SPW MarketWatch January 2025
- 26 February 2025
- 5 mins reading time
FactSet, 12 February 2025. Figures are monthly price returns in local currencies for January 2025.
US Market: In January, US shares saw gains but lagged behind other regions. A Chinese start-up, DeepSeek, challenged US dominance in artificial intelligence (AI) (1), causing a stir in the market. While the information technology sector fell, other sectors like communication services, healthcare, and financials saw gains.
AI-related companies, such as NVIDIA, experienced sharp declines (2) as investors reacted to DeepSeek's claims of producing comparable AI results at a fraction of the cost. This raised questions about the need for high investment in advanced AI chips and data centres.
The Federal Reserve (Fed) kept interest rates steady, indicating a cautious approach to cutting rates further (3). The US job market remained strong, with 256,000 jobs added in December, surpassing expectations. Core inflation eased slightly to 3.2% from 3.3% in November (4). President Trump began his second term, boosting investor sentiment with his "America First" policies, though tariff threats caused market jitters.
Eurozone: Eurozone shares started 2025 strong, outpacing other regions. The rotation out of US tech stocks and easing trade tariff concerns benefited the eurozone. Healthcare and financial sectors performed well, with banks showing robust returns.
The eurozone economy stagnated in Q4 2024, with annual GDP growth estimated at 0.7% (5). The European Central Bank (ECB) cut interest rates by a quarter percentage point, and ECB President Christine Lagarde warned of economic risks due to rising trade frictions and weak consumer confidence (6).
UK Market: UK equities rose in January, led by larger companies. The energy, industrial, and financial sectors were top contributors. However, prices fell due to concerns over the UK's fiscal health led to a sharp increase in gilt yields and a weakening currency, impacting small and mid-sized companies (7).
Chancellor Rachel Reeves reassured bond investors by pledging adherence to fiscal rules. Inflation slowed unexpectedly in December, helping sentiment. Despite this, the domestic economy faced challenges, with weakening business confidence and disappointing retail sales during the festive period.
Japan: The Japanese equity market showed weakness early in the month but recovered, ending January with a slight positive return. Market sentiment was influenced by US developments, particularly inflation concerns and tariff uncertainties..
The Bank of Japan (BoJ) raised its policy rate, supporting financial stocks (8). The Japanese yen appreciated modestly against the US dollar. Initial December quarter earnings suggested slightly better outcomes, and improvements in corporate governance provided further market support.
Emerging Markets: Emerging markets rose in January, though they underperformed the MSCI World index. Tariff risks from President Trump's administration weighed on markets. DeepSeek's release of a lower-cost AI model comparable to OpenAI's led to market volatility, especially in technology shares.
Asia (ex Japan): Asia ex Japan equities saw modest gains in January, with Korea, Singapore, and Taiwan performing well. The information technology sector experienced volatility due to DeepSeek's AI model news but posted overall gains.
Chinese shares advanced slightly ahead of the index, despite trade tariff worries. Indian shares faced pressure from economic growth concerns and sluggish corporate earnings.
Global Bonds: January saw contrasting trends in the global government bond market. Positive inflation news led to a strong rebound after a weak start. German Bund yields rose, while US Treasury yields fell. President Trump's inauguration and potential policy changes, especially tariffs, were key market themes.
Investment grade corporate bonds in the US remained stable, while European and UK corporate bonds outperformed. High yield markets were positive, driven by a healthy economy and strong corporate earnings. The eurozone saw slightly higher headline inflation, while the UK faced fiscal health concerns and slower economic growth.
Commodities: The S&P GSCI Index gained in January, with all subcomponents advancing. Precious metals and agriculture posted strong gains.
Any views expressed are our in-house views as at the time of publishing. This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without prior written consent.
Sources:
(1) DeepSeek shows AI's centre of power could shift away from US - BBC News
(2) Nvidia shares sink as Chinese AI app DeepSeek spooks US markets - BBC News
(3) Fed leaves rates unchanged, sees no hurry to cut again | Reuters
(4) US Inflation Data Closes Door on January Fed Rate Cut | Morningstar
(5) GDP stable in the euro area and up by 0.1% in the EU - Euro indicators - Eurostat
(7) https://www.bbc.co.uk/news/articles/c1404j3xm
(8) LONDON BRIEFING: Stocks rise, Japan interest rates... | Morningstar
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