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The Week In Markets – 15th February – 21st February 2025

It’s the UK’s turn to take centre stage as inflation, wage growth and retail sales data were all released. UK inflation figures were a shock to the system, rising to a 10-month high of 3% against an expectation of 2.8%.

The falling trend in UK inflation at the beginning of 2024 was extremely positive, with inflation dropping from 4% in January to 1.7% in September. However, headline inflation reaccelerated from that point onwards, and despite a brief dip in December, inflation has risen back to 3% to begin this year. A key factor to the rise is attributed to the Labour government, as the price of private school fees increased following the introduction of VAT. The Bank of England (BoE) faces a challenge around how to manage rates and lacklustre economic growth. A bright spot in recent inflation data has been falling services inflation, however, that picked up to 5% this month, something the BoE will be mindful of. Core inflation (excludes food and energy prices) also increased to 3.7% in January from the previous 3.2%.

Average earnings figures for December were released, rising to 5.9% (excluding bonuses), another key component that the BOE are hot on. The retail, hotel and restaurant sectors saw the most significant increase of 6.6%. Unemployment remained at 4.4% and the number of jab vacancies rose by 10,000 to 819,000. The UK labour market is certainly healthier than expected ahead of April, when Chancellor Reeves plans to increase national insurance contributions and implement a 6.7% rise in minimum wage. Governor Bailey spoke following the results, highlighting that inflation could continue to rise over the next six months but would be short lived. He expressed more concern about weakening global demand amid “heightened uncertainty” around the world. These comments were enough to stop a big sell-off in UK government bonds, despite heightened inflation. It seems the BoE are willing to look through short-term data and have one eye on slowing economic growth.

Retail sales were released early Friday morning and were positive for the first time since August. For the month of January, sales rose 1.7% (month-on-month), exceeding market forecasts of 0.3%. This marks the end of a “gloom” that had settled over UK consumers who were worried about the incoming tax rises from the Labour government. The most significant rise came from food shop sales at 5.6%, a level last seen when Covid-19 hit.

European stocks have surged to begin the year, and last week, talks between US President Trump and Russian President Putin raised optimism towards a potential ceasefire between Russia and Ukraine. A peace deal would be positive for countries such as Germany whose economy has been hampered by elevated energy prices. Intriguingly, since the US election on the 5th November 2024, the German Dax (equity index) has outperformed the S&P500 by over 13%. President Trump is not one to mince his words, and by the end of the week, he referred to Ukrainian President Zelenskiy as a “dictator” over disputes over how much the US has sent to Ukraine in aid.

Heading over to the US, the number of American citizens filling for unemployment benefits increased by 5,000 to 219,000. This suggests the US labour market is still moderately resilient, as we have seen over 2024. Since President Trump and Department of Government Efficiency CEO, Mr Musk have been in office, they have fired thousands of federal government workers, and these cost cutting figures have not yet been accounted for in the data. There are 2.3million workers employed by the federal government so there is potential for these cuts to impact unemployment data meaningfully.

It may be time to upgrade your phone (if you prefer iPhone to Android) as Apple announced the latest iPhone 16e model for £599. The slightly smaller model boasts the latest development of Apple intelligence features, including a ChatGPT integration with Siri. Apple is hoping the release of the cheaper model will help improve falling sales in countries such as China – Apple shares are up over 3.5% for the week.

There is rarely a dull week in markets, and the coming week is no exception as the Germans will hold their elections on Sunday. The consensus is that a coalition government led by the conservative party leader, Mr Fredrich Merz, will emerge as Europe’s largest economy strives to revive its stagnant economy. Despite the negative headlines around Germany and wider Europe, European equities have had a very strong start to the year, with countries such as France and Germany rising over 10% in 2025. Pleasingly we have increased European equity exposure in portfolios in the summer of 2024 and at the start of 2025.

Nathan Amaning, Investment Analyst

Risk warning:  With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors

The Week In Markets – 8th February – 14th February 2025

We missed the opportunity to begin the weekly round-up with a fact last week, so we will start this week with one! In 2024, France was the most visited country in the world, attracting 100 million visitors. It wasn’t skiing or the Olympics that drew people to France this week, but an artificial intelligence (AI) summit led by French President Emmanuel Macron.

