Market Highlights
- Global stock markets rose as strong performancesin non-tech sectors offset concerns over AIinvestments in the tech industry.
- Inflation fears drove up borrowing costs, with USbond yields surging and UK bonds reacting toLabour’s budget plans.
- Central banks took different approaches, as theEuropean Central Bank (ECB) cut rates, the USFederal Reserve (Fed) held steady, and the Bank ofJapan raised interest rates.
- Trade tensions unsettled currency markets, withtariff threats from former US President Trumpaffecting the Canadian dollar and Mexican peso,while US-China tensions added uncertainty.
The Big Topics
Eurozone Economy Stalls
The eurozone saw no growth in the final quarter of 2024, its weakest performance since late 2023, while Germany’s economy shrank by 0.2%. Ongoing challenges like worker shortages, bureaucracy, and low investment continue to hold the region back. Rising natural gas prices, weak export demand, and competition from China add further pressure. Although eurozone stocks performed well in January, this followed a difficult 2024 where the region lagged behind global markets.
DeepSeek AI Controversy Shakes TechSector
Chinese AI start-up DeepSeek sparked fresh US-China tensions, initially causing sharp losses for US tech giants like Nvidia with claims of a low-cost AI platform. However, doubts about DeepSeek’s model led to investigations by Microsoft and OpenAI. In response, US officials are considering new trade tariffs and restrictions on Nvidia chip exports to China. While Meta, Tesla, and Apple saw market gains, Microsoft had mixed results.
The sector remains volatile, with investors watching for earnings reports
from Alphabet, Amazon, and Nvidia in February.
UK Shares Gain Investor Interest
After years of lagging behind Wall Street, UK shares are drawing fresh investor attention, with January marking their best monthly performance in over two years. Despite concerns about economic growth following the Labour government’s Autumn Budget, the UK stock market offers attractive valuations, and sectors like banking have shown resilience.
This shift in sentiment suggests potential for strong returns, particularly in larger value-focused companies positioned for international growth.
Central Banks Take Different Paths
Central banks responded differently to economicconditions this month. The European Central Bank(ECB) cut rates by 0.25% to support a fragileeconomy, while the US Federal Reserve (Fed) keptrates unchanged, taking a cautious stance amidmixed signals. Meanwhile, the Bank of Japan raisedrates to 0.5%—its highest level in 17 years—marking ashift away from ultra-low rates. These variedstrategies reflect the challenge of balancing inflationcontrol with economic growth.
