The FTSE 100 hit record highs in January, as Donald Trump took office for the second time. The announcement of US trade tariffs on Mexico, Canada and China have caused some turbulence and whilst the EU seems to be in Trump’s line of sight next, there are strong hints that the UK may have a route to more favourable treatment.
UK
The FTSE 100 index, representing the 100 largest companies listed on the London Stock Exchange, reached an all-time high, closing at 8,646.88 points on 30th January, 2025. This marked a 6.1% increase for the month, the most significant monthly gain since November 2022.
There’s been the usual speculation over why the index soared in the month. Investors seem to be anticipating a 25-basis-point interest rate cut from the Bank of England, expected to arrive on Thursday 6th February as a response to the sluggish economy, which would bring the base rate down to 4.5% – the lowest it’s been in 18 months.
There was a view in January that a trade war may be avoided, which may have helped investor confidence in the UK and Europe. However, more on that to follow later in this article!
The FTSE 250 also grew, albeit not at the same impressive rate as the FTSE 100, suggesting that domestic, not just global, policy was influencing equity markets. There were strong performances from the aerospace and defence sectors, and companies like Smiths Group are seeing significant share price increases after strategic business decisions.
Torsten Bell was been named as the new pensions minister in mid-January following a mini reshuffle prompted by the resignation of economic secretary and city minister, Tulip Siddiq. Emma Reynolds left her position of pensions minister to fill Ms. Siddiq’s role.
The news was well received by the financial services sector. Bell is viewed as a highly credible pensions minister. His background as an economist and Chief Executive of the Resolution Foundation provides him some highly relevant knowledge. It’s been speculated that he might be a viable replacement for Rachel Reeves as Chancellor, should the Prime Minister lose confidence in her. The pensions minister position has been a revolving door for many years, with few ministers remaining in position long enough to make a difference in the role, so some stability would be welcome.
Europe
We’ve commented before on how the Eurozone had a tough 2024, and Europe’s economies remain brittle. Trump’s statement of intent to impose trade tariffs on the EU came at the end of January but cast a shadow over a strong start to 2025 in European stock markets.
The concerns surrounding high valuations in the dominant US market, exacerbated by volatility in the tech sector, meant that European investors showed a preference to their own domestic markets for the first time in years. The Nvidia shock reaction to China’s DeepSeek threat (more on this later) might have been just the catalyst they needed to look for an alternative to US investing.
However, the vulnerabilities to external trade dynamics persist. The announcement of U.S. tariffs on imports from Canada, Mexico, and China, followed by the threat of more to come for the EU, led to declines in major European stock indices like Germany’s DAX and France’s CAC at the start of February.
Eurozone government bond yields rose as preliminary Purchasing Managers’ Index (PMI) data for January exceeded expectations, driven by a slight improvement in the manufacturing sector. This increase in yields reflects investor optimism about economic activity.
The European Central Bank (ECB) cut its key interest rate by 0.25 percentage points to 2.75%, marking the fifth reduction since the previous summer. This decision aims to stimulate the stagnant Eurozone economy, with further rate cuts anticipated amid weak growth and potential trade tensions. Another cut in March seems likely.
United States
Donald Trump took control of the White House on 20th January and wasted no time signing a slew of executive orders in his first week in office.
Artificial Intelligence (AI) once again played a big part in the US stock market news. The emergence of China’s AI startup, DeepSeek, has created significant competitive pressure on the tech-heavy US equity market. Nvidia’s stock declined nearly 18% following DeepSeek’s announcement of a cost-effective AI model.
Whilst the news came as a shock, with Trump calling it ‘a wake up call’, the US does have the firepower to respond. DeepSeek may be more efficient but it does not have the same processing power as the US alternatives. How US tech responds will be interesting to watch, given how much money has been sunk into AI in recent years. They will be desperate not to be left behind.
On 31 January, the White House announced the implementation of tariffs with 25% on imports from Canada and Mexico, and 10% on goods from China, effective 1 February. This led to market volatility, with the Dow Jones dropping over 500 points in response.
Hopes of avoiding a trade war receded as January closed, with Canada promising retaliation and Europe now top of Trump’s hit list. It’s unclear how this will end. Some economists fear that US consumers will be hit with escalating prices and a return of inflationary pressures which will stunt growth.