The summit lasted two days and was attended by various global leaders, including US Vice President JD Vance. It concluded with a declaration outlining six main priorities, including promoting AI accessibility, encouraging AI development and ensuring AI is “open, ethical and transparent”. A total of sixty countries including China, France and India signed the declaration. The UK and US stood side by side in refusing to sign the declaration, with Mr Vance stating, “excessive regulation of the AI Sector could kill a transformative industry”. Prime Minster Sir Keir Starmer was not present at the summit but mentioned the UK are open to future revisions of the declaration.    

Sir Kier Starmer will certainly be celebrating the small wins, including positive economic growth figures for Q4 2024. GDP rose from 0% in Q3 to 0.1% in Q4 2024, beating market expectations of a contraction of -0.1%. When we break down the data it was the services and construction sectors that provided the much-needed boost to the economy. It has not been smooth sailing for Chancellor Rachel Reeves since her fiscal plans to increase tax burdens on businesses were highly criticised, and she was not satisfied with the current level of economic growth, which is why she is “determined to go further and faster in delivering growth and improving living standards”.

It was just last week that the Bank of England (BoE) met and reduced rates due to sluggish growth and a recent drop in inflation. Policymaker Catherine Mann, who was one of two who voted for a larger 50bps (0.5%) cut to rates, spoke this week. Despite being viewed by markets as an “uber-hawk”, she believes that there was sufficient evidence of softer consumer demand and the risk of a deterioration in the labour market. This caused her to signal to markets that she had dropped her previous stance of opposition to cutting rates. However, she noted that “50 now does not mean 50 next time” as she maintains an active view on the direction of rates.

Unilever, the parent company of Ben & Jerry’s, dealt a blow to both the UK and US by choosing Amsterdam as the primary listing for the ice cream company. Unilever own various brands, including Dove soap and TRESemmé hair products. However, their earnings report underwhelmed on Thursday, followed by weak forecasts for the first half of 2025, causing a 6% share drop on the day. Chancellor Rachel Reeves did meet with Unilever last September in a bid to convince them that the UK was the correct destination for listing, but did not convince them to have their primary listing in the UK. There is still optimism that the UK will be able to convince fashion retailer Shein to list on the London stock exchange for around £40billion.

US inflation was the most significant data point of the week for markets, and it continues to run extremely hot. If we think back to the September reading, inflation was on the mend and down to 2.4%, but it has since reaccelerated, hitting 3% in January. Core inflation (excluding energy and food costs) rose to 3.3% year-on-year. Standout sector increases include the price of used cars, medical care commodities and airline fares, which have been consistently rising. President Trump has called for the US Federal Reserve to cut rates; however, they are cautious to act as Trump’s tariffs and immigration policies have the potential to be inflationary. Markets have forecast that we will not see the first rate cut until September this year. US equity markets reacted negatively to the news, with the S&P500 falling over 1% on the day, although it recovered these losses by the end of the week.

US Retail sales were released this afternoon, rounding up disappointing data points for the US. Retail sales (month-on-month) for January fell by -0.9%, following a revised December figure of 0.7%. It’s tough to pinpoint the exact cause of such weak sales, as poor weather conditions hit parts of the country and consumers were expected to pull back spending following the Christmas period. US government bond yields fell (prices rose) on the news, as investors digest whether the potentially slowing consumer could force the US Fed to cut rates.

It will be the UK’s turn to hold their breath next week as inflation, wage growth and retail sales figures are all set to be released. Within portfolios, gold has remained a key contributor as market uncertainty continues to drive investors towards the safe haven asset. European equities have also quietly continued to perform this year, as President Trump spoke of a potential peace deal between Russia and Ukraine.

Nathan Amaning, Investment Analyst

Risk warning:  With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Month In Markets – January 2025

The Month In Markets - January 2025

So much for a quiet start to the year! We’ve had Trump’s inauguration, threats to the artificial intelligence status quo, and quietly flying under the radar, UK large cap equities hitting all-time highs.

January was a month of two halves, with the first part characterised by the reemergence of inflation concerns, putting pressure on fixed income assets, while the second half of the month saw strong performance from a range of assets as softer inflation data supported markets.

As we started 2025, the market had become very pessimistic about the prospect of deep rate cuts in the US and UK. Recent data suggested that inflation could reaccelerate and as a result central banks would have to be mindful of releasing interest rates too soon. While only a few months ago there was talk of up to six interest rate cuts from the US and UK in 2025, by mid-January this had fallen to only one to two cuts. This created a headwind for fixed income assets and more rate-sensitive equities (small cap), leading to a challenging first two weeks of the year. The US inflation story was being driven by a strong economy with robust labour markets and wage growth. Here in the UK, there was less optimism around the strength of the economy, however, there were serious concerns that Labour’s autumn budget would lead to higher inflation as businesses raised prices to compensate for their extra national insurance bill. Companies such as Next and Sainsbury’s made strong statements around pricing, directly linking this to their increased National Insurance costs.

