FTSE closes lower while US stocks got pummelled. The TPP weekend wrap.

FTSE closes out the week lower while US stocks got pummelled.

The latest UK inflation and wage data prompted financial markets to significantly reduce bets on three interest rate cuts by the Bank of England this year. Annual consumer price growth accelerated to 3% in January, the fastest rate since March 2024, from 2.5% in the previous month. Higher transport costs and rising food and non-alcoholic beverage prices drove the increase. Services inflation, which is closely monitored by policymakers, accelerated to 5.0% from 4.4%. Core inflation, which excludes volatile food and energy prices, picked up to 3.7% from 3.2%.

Meanwhile, in the three months through December, average wages, excluding bonuses, rose 5.9% annually, an uptick from the 5.6% increase logged in the previous quarter. Separately, the labour market was more resilient than thought. The jobless rate was stable at 4.4%, a level that was less than the 4.5% consensus forecast in a FactSet poll of economists.

Seasonally adjusted UK retail sales volumes in January surged 1.7% sequentially, the first monthly increase since August and well above a consensus forecast for a 0.65% increase. Strong food sales fuelled the growth. However, non-food and clothing sales weakened. GfK’s consumer confidence index ticked up in February but remained in negative territory amid worries about jobs and prices.

The latest purchasing managers' index data released on Friday from S&P Global showed a slight decline in UK private sector activity, as a deepening manufacturing contraction offset modest growth in services.

The composite PMI slipped to 50.5 in February from 50.6 in January, in line with forecasts. While services activity picked up more than expected, with the PMI rising to 51.1, manufacturing saw its steepest contraction in over a year, with the sector’s reading dropping to 46.4 from 48.3.

New business continued to decline, marking the sharpest drop since August 2023, while private sector employment saw its largest fall since November 2020 due to rising payroll costs and subdued demand.

“Early PMI survey data for February indicate that business activity remained largely stalled for a fourth successive month, with job losses mounting amid falling sales and rising costs,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

“The lack of growth alongside rising price pressures points to a stagflationary environment which will present a growing dilemma for the Bank of England.”

Despite the weakness in business activity, UK consumer confidence improved, according to GfK’s latest survey. The consumer confidence index rose two points to -20 in February, as optimism about personal finances over the next year improved.

However, sentiment toward the broader economy remained fragile, with expectations for the country’s economic outlook deteriorating further. A measure of willingness to make major purchases rose three points, suggesting consumers were becoming more inclined to spend on big-ticket items.

“In contrast to last month when all five core measures were down, this month they are all up,” said NIQ GfK consumer insights director Neil Bellamy.

“The biggest improvement is in how consumers see their personal finances for the coming year with an increase of four points that takes this measure out of negative territory to +2. The Bank of England interest rate cut on 6 February will have brightened the mood for some people, but the majority are still struggling with a cost-of-living crisis that is far from over.”

Europe

The pan-European STOXX Europe 600 Index ended 0.26% higher amid cautious optimism, as investors weighed U.S. trade policy developments and efforts to end the Russia-Ukraine conflict. Major stock indexes were mixed. Germany’s DAX fell 1.00% ahead of the federal election on Sunday. France’s CAC 40 Index eased 0.29%, while Italy’s FTSE MIB added 1.17%.

Business activity in the eurozone remained in expansionary territory for a second consecutive month in February, according to provisional PMIs from S&P Global. The HCOB Flash Eurozone Composite PMI Output Index registered 50.2, a level that was unchanged from January. PMI readings greater than 50 indicate an increase in business activity. Still, the survey showed continued weakness in new orders, a reduction in staffing levels, accelerating input cost inflation, and higher output prices. The picture across the bloc was mixed. Output in Germany rose for a second consecutive month. France, on the other hand, suffered a sharp output decline. The rest of the bloc posted a solid expansion in output.

Earlier in the week the consumer confidence indicator in the Euro Area rose by 0.6 points to -13.6 in February 2025, the highest in four months and beating market expectations of -14, according to preliminary estimates. Consumers remain optimistic that the European Central Bank will continue cutting rates this year. The European Central Bank is expected to cut its deposit rate by 25 bps at each of the next three meetings, bringing it down from the current 2.75%. Eurozone forecasts increasingly point to rates falling below 2% by 2026. Meanwhile, in the broader European Union, consumer sentiment went up 0.4 points to -12.9.

The US

US stocks tumbled on Friday after weaker-than-expected economic reports suggested that President Trump's policies could be impacting U.S. business activity, while consumer sentiment dropped to a 15-month low.

Both the S&P 500 and the Dow Jones Industrial Average slumped 1.7% on Friday, marking their worst one-day declines since December 18, according to financial data firm FactSet. The tech-heavy Nasdaq composite index dropped 2.2%.

With markets closed Monday in observance of Presidents’ Day, stocks started the week on Tuesday generally trending up, which led to the S&P 500 Index closing at record highs on Tuesday and Wednesday. However, sharp losses in the latter half of the week erased the early gains and led to the major indexes finishing lower. Many of the week’s headlines centered around geopolitics and tariff news amid President Donald Trump’s efforts to end the Russia-Ukraine conflict as well as Trump’s announcement of his intent to impose additional tariffs on automobiles, pharmaceuticals, and lumber products, although details of the planned tariffs remained limited.

The negative shift in sentiment on Thursday appeared to be partially due to Walmart’s fourth-quarter earnings report, which was released Thursday morning. While the retailer posted consensus-topping results for the quarter, its guidance for the year ahead fell short, which seemed to drive broader investor concerns regarding consumer spending and the health of the overall economy. This came after the Commerce Department’s retail sales report from the prior week, which indicated retail sales dropped by the most in nearly two years in January. Shares of Walmart declined 6.53% on Thursday following the report.

