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A quiet week in the markets, but Trump is sure to shake things up. The TPP weekend wrap.
Market Activity
The calm before the storm?
January 26, 2025
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A Surprisingly Quiet Week
London stocks ended the week flat but were lower on Friday as investor sentiment weakened following a decline in consumer confidence and another drop in private sector employment.
The FTSE 100 index fell 0.73% to close at 8,502.35 points, while the FTSE 250 was fairly flat slipping just 0.01% to 20,518.05 points.
The pound rose 1.14% on the dollar to trade at $1.2494, and it gained 0.19% on the euro trading at €1.1883. The strengthening pound is bad news for the UK benchmark index and it meant that the FTSE 100 sold off even as private sector activity expanded for a second straight year.
President Trump's wish to see lower interest rates led to a drop and one-month low in the US dollar. This benefitted the gold price, which rallied to within a whisker of its all-time high. Meanwhile the oil price extends its rout and sees its first weekly drop in a month having recently rallied through $80.
In economic news, UK business activity showed modest growth in January, with the S&P Global flash composite purchasing managers’ index (PMI) rising to 50.9 from 50.4 in December, signalling a continued but fragile expansion.
The services sector edged up to 51.2, while manufacturing output remained in contraction at 49.3 despite an improvement from the previous month.
However, private sector employment declined for the fourth consecutive month, as firms faced mounting cost pressures. Rising payroll expenses, driven by inflation and anticipated increases in National Insurance contributions, contributed to hiring freezes and reluctance to replace departing staff.
“The loss of confidence, combined with widespread concerns over higher staff costs associated with the Budget, pushed employment sharply lower again,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“Barring the job cutting seen during the pandemic, the rate of job losses signalled by the PMI over the past two months has been the highest since the global financial crisis in 2009.”
Meanwhile, consumer confidence in the UK weakened significantly at the start of the year. The GfK consumer confidence index fell to -22 in January, down five points from December and lower than the same period last year.
Concerns over personal finances and the broader economic outlook weighed on sentiment, with spending intentions declining and savings preferences rising.
The major purchase index dropped to -20, while the savings index climbed to 30, reflecting a cautious approach among households.
“New Year is traditionally a time for change, but looking at these figures, consumers don’t think things are changing for the better,” said Neil Bellamy, consumer insights director at NIQ GfK. “These figures underline that consumers are losing confidence in the UK’s economic prospects.”
He added that the sharp increase in saving intentions was “unwelcome, because it’s another sign that people see dark days ahead and are therefore thinking of putting money aside for safety”.
Europe
The pan-European STOXX Europe 600 Index ended 1.23% higher this week. Most of the move seems to have come from the lack of tariffs being implemented by President Trump in his first days in office. Stocks also received a lift from growing expectations that the European Central Bank (ECB) could continue to cut interest rates. France’s CAC 40 Index climbed 2.83%, and Germany’s DAX gained 2.35%. Italy’s FTSE MIB, however, fell 0.18%.
Business activity in the eurozone rose marginally in January, although demand continued to be weak, according to purchasing managers’ surveys compiled by S&P Global. An early reading of the composite output index registered 50.2, up from 49.6. (Levels above 50 denote expansion.) Activity in the services sector increased modestly for the second month running.
Manufacturing remained in contractionary territory, although companies were optimistic that output would rise a year from now. Business activity in France remained in contraction, but the downturn in Germany stabilized, ending a six-month sequence of declines. Activity in the rest of the bloc expanded modestly for the 13th month in a row.
Comments from ECB policymakers reinforced the view that the central bank is likely to lower borrowing costs for a fifth time on January 30. ECB President Christine Lagarde said on CNBC in the Swiss town of Davos: “The pace is very clear…the pace we shall see depends on data, but a gradual move is certainly something that comes to mind at the moment.”
Francois Villeroy, head of the French central bank, told the World Economic Forum meeting at the resort that rates could fall quickly because the ECB is confident about inflation slowing to its 2% target. Meanwhile, on Bloomberg TV, Dutch governor Klaas Knot appeared to endorse cuts in January and March, citing “encouraging” economic data. In an interview with the Naftemporiki newspaper, Yannis Stournaras of Greece seemed to back gradual moves as well, saying the deposit rate should fall to 2% by the end of the year.
The US
Major indexes finished the holiday-shortened week higher (markets were closed Monday in observance of the Martin Luther King, Jr. holiday), with the S&P 500 Index notching a new record high on Thursday before dipping modestly lower on Friday. As measured by Russell indexes, growth stocks outperformed value shares during the week for the first time this calendar year. Large-cap indexes generally outperformed their smaller-cap peers.
Headlines during the week were largely dominated by political developments in the wake of Monday’s inauguration of President Donald Trump. Notably, Trump did not impose a new round of tariffs on day one, as some had feared, and instead, called on federal agencies to conduct a review of US trade policies to determine the impact of potential future tariffs, although he did pledge to impose 25% tariffs on Canada and Mexico as soon as February. In an interview later in the week, Trump also stated that he would “rather not have to use” tariffs on China, which helped fuel optimism for a potential trade deal between the world’s two largest economies. The developments seemed to be generally well received by investors and helped drive positive sentiment early in the week.
In economic news, S&P Global released its first estimate of January economic activity on Friday morning. According to the report, growth in business activity slowed month over month in January but remained in expansion territory, supported by a return to growth in the manufacturing sector for the first time in six months. Services activity continued to grow during the month, albeit at a slower rate than in December.