The mood shifted on 15 January when both US and UK inflation figures were released, with both numbers coming in below expectations. Suddenly, interest rate cuts were back on the table, with the view that the Bank of England would now be able to cut interest rates during the first week of February. Importantly, services inflation showed significant progress, something the BoE have been watching closely. Falling interest rates should support the consumer; UK mid-cap equities (which are more domestically focused) had fallen at the start of January but enjoyed a strong recovery in the second half of the year due to increased hope around the consumer. The same story was true in the US; the interest rate-sensitive, small-cap index rallied off the back of weaker inflation data.

By the end of the month, the UK large-cap index was making new all-time highs. It’s hard to say what the main driver behind this was, however, with around 75% of revenues coming from overseas, the index is truly international in nature. The unloved UK market was outdone in January by another unloved market – Europe. Perhaps asset allocators have updated their strategies for 2025 and redistributed capital into these lagging areas, where valuations are extremely depressed and offer attractive potential returns for long-term investors. The European Central Bank (ECB) has certainly been more accommodative than the Bank of England, with the ECB cutting interest rates in January, reducing the main refinancing rate to 2.9% – the rate was 4.5% back in May 2024. The expectation is for monetary policy to remain supportive in the Eurozone, and this has pushed up equity valuations. 

The one-month return for US equities was very strong in absolute returns, yet it lagged behind the UK and Europe. We witnessed incredible volatility in the tech sector towards the end of the month, with the emergence of Chinese artificial intelligence (AI) DeepSeek threatening to shake up the AI stack. Their cutting-edge AI technology was developed on a shoestring budget, leading to concerns about the competitiveness of US firms going forward, including the expected high demand for the latest microchips. AI darling Nvidia, which had earlier in the month reached a market capitalisation of $3.7 trillion, becoming the world’s largest company once again, saw $590 billion in value wiped off in a single day. This was the largest ever one-day loss in terms of company value. It’s hard to know exactly how good DeepSeek is, but it has certainly created an air of uncertainty around AI leadership. Given that many US tech companies are highly valued, the sector can’t really afford any missteps.

It seems amazing to think this all went on and we still haven’t covered Trump’s inauguration! Trump was officially sworn in as the 47th US president on 20 January. He immediately signed a raft of executive orders, focusing on topics such as border security, economic policies and government transparency. Equity and bond markets responded positively to his inauguration, even as concerns around potential tariffs and their inflationary impact increased. Historical stock market returns have shown that the US president has little bearing on returns, although given some of Trump’s unorthodox plans, there could be a higher risk premium attached to the US market going forward.

Gold had a positive month, approaching all-time high prices last seen prior to the US election result. Various factors are supporting gold, including increased demand due to geopolitical tensions, inflation concerns, central bank policies and government budget deficits. We have seen elevated central bank buying of gold throughout 2024 and there is no reason to believe this demand will diminish in 2025.

One may be surprised that January was such a strong month in markets, given the events that took place. This highlights the challenges of investing and the danger of trying to time the markets. The antidote for us is a well-diversified portfolio with limited risk concentration, which can perform in a wide range of outcomes.

Andy Triggs

Head Of Investments, Raymond James, Barbican

 Appendix

5-year performance chart

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results and forecasts are not a reliable indicator of future performance. This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.

The Week In Markets – 1st February – 7th February 2025

As we enter the month of February, the weekly update would usually begin with an interesting fact about the month. However, this time, we start with a significant announcement made by President Trump over the weekend. Beginning from the 4th of February, a 25% tariff was set to be imposed on all goods imported from Canada and Mexico, and a 10% tariff imposed on all imports from China.

Trump’s tariffs were perceived as strong bargaining chips and by Monday afternoon Trump had gained the upper hand. Following phone calls with both Mexican president Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau, he announced that the tariffs would be postponed for 30 days. Mexico agreed to send 10,000 soldiers to the border to prevent drug trafficking from Mexico to the US. Canada followed suit a few hours later with the implementation of a $1.3billion plan to reinforce the Canadian-US border with new transport, technology and extra personnel in order to stop drug trafficking and illegal migrants.