Despite these challenges, investor optimism remained notable. A Gallup poll indicated that 61% of Americans expected the stock market to rise in the next six months, reflecting the highest confidence levels since 2001. We knew before the election that Trump was viewed as good for markets and that still holds true now.
Far East
In China the CSI 300 Index, which tracks the largest companies listed in Shanghai and Shenzhen, experienced volatility. On the first trading day of the year, it dropped by 2.9%, marking its worst New Year start since 2016. This decline was attributed to concerns over potential U.S. tariffs and a slowing domestic economy. In response, the Chinese government mandated that mutual and pension funds increase their investments in local A-shares. Mutual funds are now required to boost their holdings annually by at least 10% for the next three years, while commercial insurance funds must allocate 30% of new premium revenue into the stock market.
Chinese government bond yields declined, reflecting investor concerns about potential deflationary pressures and an economic slowdown. Despite this global investors continued to invest in Chinese bonds.
The manufacturing sector continues to show signs of contraction. The official Purchasing Managers’ Index (PMI) for manufacturing fell to 49.1 in January from 50.1 in December, indicating a shift from expansion to contraction. This decline was partly due to the Lunar New Year holiday, which typically affects production, but also raised concerns about underlying economic momentum.
In response to the U.S. 10% tariff on Chinese goods, China announced new export restrictions on critical minerals, including tungsten and molybdenum, requiring exporters to obtain licenses. This has inevitably heightened concerns about a potential trade war and its implications for global supply chains.
In contrast to other major central banks who are cutting rates, The Bank of Japan (BoJ) raised its key interest rate to 0.5%, the highest level since 2008, signalling it’s commitment to achieving its 2% inflation target. Core inflation in Tokyo reached 2.5% in January, marking the fastest annual pace in nearly a year and exceeding the BoJ’s 2% target. This development maintained market expectations for further interest rate increases. The rise in the core consumer price index (CPI), excluding fresh food, matched market forecasts and followed a 2.4% increase in December, indicating accelerating inflation. Financial markets in Japan started 2025 well.
Emerging Markets
Global trade tensions will inevitably have an impact on many emerging economies, with Mexico immediately affected by the 25% trade tariff announcement. Increased consumer demand and technological development have the ability to drive growth in this sector but a strengthening U.S. dollar and rising interest rates will put many countries under pressure.
Despite significant foreign investor withdrawals, fund managers at the World Economic Forum in Davos viewed India as a promising medium-to-long-term investment destination. Factors contributing to this favourable outlook included India’s robust economic growth potential, large consumer base, limited exposure to U.S. tariffs and a strategic shift away from China. However, the Reserve Bank of India was anticipated to cut interest rates for the first time since May 2020 to stimulate economic growth, which had declined to a four-year low.
The Central Bank of Brazil raised its key interest rate, the Selic, by a full percentage point to 13.25% to combat persistent inflation, marking the fourth consecutive increase and the first under new President Gabriel Galípolo. Inflation remained high, with consumer prices up 4.5% year-on-year through mid-January, far above the 3% target.
Egypt’s non-oil private sector experienced growth for the first time since August, achieving its best performance in over four years. S&P Global’s PMI rose to 50.7, indicating an expansion driven by improved domestic market conditions and softened cost pressures. A ceasefire between Israel and Hamas likely bolstered market confidence, though long-term economic stability remained a concern among firms, impacting business expectations and hiring.
Conclusion
The noise from the US is undoubtedly creating some volatility. Whether from Trump’s trade wars or tech stock competition, it’s having a significant impact on global markets. However, there are reasons to remain positive as equity markets are still buoyant overall.
If a return to interest rate normalisation was the theme for 2024, Trump’s trade war and tech stock volatility may be recurrent themes for 2025.
And Finally…
Did you know there’s a country with no rivers?
Despite Saudi Arabia being the largest country in the Middle East and the 13th largest in the world, it has no permanent rivers due to its predominantly desert landscape.
If this blog has raised any questions why don't we have a quick chat?
Garry Hale MD & Certified Financial Planner
A brief meeting might be of interest, especially if you’re unsure just how wealth management and financial planning could help you.
It would only require the investment of an hour or so of your time, and the coffee’s not bad either.
