Inflation surprise: will semiconductors pay the price?

2025-03-28 general

Washington, Friday, 28 March 2025.
February’s core inflation exceeded expectations, hitting 2.8%. This could force the Federal Reserve to rethink its monetary policy. The central bank already cut rates by a full percentage point in 2024. Now, higher rates may be back on the table. The semiconductor market is especially vulnerable. Higher rates could reduce both capital expenditures and consumer demand for electronics. Keep a close watch on companies like Nvidia, ASML, and TSMC.

PCE data and market reaction

The Commerce Department’s report on Friday indicated that the core personal consumption expenditures (PCE) price index increased by 0.4% in February [1]. This was the largest monthly gain since January 2024 [1]. The 12-month inflation rate reached 2.8% in February, exceeding forecasts [1][2]. Consumer spending rose by 0.4% in February, which fell short of the projected 0.5% increase [1]. The US Dollar Index saw a rise of 0.12% to reach 140.40 [2]. This data suggests persistent inflationary pressures, influencing investor sentiment [2].

expert opinions on fed policy

Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, believes the Federal Reserve will likely maintain a ‘wait-and-see’ approach [1]. Zentner noted that the higher-than-expected inflation reading would not expedite the Fed’s timeline for cutting interest rates [1]. This is especially true given the uncertainties surrounding potential tariffs [1]. Fed Chairman Jerome Powell mentioned that the central bank would know in a couple of months whether higher goods inflation in early 2025 stemmed from tariffs [2]. The Federal Reserve had previously left the interest rate unchanged at 4.25%-4.50% in March [2].

broader market implications

Asia-Pacific markets experienced a downturn on Friday due to U.S. President Donald Trump’s tariff threats [4]. Japan’s Nikkei 225 fell by 1.8% to 37,120.33, and South Korea’s Kospi decreased by 1.89% to 2,557.98 [4]. Hong Kong’s Hang Seng Index declined by 0.65% to 23,426.6, while mainland China’s CSI 300 dropped by 0.44% to 3,915.17 [4]. Australia’s S&P/ASX 200, however, saw a slight increase of 0.16% to 7,982 [4]. The Stock Exchange of Thailand suspended all trading activities following an earthquake in Myanmar [4]. Singapore’s Straits Times Index (STI) reached a record high, surpassing the 4,000 mark [4].

tariff impacts and sector reactions

President Trump’s announcement of 25% tariffs on cars not made in the U.S. has already impacted the automotive sector [4][6]. Shares of Japanese automakers like Toyota (-4.49%) and Honda (-4.33%) experienced declines [4]. South Korea’s Kia Motors also saw a decrease of 2.35% [4]. On March 27, shares of AppLovin dropped more than 14% after Muddy Waters revealed a short position [6]. Conversely, Alibaba shares gained over 3% following the launch of its new AI model “Qwen2.5-Omni-7B” [6]. These events highlight the market’s sensitivity to policy announcements and company-specific news [6].

Bronnen

Core Inflation Market Sentiment