Markets sold off sharply at the open on Monday morning in response to the initial news with equity markets falling almost 2% and the US Dollar strengthening. Trump also hinted that the EU would be next to face tariffs but did not specify a timeline, while the UK was set to potentially be “spared”. Fund managers have called Trump’s period in power “chaos” but on the other hand, he seems to be fulfilling his promises.

That’s enough Trump talk, but we do remain in the US as Alphabet (Google’s parent company) released their Q4 2024 earnings on Tuesday. Earnings per share rose to $2.15 but fell short on revenue at $96.47billion. Capital expenditure, which leaned heavily towards “technical infrastructure” rose to $14.28billion. Cloud revenue growth disappointed as it decelerated in Q4, rising 35% in Q3 but only 30% in Q4 to $12billion. Alphabet shares fell almost 8% on the day, but CEO Sundar Pichai spoke confidently following the earnings releases about the opportunities ahead, stating capital expenditure would rise by $75billion in 2025 to “accelerate progress”.

We’ve had the first US Non-farm payrolls print of the year, with 143,000 jobs created in January. There were strong payroll figures to end 2024 with 261,000 jobs created in November & 307,000 jobs in December. Market expectations were for a slowdown to 170,000. The unemployment rate also moderated to 4% from 4.1% the previous month. With soft labour figures for the month, the US Federal Reserve will certainly consider the data; however, they have signalled they will act cautiously given the uncertainty around government policies.

It was a unanimous decision on Thursday in the UK as all nine monetary policymakers agreed to cut rates. The Bank of England (BoE) cut rates by 25bps (0.25%) to 4.5%, marking just the third cut since August 2024. Despite a slight resurgence in inflation over Q4, December’s inflation figure bucked the trend, falling to 2.5%. Growth in the UK has been weak, which is why members Catherine Mann and Swati Dhingra favoured a larger cut of 50bps (0.5%) to 4.25%.  Governor Bailey stated that the BoE would “monitor the UK economy and global developments very closely”. Markets reacted positively, with the FTSE 100 up over 1% for the day and the more domestic FTSE 250 up over 1.5%. The large cap index has once again made new all-time highs this week, although more domestically facing equities are lagging, despite a recent resurgence.

In a week full of ups and downs, gold prices rose to a new all-time high of $2,895, driven by safe haven demand following the tariff situation earlier this week. Investors flock to gold as a hedge against market volatility and economic uncertainty. Other safe haven assets such as government bonds have also enjoyed a better time of things of late, in part driven by more dovish positioning from central banks, coupled with increased geopolitical uncertainty, pushing investors to perceived safer assets.

News flow for 2025 has appeared very challenging, yet we have seen a range of equity markets pushing higher. It’s a reminder of the dangers of trying to time markets. Portfolios remain well diversified both at an asset and country level, which we think is the prudent approach over the coming years.

Nathan Amaning, Investment Analyst

Risk warning:  With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

Twin Peaks

Jeremy Batstone-Carr, Raymond James European Strategist, takes a deep dive into some of last month’s destabilizing activities including the potential ramifications of the new US administration’s campaign promises and the recent upset in the technology sector generated by China’s norm-busting AI model, DeepSeek.

The Week In Markets – 25th January – 31st January 2025

In a week when the US Federal Reserve and the European Central Bank held their first interest rate meetings of the year, the main topic of conversation wasn’t about interest rates. DeepSeek, a Chinese artificial intelligence chat bot, was not well-known among investors before last Saturday but this week has become the talk of the town.

DeepSeek is a Chinese startup that launched its free AI chatbot last week, and was developed on a fraction of the budget of other competitor AI models. By Monday morning, it had overtaken US rival ChatGPT in downloads from the Apple app store. Questions are now being raised about the future demand for chips and the importance of huge investments into power production to fuel data centres, as DeepSeek has highlighted high-speed AI models can be developed on low budgets with much less power needs. This had a drastic impact on large-cap technology stocks, with $593billion wiped from Nvidia’s market value in a single day, a new record. It seems the barriers to entry in the market are not as great as initially assumed, opening the door for other companies to enter. It has also brought into question the decision of large firms such as Microsoft and Meta to invest billions of dollars into expensive chips and data centres, which ultimately may not be required. It is potentially a pivotal moment with investors previously paying high prices to access the AI chip makers (Nvidia) and users (other Mag 7 companies) believing they had a monopoly over this market and there were high barriers to entry – that narrative is now looking precarious. Given the valuations of these companies, their execution needs to be faultless going forward, so this is definitely something to watch.