The National Association of Realtors also reported existing home sales for the month of December on Friday. The report indicated that sales rose 2.2% during the month to a seasonally adjusted annual rate of 4.24 million, the highest reading in 10 months. However, despite the upside surprise to end the year, the report noted that existing home sales for the full year fell to the lowest level in nearly 30 years amid elevated mortgage rates and record-high home prices.
Meanwhile, the University of Michigan’s Index of Consumer Sentiment fell in January for the first time in six months to 71.1, from 74.0 in December, largely due to rising inflation expectations and concerns about unemployment.
Asia
With Japanese exporters boosted by U.S. President Donald Trump’s decision to refrain from imposing new tariffs on his first day in office, Japan’s stock markets gained over the week, with the Nikkei 225 Index rising 3.85% and the broader TOPIX Index up 2.67%.
Yen strength posed a modest headwind, as the Japanese currency appreciated to the high end of the JPY 155 range against the USD, from the low 156 range at the end of the previous week. Comments by Japan’s finance minister indicating that the government is ready to take appropriate action to support the yen underpinned the currency’s gains, as did the Bank of Japan’s (BoJ) hawkish move.
The BoJ raised its policy rate for the third time in a year. The 0.25 percentage point increase put the policy rate at around 0.5%, its highest level since the 2008 global financial crisis.
The BoJ’s widely expected rate hike was accompanied by an upward revision to the central bank’s inflation expectations for the 2025 fiscal year, with all measures above the 2% target and risks to the upside (as the bank gains confidence on the outlook for wage growth). This gave some room for the BoJ to hike rates again in 2025, with many investors expecting this in the second half of the year.
Chinese equities rose amid news that President Trump may be taking a softer stance on China tariffs. The Shanghai Composite Index added 0.33%, while the blue chip CSI 300 was up 0.54%. In Hong Kong, the benchmark Hang Seng Index gained 2.46%, according to FactSet.
Chinese banks left their one- and five-year loan prime rates unchanged at 3.1% and 3.6%, respectively, for the third straight month. In October, Chinese lenders slashed the benchmark lending rates by a greater-than-expected 25 basis points to revive the economy. Analysts anticipate that the central bank will continue easing monetary policy this year, including potentially cutting the reserve requirement ratio and interest rates, as Beijing steps up efforts to combat the market uncertainty ushered in by a second Trump presidency.
China's youth unemployment rate eased for the fourth consecutive month since hitting its highest level of 2024 in August. The jobless rate for 16- to 24-year-olds excluding students declined to 15.7% in December from 16.1% in November, according to official data. Data released the prior week showed the nationwide jobless rate ticked up to 5.1% in December from 5% the prior month.
The Week Ahead
A slew of macroeconomic news from the US is set to dominate next week as the Federal Reserve’s latest rate call is followed by gross domestic product and inflation data.
Having signalled expectations for just two rate cuts in 2025 upon cutting its key rate to a range of 4.25% to 4.50% last month, expectations are for the Fed to hold this time around. Wednesday’s decision should firm up such expectations given a lack of surprises in data signalling subsiding inflation but economic strength since.
“Whether President Trump starts to pressure [Fed chair] Powell for cheaper money” as promised “is just one further variable,” AJ Bell analyst Russ Mould added.
Further clarity will come on Thursday though, with the release of advanced fourth-quarter GDP figures, which markets anticipate will show moderating growth. Consensus is for the US economy to have expanded by 2.7%, against 3.1% in the third quarter, according to Trading Economics.
Core personal consumption expenditure figures on Friday then cap off a busy week in the US, with analysts looking for the Fed’s preferred measure of inflation to have climbed by 0.2% in December.
Back across the Atlantic, the European Central Bank’s rate call on Thursday is expected to see a cut, while Bank of England consumer credit data will also be in focus. Encompassing mortgage approvals, the data is expected to show higher consumer credit at £1.3 billion in December but a drop in new loans for houses to 61,500.
A packed week ahead is set to feature a string of big names, not least Shell, Apple, Meta, Microsoft and BT.
First, though, Dr Martens and Ryanair will kick off proceedings on Monday, before Pets at Home headlines in London on Tuesday. Boeing, General Motors and Starbucks will feature across the Atlantic in the meantime, ahead of Meta and Microsoft on Wednesday.
Back in London, Wednesday's focus will be on WH Smith, prior to a busy Thursday. Shell, BT, St James's Place, Glencore and Wizz are among those set to update, alongside Apple in the US.
Chevron and Exxon on Friday then cap off a packed transatlantic schedule.
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Last week was a quiet one for TPP.
The leveraged trackers followed the markets and have done well since Trump took power.
One of our 'long or flat' strategies used the FTSE retracement to buy back into the market on Friday, and our active strategies also have a slight BUY bias at the moment.
All the market chatter currently is about Trump, and it will be interesting to see his next moves.
Under his term, could we witness growth like never before, or could a disaster we weren't expecting happen?
No one knows for sure.
You get the impression with Trump that it might be one or the other. He doesn't seem to do 'in the middle'.
At TPP the only thing we're very confident of is that volatility will increase.
This could play into the hands of the majority of our strategies and it could bode well for the future.
Could the market climate favour us more than most in the coming years? We hope so.
Enjoy the rest of your weekend, and good luck in the markets next week..
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