely, any fiscal slippage might spook UK gilts and spill into FX). In Europe, the euro will trade off both global factors and local data – look out for eurozone flash PMIs and any chatter from ECB officials. The single currency has held up relatively well, and a continued risk-on mood (if it materialises) could push EUR/USD higher. However, the wild card remains U.S.–EU trade tensions. Should there be an escalation (say, concrete moves on that threatened alcohol tariff), the euro could face pressure as investors weigh the economic impact. Over in Japan, yen bulls have perked up after hints of BoJ policy normalisation; any further signals of tightening from Tokyo could strengthen the JPY further. All told, FX traders will be balancing interest rate expectations with political risks. Expect some light-hearted banter in trading chats about “tariff adjustments” being the new “rate hikes” – both capable of moving currencies these days!

Cocoa: Long-Term Buy Opportunity? After cocoa’s dramatic sell-off, many in the commodities space are asking: Is it time to buy the dip in chocolate? From a technical perspective, cocoa futures are deeply oversold – some indicators haven’t been this stretched in years​. In fact, late last week we saw a bit of short-covering bounce as bargain hunters stepped in​. The $8,000 level (NY cocoa) appears to be an area of support that traders are watching closely​. Fundamentally, yes, the near-term surplus narrative has pummeled prices, but the long-term picture isn’t entirely bearish. Remember that just a few months ago we had the largest cocoa deficit in six decades​, with stocks-to-use ratios at generational lows. Soil conditions, weather patterns (think El Niño), and political stability in West Africa can all swing the supply pendulum quickly. Ghana, for instance, has already cut its 2024/25 harvest forecast due to crop issues​– a reminder that bumper crops are never guaranteed. Demand could also surprise to the upside if lower prices stimulate more usage (chocolate binge, anyone?). Big confectioners might use this price dip to lock in long-term supplies, underpinning the market. For investors with a sweet tooth and patience, cocoa at these levels might look tempting as a long-term buy. The phrase “catching a falling knife” comes to mind, but perhaps catching a falling cocoa bean is a bit less dangerous – at least you get chocolate at the end. Jokes aside, positioning and sentiment suggest the worst of the sell-off may be over. If you’re considering dipping a toe in, keep an eye on upcoming grindings data and weather developments. A clear sign of demand stabilization or any supply hiccup (droughts, political unrest in Ivory Coast, etc.) could spark a sharp recovery. As always, risk management is key – commodities can be volatile (as last week painfully showed). But with prices now well off their peaks, cocoa is back on the radar as a potential value play for the long run. In trading terms, the cocoa train has room in the caboose if you’re looking for a contrarian ride – just be prepared for some bumps on the track.

Key Events to Watch: The last week of March packs in several important economic releases that could be market movers:

• U.S. Flash PMI (Mon 24 Mar): A snapshot of business activity. Forecasts suggest a dip (Composite PMI seen ~50.2), indicating slower growth​. A big miss or beat could sway U.S. equity futures and set the tone early in the week.

• U.S. Housing & Confidence (Tue 25 Mar): We’ll see new home sales data (expected to rebound modestly) and possibly consumer confidence numbers. Housing has been a soft spot; an upside surprise here would be welcome news for cyclicals.

• UK Inflation (Wed 26 Mar): As mentioned, UK CPI for February arrives. A reading near 2.7% y/y (as expected)​ would mark further progress in taming inflation – potentially influencing Bank of England thinking and sterling. Also on Wednesday, Germany’s Ifo index (business climate) is due, which will give a read on Europe’s largest economy amid its new mega-spending plans.

• UK Spring Statement (Wed 26 Mar): Chancellor Reeves will update on the public finances. Any changes in growth or borrowing forecasts or new fiscal measures could impact UK markets. Given the political stakes (this is the first big fiscal update under the Starmer government), expect some market sensitivity to her announcements. The pound and FTSE may react to any surprises in tax or spending plans.

• Central Bank Speak: With the Fed and BoE meetings done, we might hear from officials clarifying their stances. Notably, Fed Chair Powell’s comments (if any public appearance this week) and other FOMC members’ speeches will be parsed for clues on whether rate cuts are on or off the table for later this year. The BoE’s Bailey might also give further context after holding rates – especially relevant if the UK inflation data surprise.

• US Q4 GDP Final (Thu 27 Mar): The final reading of last quarter’s GDP is expected to be around +2.3%​. Normally not a huge mover unless revised significantly, but it will still contribute to the narrative of whether the economy was cooling into 2025.

• US Core PCE Inflation (Fri 28 Mar): Arguably the most critical data point this week. The Fed’s preferred inflation gauge, core PCE, for February is forecast to tick up to about 2.8% y/y from 2.6%​. If it comes in hot (above forecast), expect renewed chatter about the Fed maybe not cutting rates as soon as the market hopes – which could boost the dollar and pressure stocks. A softer number, conversely, might fuel the “Fed is done, next move is a cut” camp, lifting risk assets. In short, this number on Friday could either sweeten or sour the week’s finish.

• Other Data: Keep an eye on Eurozone confidence surveys, Japanese retail sales, and China’s PMI coming up shortly after month-end. Any significant geopolitical developments (there’s talk of potential progress in Ukraine peace negotiations) could also shock or soothe markets, though such outcomes are hard to predict.

Anticipated Political & Trade Developments: Politically, the interplay between economic policy and markets remains in focus. The U.S. administration’s trade stance will be a key wildcard – market participants will monitor if President Trump follows through on the next rounds of tariffs or if cooler heads prevail. Europe’s response (so far measured but firm) will also be telling; any hint of a compromise or delay in tariffs could give stocks a boost. There’s also an EU leaders’ summit rumor swirling, where trade and possibly energy policy might be discussed – something to watch for Euro traders. In the UK, domestic politics are relatively calm by historical standards (dare we say boring, in a good way?), but any headlines about Brexit aftershocks or a snap poll speculation could always emerge to jolt the pound (though none are expected right now). The situation in Eastern Europe (Ukraine-Russia) remains critical – any concrete news of de-escalation or ceasefire talks progressing would likely ignite a risk-on rally across Europe, whereas any severe escalation could do the opposite. Traders should be ready for headlines like “Trade Truce Brewing?” or “Tariffs Tit-for-Tat Continues” as potential drivers on any given day.

On the lighter side, market jokers are half-expecting an Elon Musk tweet about considering a foray into cocoa farming (imagine a “Tesla Cacao” spinoff – after all, he joked recently he has 17 jobs already​). Jokes aside, it’s clear that in today’s markets, macro and micro forces are interlinked: a political tweet can move currencies, a supply glut can topple a commodity, and a CEO’s offhand comment can add billions to a company’s value. The plan for this week: stay alert, stay nimble, and maybe keep a bit of chocolate on hand – either to celebrate a sweet trading victory or to comfort us if the markets get bitter again.

Bottom Line: Last week reminded us that markets are a circular game of reaction and anticipation. Equities took a beating but have shown they can bounce; FX is dancing to the tune of central banks and policymakers; and even the humble cocoa bean can cause a stir. Going into this week, the atmosphere is serious – there’s plenty for traders to grapple with – but it pays to keep a light heart and flexible mind. As I say with a grin, “Volatility is the price of opportunity.” So trade smart, watch those risk levels, and let’s see if we can turn this recent chaos into capital. Good luck out there!