Norway is home to the world’s largest sovereign wealth fund, which reported a record annual profit of 2.51 trillion crowns ($222billion) for 2024. This is the second straight year of record profits and Mr Tangen, CEO of Norges Bank, acknowledged the extraordinary gains, noting almost 50% came from technology stocks, including Nvidia. He warned that such returns will not continue forever, as the bank’s stress test highlighted the risk posed by an AI stock correction, debt crisis or geopolitical shock.

The US Federal Reserve announced their decision to keep interest rates unchanged on Wednesday. Fed Chair Jerome Powell shared his belief that the current policy stance is “well calibrated”. There was a large emphasis on “waiting to see what policies are enacted” as US President Trump’s promises of import tariffs and immigration crackdowns have inflationary implications. The US Fed is also aware of the risks associated with cutting rates too aggressively from the 22 year high of 5.5% we saw in July 2023 to August 2024. President Trump does not seem to be Chair Powell’s biggest supporter, as he claimed the US Fed had taken their eye off the ball and spent too much time on DEI (Diversity, Equity and Inclusion), “green” energy and fake climate change.

560 miles north of Washington DC, is Ottawa, where the Bank of Canada (BoC) met and they continued their rate cutting journey with a 25bps (0.25%) cut, bringing the policy rate down to 3%. The move was widely expected by markets, with the bank now cutting interest rates for the sixth successive time. The BoC did not give any guidance on the future rate path but did express concerns about a looming trade dispute with the US, which would test Canada’s economy resilience in a year they had hoped would be an economic revival.

The European Central Bank met on the Thursday and, as markets forecasted, also cut rates by 25bps (0.25%) bringing rates to 2.75%. This rate cut can be attributed to continued weak growth across the Euro economy. ECB President Christine Lagarde noted that the “economy is still facing headwinds” and believes that tariffs implemented will have a “global negative impact”. Markets are forecasting three more rate cuts over 2025 but acknowledge the pace and magnitude of any further cuts will be data driven.

The most positive news of the week is the strong performance in UK equities. The FTSE 100 closed at a record high, smashing through the 8,600 mark and while the more domestically focused FTSE 250 has lagged behind, it has still risen around 2% throughout the week. Government bond yields have continued to fall this week from recent elevated levels in January which has provided support to equity markets. The Bank of England meet next week and they are expected to deliver a 0.25% cut which should act as support to the UK consumer.

Nathan Amaning, Investment Analyst

Risk warning:  With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Week In Markets – 18th January – 24th January 2025

Davos is the highest town in Europe. It’s not only famous for its 300km of ski slopes, but also hosts the annual meeting of the World Economic Forum every January. This year’s theme is “Collaboration for the Intelligent Age” with a large emphasis on the rapid advancements in artificial intelligence, cryptocurrency and blockchain. 

There were 24.6 million watching as US President Donald Trump was inaugurated on Monday afternoon. Mr Trump got straight to work on his first day, signing 46 executive orders and actions, which included policies on border security, energy, gender rights and pardoning the January 6 Capitol rioters. “Trump tariffs” have been trending buzzwords over the last months, but Trump did not sign any orders imposing tariffs on any foreign nations. He did speak remotely at Davos on Thursday, encouraging businesses to “come and make your products in America, and we will give you among the lowest taxes of any nation”.

US initial jobless claims were released on Thursday, and the number of Americans filling for unemployment benefits rose slightly from last week by 6,000 to 223,000. Markets had forecast 200,000 claims but the numbers still seem to be affected by the rampant wildfires that occurred in California. The US labour market was resilient over 2024 and has continued its strength this year. The US Federal Reserve will take all factors in account ahead of their meeting next week. There is not expected to be any change in interest rates with markets projecting the first rate cut to arrive in May.

The highly anticipated Season 2 of The Night Agent was released this week but that’s not the only reason Netflix is in the weekly. Netflix shares soared to an all-time high just under $1,000 as they reported $10.5bn in revenue and added 18.9m users over Q4 2024. This included the streaming of former heavyweight Mike Tyson and influencer Jake Paul’s boxing match, as well as two NFL games on Christmas day. Following the earnings reports, Netflix announced that they will be raising subscription prices by one dollar in the US, Canada and Portugal.