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February Market Commentary
Introduction
The FTSE 100 hit record highs in January, as Donald Trump took office for the second time. The announcement of US trade tariffs on Mexico, Canada and China have caused some turbulence and whilst the EU seems to be in Trump’s line of sight next, there are strong hints that the UK may have a route to more favourable treatment.
UK
The FTSE 100 index, representing the 100 largest companies listed on the London Stock Exchange, reached an all-time high, closing at 8,646.88 points on 30th January, 2025. This marked a 6.1% increase for the month, the most significant monthly gain since November 2022.
There’s been the usual speculation over why the index soared in the month. Investors seem to be anticipating a 25-basis-point interest rate cut from the Bank of England, expected to arrive on Thursday 6th February as a response to the sluggish economy, which would bring the base rate down to 4.5% – the lowest it’s been in 18 months.
There was a view in January that a trade war may be avoided, which may have helped investor confidence in the UK and Europe. However, more on that to follow later in this article!
The FTSE 250 also grew, albeit not at the same impressive rate as the FTSE 100, suggesting that domestic, not just global, policy was influencing equity markets. There were strong performances from the aerospace and defence sectors, and companies like Smiths Group are seeing significant share price increases after strategic business decisions.
Torsten Bell was been named as the new pensions minister in mid-January following a mini reshuffle prompted by the resignation of economic secretary and city minister, Tulip Siddiq. Emma Reynolds left her position of pensions minister to fill Ms. Siddiq’s role.
The news was well received by the financial services sector. Bell is viewed as a highly credible pensions minister. His background as an economist and Chief Executive of the Resolution Foundation provides him some highly relevant knowledge. It’s been speculated that he might be a viable replacement for Rachel Reeves as Chancellor, should the Prime Minister lose confidence in her. The pensions minister position has been a revolving door for many years, with few ministers remaining in position long enough to make a difference in the role, so some stability would be welcome.
Europe
We’ve commented before on how the Eurozone had a tough 2024, and Europe’s economies remain brittle. Trump’s statement of intent to impose trade tariffs on the EU came at the end of January but cast a shadow over a strong start to 2025 in European stock markets.
The concerns surrounding high valuations in the dominant US market, exacerbated by volatility in the tech sector, meant that European investors showed a preference to their own domestic markets for the first time in years. The Nvidia shock reaction to China’s DeepSeek threat (more on this later) might have been just the catalyst they needed to look for an alternative to US investing.
However, the vulnerabilities to external trade dynamics persist. The announcement of U.S. tariffs on imports from Canada, Mexico, and China, followed by the threat of more to come for the EU, led to declines in major European stock indices like Germany’s DAX and France’s CAC at the start of February.
Eurozone government bond yields rose as preliminary Purchasing Managers’ Index (PMI) data for January exceeded expectations, driven by a slight improvement in the manufacturing sector. This increase in yields reflects investor optimism about economic activity.
The European Central Bank (ECB) cut its key interest rate by 0.25 percentage points to 2.75%, marking the fifth reduction since the previous summer. This decision aims to stimulate the stagnant Eurozone economy, with further rate cuts anticipated amid weak growth and potential trade tensions. Another cut in March seems likely.
United States
Donald Trump took control of the White House on 20th January and wasted no time signing a slew of executive orders in his first week in office.
Artificial Intelligence (AI) once again played a big part in the US stock market news. The emergence of China’s AI startup, DeepSeek, has created significant competitive pressure on the tech-heavy US equity market. Nvidia’s stock declined nearly 18% following DeepSeek’s announcement of a cost-effective AI model.
Whilst the news came as a shock, with Trump calling it ‘a wake up call’, the US does have the firepower to respond. DeepSeek may be more efficient but it does not have the same processing power as the US alternatives. How US tech responds will be interesting to watch, given how much money has been sunk into AI in recent years. They will be desperate not to be left behind.
On 31 January, the White House announced the implementation of tariffs with 25% on imports from Canada and Mexico, and 10% on goods from China, effective 1 February. This led to market volatility, with the Dow Jones dropping over 500 points in response.
Hopes of avoiding a trade war receded as January closed, with Canada promising retaliation and Europe now top of Trump’s hit list. It’s unclear how this will end. Some economists fear that US consumers will be hit with escalating prices and a return of inflationary pressures which will stunt growth.