Elsewhere, S&P Global reported that U.S. business activity growth came close to stalling in February, as its flash Composite Purchasing Managers’ Index (PMI) reading came in at a 17-month low of 50.4 (readings above 50 indicate expansion, while readings below 50 signify contraction). Services activity entered contraction territory with its lowest PMI reading in over two years (49.7), which partially offset growth in the manufacturing sector. According to the report, uncertainty related to federal government policies and rising input cost pressures drove the overall decline.

Meanwhile, the University of Michigan reported its Index of Consumer Sentiment for February on Friday morning, which dropped nearly 10% month over month to 64.7. All components of the index declined during the month, “led by a 19% plunge in buying conditions for durables, in large part due to fears that tariff-induced price increases are imminent,” according to Survey of Consumers Director Joanne Hsu. Inflation expectations for the year ahead also jumped to 4.3%, up from 3.3% in January.

Asia

Japan’s stock markets fell over the week, with the Nikkei 225 Index losing 0.95% and the broader TOPIX Index down 0.82%, struggling in an environment of yen strength and rising Japanese government bond yields. Stocks were further pressured by U.S. President Donald Trump’s tariff threats.

The yen appreciated to around JPY 150.4 against the U.S. dollar, from about 152.3 at the end of the prior week, as a hot consumer inflation print stoked some speculation that the Bank of Japan (BoJ) could be more aggressive than currently expected in raising interest rates. Japan’s nationwide core consumer price index (CPI) rose 3.2% year on year in January, slightly ahead of expectations for a 3.1% increase and up from 3.0% in the prior month, amid surging rice and energy costs. Economic growth data also supported this view, as Japan’s gross domestic product (GDP) expanded by more than anticipated over the final quarter of last year. GDP grew 0.7% quarter on quarter in the fourth quarter of 2024, better than the 0.3% consensus and compared with 0.4% in the third quarter. The economy grew 2.8% on an annualized basis in the last three months of 2024.

Mainland Chinese stock markets rose for the week, lifted by strength in technology shares following better-than-expected earnings from some of the country’s leading tech companies. The onshore benchmark CSI 300 Index rose 1.00% and the Shanghai Composite Index added 0.97% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index advanced 3.79%, driven by a rally in Alibaba shares after China’s leading e-commerce and cloud computing company reported faster-than-projected sales growth in the December quarter.

The surprisingly strong results from Alibaba and other Chinese tech companies came after local artificial intelligence startup DeepSeek showed off its technological capabilities in January, which renewed investor interest in the country’s internet sector. Sentiment was also buoyed after a high-profile meeting between President Xi Jinping and several Chinese tech entrepreneurs signalled that the government was adopting a more supportive stance toward private sector companies. Photos from the February 17 meeting—which were widely disseminated in state media—showed Xi meeting with Alibaba founder Jack Ma and the heads of other leading tech companies.

The Week Ahead

A quieter week ahead on the macroeconomic front will leave investors looking across the pond to the US and the Federal Reserve’s preferred measure of inflation.

Nationwide house price data should offer UK traders something to mull over though, alongside car production and further retail sales figures.

Ahead of April’s looming stamp duty hike, expectations are for house price figures on Friday to show a 0.6% or 3.9% increase on an annual basis in February.

CBI distributive trade and SMMT data sets earlier in the week are also anticipated to show ongoing declines among both UK retail sales and car output respectively.

Over the Atlantic, personal expenditures and the all-important core measure later on Friday promise to dominate proceedings.

Given tariffs under President Donald Trump have prompted renewed inflationary pressure and clouded the scope for rate cuts ahead, the Fed has flagged caution most recently.

“Fed officials this week have expressed a keen interest in seeing more progress on inflation before considering further rate cuts while also recognising potential risks from changes in trade policy,” IG analysts noted.

“They will likely see that next week,” IG added, with headline PCE for January seen easing to 2.5% year on year and the core rate subsiding to 2.6% in the meantime from 2.8%.

Next week is also set to bring a second estimate for fourth-quarter US gross domestic product growth, alongside the likes of European inflation figures.

Earnings:

Rolls-Royce, Nvidia, Aviva, British Airways owner IAG, Aston Martin, St James's Place and Taylor Wimpey promise to bring a busy week ahead.

Monday is relatively quiet with only Zoom Communications of note. Then on Tuesday we hear from Smith & Nephew, Unite Group, Home Depot and AMC Entertainment.

Aston Martin then features in London on Wednesday, before the big one, Nvidia later in the day. Their quarterly revenue and data centre performance are expected to meet or exceed market expectations when it reports its latest earnings on February 26, analysts at UBS believe.

For Q4, they expect revenue of $42.1 billion and earnings per share (EPS) of $0.95, above Street estimates of $38 billion and $0.84 respectively. Data centre revenue is forecast at $38.1 billion, above the Street’s $33.5 billion.

A packed Thursday follows with Aviva, St James's Place, LSEG, Howdens, Taylor Wimpey and Rolls-Royce all in line to update in the UK. Then on Friday we end the week with Pearson, Rightmove and Internation Consolidated Airlines.

It’s going to be a busy week of updates but the main things to watch are out of the US with GDP on Thursday and PCE Price Index on Friday.

Enjoy the rest of your weekend.

‍

‍

‍

‍

Disclaimer: The views expressed in this article are the author’s own and should not be considered in rendering any legal, business or financial advice.

Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to the corresponding past performance.

‍