In the UK, wage growth figures for the three months to November 2024 rose in both the private sector and the overall economy. For the private sector, growth increased to 6% from 5.5% in October, while for the economy as a whole it rose to 5.6%. The stubbornly strong wage growth remains an ever-present issue for monetary policy makers. The UK’s unemployment figures for November 2024 were also released and rose unexpectedly to 4.4%. Following the Chancellor’s autumn budget, where it became apparent businesses would bear the brunt of new tax measures, markets expect wage growth figures and job vacancies to dip over December.

The Bank of Japan (BoJ) started the year with a 25bps (0.25%) raise to interest rates, bringing rates to 0.5%, the highest level since the 2008 global financial crisis. Inflation figures for December rose to a staggering 3.6% up from 2.9% in November, the highest reading since January 2023. As a result, the vote was almost unanimous, with eight of the nine policymakers voting to hike. BoJ Governor, Mr Ueda stated the central bank will continue on the rate hike path until they see inflation trend towards the 2% target.

On a positive note, equities have been strong with the S&P 500 and FTSE 100 reaching all-time highs. We expect next week to be as busy as this week, with inflation reports from the US and Germany and central bank decisions from the US Federal Reserve, European Central Bank and the Bank of Canada.

Nathan Amaning, Investment Analyst

Risk warning:  With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Week In Markets – 11th January – 17th January 2025

We are 17 days into the new year and historically the number 17 means the “manifestation of positive outcomes” and “complete victory”. This has definitely been a more positive day and week in markets, and there is certainly the prospect of a positive outcome in ceasefire talks between Israel and Hamas. Economic data this week was mixed however, with some data from the UK particularly underwhelming.

US Headline inflation (year-on-year) was reported at 2.9%, almost 1% above the US Federal Reserve’s target of 2%, aligning with the Fed’s projections for fewer rate cuts over the year. A positive note is that core inflation (excludes food and energy prices) for December dropped to 3.2% after remaining firm at 3.3% for three consecutive months. In just three days, Mr Trump will begin his second stint in the White House, and the continued threat of tariffs on imported goods and mass deportation of immigrants are seen as acts that could further raise inflation. The US Fed will be patient to see how the start of the year unfolds but has already projected a shallower rate cut path, with no rate cut expected in the January meeting.

We will remain in the US where we cover retail sales, which rose 3.9% (year-on-year) in December. Miscellaneous store retailers, which include gifts shops and florists, saw an increase of 4.3% due to the Christmas period, whilst sales of sporting goods, hobby and musical instruments jumped 2.6% and furniture stores sales rose by 2.3%. Continued consumer strength is being driven by strong wage growth, and markets also sense consumers may be rushing to purchase goods in anticipation of the Trump tariffs, which ultimately raise prices for consumers.

You may be reading this report on your Apple iPhone, but if the report reaches China it’s likely they’ve switched their iPhones out for local rivals Vivo or Huawei. 2024 was Apple’s worst year for iPhone sales in almost a decade, as Vivo captured a 17% market share, closely followed by Huawei with 16%. Artificial intelligence certainly played a role – or in Apple’s case the lack of it- as the latest iPhones sold in China have no access to ChatGPT, forcing Apple to negotiate with China’s domestic companies to integrate AI features.

In the UK, inflation (year-on-year) bucked the recent rising trend and fell to 2.5% for the month of December. A significant positive for the Bank of England (BoE) to consider is the fall in services inflation from 5% in November to 4.4%, the lowest level in 33 months. We reported last week that yields had risen as high as 5.47% (long-dated bonds), the highest since 1998, but have since fallen. The steep fall in yields this week has boosted government bond prices and will ease some pressure on Rachel Reeves.

UK GDP figures for November were released the day following the inflation report, showing positive economic growth of 0.1% (month-on-month) after declines in September and October. Market forecasts had predicted a 0.2% rise in GDP, reflecting the continued gloomy mood over the UK economy since Chanceller Rachel Reeves’ autumn budget. Rachel Reeves did speak following the report, pledging she was “determined to go further and faster to kickstart economic growth”.

UK Retail sales for December is the latest data we have, released this Friday morning, and it surprised by falling -0.3% (month-on-month). Market expectations were for a 0.4% monthly increase, especially with a Christmas bounce; however, this did not materialise as consumers pulled back on food spending. Poor retail sales, weaker than expected economic growth, and the fall in inflation, including services inflation, could provide the BoE with an opportunity to cut rates in their first meeting of the year in February. It appears that bad economic news is good news for markets, as UK equities rose this week. The large cap index is now a whisker away from all-time highs and the mid-cap index advanced over 2.5% on Wednesday following the positive inflation data.

