Weekly markets review | 27 January 2025
Canaccord Genuity Wealth Management (UK, Channel Islands and Isle of Man)
A leading wealth management business with offices in London, Jersey, Guernsey and Isle of Man.
By Thomas Hibbert, CFA, Multi-Asset Strategist
Summary
"Trump’s inauguration sparked the strongest first-week market performance for a president since Ronald Reagan in 1985, reflecting renewed optimism around US economic prospects."
Market review
Trump enters office
Trump’s inauguration sparked optimism around US economic prospects, with commentators increasingly highlighting "US exceptionalism." This sentiment was partly reflected in markets last week. US equities gained 1.7% in US dollar terms, the strongest first-week performance for any Presidential term since Ronald Reagan in 1985. However, these gains were offset in sterling terms as the pound strengthened 2.6% against the dollar. The dollar weakened against most currencies as tariff fears eased.
Trump’s early trade rhetoric has dominated attention, particularly around potential tariffs on Mexico and Canada. While his comments and lack of immediate action have helped ease concerns, complacency would be premature. Tariffs remain a key tool in the administration's broader agenda, with their scope dependent on responses from Mexico, Canada, and China. February has been identified as a potential timeline for implementation.
Trump has brought a renewed focus on business to the White House, aligning corporate America with Washington more closely than under the previous administration. Meanwhile, US corporate profits grew 6% year-over-year to the end of Q3, according to the National Income and Product Accounts (NIPA). Strong earnings continue to support investor confidence and lofty equity valuations.
As US growth accelerates, Europe faces headwinds, including high energy costs, weak sentiment, overregulation, and sluggish growth—issues highlighted at last week’s World Economic Forum.
In his first week, Trump signed several executive orders, including withdrawing from the Paris Climate Agreement and the World Health Organisation.
Equities
Global equities saw mixed performance last week. Gains in local currency terms were often eroded by foreign exchange moves, leaving global equities down 0.49% in sterling terms. The strongest regions were those where tariff concerns eased: Latin American equities rose 3.4%, with Mexican companies performing well; German equities gained 2.4%; and Hong Kong equities advanced 2.46%.
Energy was the weakest global sector as Trump renewed pressure on OPEC to lower prices, driving a reversal in West Texas Intermediate (WTI) - a blend of several US crude oils - and Brent crude. The fall was exacerbated by US dollar weakness. Communications services led gains, buoyed by strong earnings results. Early signs from earnings season point to a robust quarter, particularly for US companies, this week earnings season accelerates with results from some of the ‘Magnificent Seven’ due.
Bank of Japan
The BoJ raised interest rates by 0.25%, bringing the policy rate to 0.5%, the highest level since the Global Financial Crisis in 2008. The widely anticipated move reflects inflation exceeding the central bank’s 2% target, driven by strong wage growth. December Consumer Price Index (CPI) rose to 3.0%, up from 2.7% in November.
This data, coupled with continued economic strength, suggests the BoJ will stay on track to normalise policy further in the months ahead. Japanese equities gained 2.7% last week, supported by Trump’s tariff restraint, though gains were muted by sterling strength.
The week ahead
Wednesday: FOMC rate decision
Our thoughts: The FOMC is expected to hold rates steady this week, marking its first pause since the 0.5% cut in September. December’s minutes revealed 15/19 members cited upside inflation risks, up from 3/19 in September. The US Federal Reserve’s (Fed) cautiously dovish stance is supported by softer core inflation in December. This week, watch for core personal consumption expenditures (PCE), the Fed’s preferred inflation gauge.
Thursday: US GDP
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Our thoughts: Fourth-quarter growth is expected to slow from 3.1% to 2.7%, with personal consumption the primary driver.
Thursday: ECB rate decision
Our thoughts: The ECB is likely to cut rates by 0.25% amid downside risks to the European economy. Markets are pricing a 97% probability of a cut, with 3.5 cuts expected this year, taking the policy rate to 2.0% — widely viewed as neutral (neither restrictive nor accommodative). GDP data, also due this week, will be closely watched.
3 top reads
Canaccord in the news
Samantha Gibson FPFS, Senior Wealth Planner in MailOnline - by Harvey Dorset
Thomas Becket, Co-Chief Investment Officer in MailOnline - by Rachel Rickard Straus
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