Despite these challenges, investor optimism remained notable. A Gallup poll indicated that 61% of Americans expected the stock market to rise in the next six months, reflecting the highest confidence levels since 2001. We knew before the election that Trump was viewed as good for markets and that still holds true now.
Far East
In China the CSI 300 Index, which tracks the largest companies listed in Shanghai and Shenzhen, experienced volatility. On the first trading day of the year, it dropped by 2.9%, marking its worst New Year start since 2016. This decline was attributed to concerns over potential U.S. tariffs and a slowing domestic economy. In response, the Chinese government mandated that mutual and pension funds increase their investments in local A-shares. Mutual funds are now required to boost their holdings annually by at least 10% for the next three years, while commercial insurance funds must allocate 30% of new premium revenue into the stock market.
Chinese government bond yields declined, reflecting investor concerns about potential deflationary pressures and an economic slowdown. Despite this global investors continued to invest in Chinese bonds.
The manufacturing sector continues to show signs of contraction. The official Purchasing Managers’ Index (PMI) for manufacturing fell to 49.1 in January from 50.1 in December, indicating a shift from expansion to contraction. This decline was partly due to the Lunar New Year holiday, which typically affects production, but also raised concerns about underlying economic momentum.
In response to the U.S. 10% tariff on Chinese goods, China announced new export restrictions on critical minerals, including tungsten and molybdenum, requiring exporters to obtain licenses. This has inevitably heightened concerns about a potential trade war and its implications for global supply chains.
In contrast to other major central banks who are cutting rates, The Bank of Japan (BoJ) raised its key interest rate to 0.5%, the highest level since 2008, signalling it’s commitment to achieving its 2% inflation target. Core inflation in Tokyo reached 2.5% in January, marking the fastest annual pace in nearly a year and exceeding the BoJ’s 2% target. This development maintained market expectations for further interest rate increases. The rise in the core consumer price index (CPI), excluding fresh food, matched market forecasts and followed a 2.4% increase in December, indicating accelerating inflation. Financial markets in Japan started 2025 well.
Emerging Markets
Global trade tensions will inevitably have an impact on many emerging economies, with Mexico immediately affected by the 25% trade tariff announcement. Increased consumer demand and technological development have the ability to drive growth in this sector but a strengthening U.S. dollar and rising interest rates will put many countries under pressure.
Despite significant foreign investor withdrawals, fund managers at the World Economic Forum in Davos viewed India as a promising medium-to-long-term investment destination. Factors contributing to this favourable outlook included India’s robust economic growth potential, large consumer base, limited exposure to U.S. tariffs and a strategic shift away from China. However, the Reserve Bank of India was anticipated to cut interest rates for the first time since May 2020 to stimulate economic growth, which had declined to a four-year low.
The Central Bank of Brazil raised its key interest rate, the Selic, by a full percentage point to 13.25% to combat persistent inflation, marking the fourth consecutive increase and the first under new President Gabriel Galípolo. Inflation remained high, with consumer prices up 4.5% year-on-year through mid-January, far above the 3% target.
Egypt’s non-oil private sector experienced growth for the first time since August, achieving its best performance in over four years. S&P Global’s PMI rose to 50.7, indicating an expansion driven by improved domestic market conditions and softened cost pressures. A ceasefire between Israel and Hamas likely bolstered market confidence, though long-term economic stability remained a concern among firms, impacting business expectations and hiring.
Conclusion
The noise from the US is undoubtedly creating some volatility. Whether from Trump’s trade wars or tech stock competition, it’s having a significant impact on global markets. However, there are reasons to remain positive as equity markets are still buoyant overall.
If a return to interest rate normalisation was the theme for 2024, Trump’s trade war and tech stock volatility may be recurrent themes for 2025.
And Finally…
Did you know there’s a country with no rivers?
Despite Saudi Arabia being the largest country in the Middle East and the 13th largest in the world, it has no permanent rivers due to its predominantly desert landscape.
If this blog has raised any questions why don't we have a quick chat?
MD & Certified Financial Planner
A brief meeting might be of interest, especially if you’re unsure just how wealth management and financial planning could help you.
It would only require the investment of an hour or so of your time, and the coffee’s not bad either.