At a company level news broke on Friday morning that Rio Tinto and Glencore had held discussions about a potential merger. While talks are no longer active, there is potential for a deal to be done later in the year. Any merger would be the largest ever in the mining industry.

As we look out to next week all focus will be on Trump’s inauguration on Monday. He has promised strong action, from tariffs to tax cuts, to even trying to buy Greenland! It will be interesting to see what he can actually implement, and how markets will react.

Nathan Amaning, Investment Analyst

Risk warning:  With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Week In Markets – 4th January to 10th January 2025

Any hopes of easing into the new year were swiftly dashed, as concerns around inflation re-emerged, leading to a spike in volatility in bond and currency markets. While the sell-off in bonds was global in nature, the UK was hit particularly hard, which will make for unpleasant reading for the Chancellor, Rachel Reeves.

UK government bond yields have been steadily rising over December and spiked this week, with longer-dated bonds selling off the most. This now means long-term borrowing costs for the UK are now at levels not seen since 1998. It seems the sell-off has been driven by dual concerns around sticky inflation and slowing economic growth. The market now only expects the Bank of England (BoE) to cut rates twice this year (due to inflation) and there are also expectations of lower tax revenues due to lacklustre growth. For the Chancellor, there is a now a risk that she will breach her own fiscal rules, and this could lead to either further tax increases or spending cuts, in order to help balance the books. Sterling fell in tandem with government bonds this week, falling to a 14-month low versus the US Dollar. UK large cap equities actually rallied during the week, most likely in reaction to the lower currency, which should boost overseas earnings (when translated back to sterling). The mid-cap index, which is typically more domestically focused, dropped close to 2% on Wednesday, led by consumer stocks. If interest rates stay higher-for-longer, there will likely be a negative impact on the consumer (in part due to higher mortgage rates), who could see disposable incomes dented.

On Monday there were reports that Donald Trump and his team were considering scaling back their tariff plans, however, this was quickly dismissed with Trump tweeting this was “fake news”, causing equity markets to wobble on Monday afternoon. The market views tariffs as an inflationary policy and this has helped to push inflation expectations higher in the US, forcing US government bonds to sell-off this week, approaching levels not seen since November 2023.

With inflation concerns once again coming to the fore, there has been a different equity market leadership in 2025 compared to 2024. Sectors such as oil and gas, mining and financials have led the way, sectors that feature prominently in UK indices, but are light in US indices, which are heavily exposed to technology. If inflation concerns persist, then investors will need to consider their asset allocation. In 2022, when we saw inflation and interest rates rise, the UK large cap index outperformed the US equity index by a staggering 29%. At this juncture, we think diversification in portfolios is important, with inflation strategies, such as resources and gold included in the asset mix.

Inflation is certainly not a concern in Switzerland where prices fell over the month of December and headline inflation is a meagre 0.6%. This low level of inflation has allowed the central bank to cut rates to 0.5%. Deflation seems the biggest concern in the world’s second largest economy, China, with the latest inflation print at 0.1%. There are real concerns that China is going down the same path as Japan did 30 years ago, with similarities being made due to demographics, an ailing property sector and elevated private debt levels. The concerns have led to Chinese equities falling over 5% in 2025.

The gold price proved resilient throughout the weak, despite the increase in real yields. It is back approaching $2,700 an ounce, close to its all-time high. As commented on last week, oil has been moving higher in 2025. Brent crude oil is approaching $80 a barrel and this will feed into the upcoming inflation data.

The week finished with the most important economic data, the US Non-Farm Payrolls data, which showed 256,000 jobs had been added to the economy, while unemployment dropped to 4.1%. Both data points beat expectations, leading to investors believing the US economy is strong, and that the US Fed will likely be very slow and steady in future rate cuts. US government bonds sold off on the news, and US equities look like they will open lower.

The mood music has changed so far in 2025, inflation concerns have bubbled to the surface and the optimism of deep rate cuts in 2025 has diminished. Within the portfolios exposure to resources, which struggled in 2024, are now leading the way, highlighting the benefits of diversification and blending holdings that perform in different environments.

Andy Triggs, Head of Investments

Risk warning:  With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Month In Markets – December 2024

The Month In Markets - December 2024

The ‘Santa Rally’ phenomenon failed to ignite this year, despite much optimism that November’s market strength would continue into the year-end. Despite a weaker month, it has generally been a positive 2024 for risk assets.

One asset class that has struggled this year is government bonds, and December was no different. During the month we saw many prominent central banks meet for one final time in 2024 to set interest rate policy. While the interest rate decision was important, just as pertinent was commentary around the outlook for next year and hints about the likely path for interest rates.

Starting with the US Fed, as expected the committee voted to reduce rates by 25bps (0.25%). This was the third rate cut this year, bringing the total reduction to 1%. Despite lowering interest rates, it soon became clear that the US Fed is still nervous around inflation, with potential Trump tariffs and a strong economy likely to put upward pressure on prices. The US Fed now only expect to reduce interest rates by 0.5% in 2025. The hawkish commentary from Fed Chair Powell led to US government bond yields rising (prices falling). Some investors have questioned whether the US economy really needs any interest rate cuts given its strong economic growth, and as such there are concerns that inflation could rear its head again due to loose policy.

It wasn’t just the US Fed cutting rates in December, with a raft of other central banks lowering their headline interest rates. The European Central Bank (ECB) delivered their fourth cut of the year, while the Bank of Canada delivered a bumper 0.5% reduction, bringing their headline rate to 3.25%. Another central bank that decided on a jumbo cut was Switzerland, which now means their interest rate is only 0.5%. Interestingly, the Swiss Central Bank hasn’t ruled out the possibility of negative interest rates. Overall, 2024 has seen a shift away from interest rate hikes towards cuts and this is expected to continue into 2025.

One nation that bucked the trend in December was the UK. The Bank of England (BoE) met and decided to pause their recent cutting cycle, leaving headline interest rates at 4.75%. Six committee members voted to maintain the current level of rates, while three members voted for a 0.25% reduction. The decision seems to have been influenced by a range of factors, including the latest inflation data, which showed headline inflation at 2.6%, up from the lows of 1.7% in September. UK wage growth came in at 5.2%, higher than expected which also influenced the BoE’s decision.

On a forward-looking basis, there is the expectation that many UK companies will raise prices in 2025 to offset the recent National Insurance tax increases introduced in the October budget, which will be inflationary. One factor that might prompt the BoE to cut rates more aggressively in 2025 is the state of the economy. The latest economic data has been disappointing and pointed towards a sluggish economic backdrop. GDP data for Q3 was revised down to zero, and the economy is expected to have shrunk in the October (data released in December). This will make for grim reading for the Labour government, who pushed hard on a narrative of economic growth. It is still early days, and it will be interesting to see how data unfolds in 2025.

Over the course of December, UK government bond yields rose, with longer-dated bond yields rising above 5%. This now means that long-term UK borrowing costs are at the highest level in 26 years.

There was a different trend in China, where the yield on the sovereign one-year bond fell below 1% for the first time since 2009. The falling bond yields reflect concerns around China’s economic growth outlook, coupled with the expectation of a significant policy response in effort to kickstart their economy and boost consumption.  Inflation in China fell to 0.2%, which was lower than expected and driven in part by a weak consumer and domestic demand. Retail sales were up only 0.16% for the month of November and a range of PMI data was soft. It’s clear the Chinese authorities have a huge task on their hands in turning round the fortunes of the world’s second- largest economy.

At a stock market level there were some interesting dynamics at play. In the US, growth- orientated companies led the way, while some of the cheaper, unloved companies lagged. One of the main US equity indices, which has limited exposure to technology companies, closed down for 11 consecutive days, something we have not witnessed since 1974. There was significant dispersion in the US market, with the tech sector performing strongly, while areas such as infrastructure lagged.

At a currency level we saw Sterling weaken by around 2.5% versus the US Dollar. The trend for the month was one of US Dollar strength. With Trump’s inauguration in January and no sign of a cut to the huge budget deficit there could be potential headwinds for the greenback currency as we head into 2025.

The narrowness of the market in December made it a challenging month for diversified multi-asset portfolios. However, we continue to believe a genuinely global approach, diversified across asset classes, sectors and investment styles is a sensible approach in order to manage risk, smooth returns and preserve and grow capital over the long-term.

Andy Triggs

Head Of Investments, Raymond James, Barbican

 

Appendix

5-year performance chart

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results and forecasts are not a reliable indicator of future performance. This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.

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