Market Briefing: 10th February

Global stock markets posted modest gains in a roller-coaster week which saw US Tariffs get announced then delayed, the Bank of England cut interest rates and US companies continue to report very strong earnings. This week continues apace on the earnings front and attention shifts towards the UK where we’ve got index heavyweight BP reporting tomorrow and some of the Banks towards the end of the week. UK banks have been the best performing sector within the UK market this year (having been up 42.7% last year) and the market will be wanting to see a continuation in the recovery in earnings, share buybacks and improved profitability of loan books which have driven this rebound.

Last week

• Global stock markets posted modest gains.
• UK shares rose modestly, with the UK share index registering a new all-time high.
• Emerging market shares rose strongly: helped by large Chinese technology names.
• The Bank of England cut interest rates to 4.5%.
• Bond markets posted modest gains.
• US corporate earnings continued to be extraordinarily strong indeed, although last year’s market darlings (big technology and consumer stocks) were weighed down by their planned capital expenditure this year.

This week

• This week will provide a good check in on the health of the US consumer as we’ve earnings reports from Mcdonald’s (today) and Coca-Cola and AirBnB tomorrow.
• In the UK, BP report earnings tomorrow and we’ve full-year earnings from Barclays and British American Tobacco on Thursday and Natwest on Friday.
• Q4 Growth data for the UK is published on Thursday.
• US CPI inflation is due out on Wednesday, with US retail sales due out on Friday.

Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.

More detail:

• Global stock markets posted modest gains (rising by 0.3%) last week despite news of planned tariffs from President Trump. Modest gains were prevalent across the board, with the exception of Emerging Markets, which rose by 1.8%. China (which makes up just shy of 30% of the emerging markets index) drove most of the gains, with the index posting its best week since early October 2024. Most of the gains here came from the big technology stocks which responded well to good retail spending data over the Lunar New Year holiday and by being seen as beneficiaries to Chinese made Artificial Intelligence (“AI”). This comes on the back of news around Chinese technology company DeepSeek’s development of an AI model which is cheaper to run than that produced by some of the large US firms.
• UK stocks rose by about 0.2% last week. Whilst only a small gain, this took the FTSE 100 to a new record high last week and helped put the UK share market up by 5.7% for the year-to-date. The UK FTSE 100 has just posted its best month of return since November 2022 and returns have been driven by the banking sector (up 10.5% year-to-date) and the heavyweight names within the Oil and Gas sector (11% of the index) and Healthcare (11.5% of the index).
• The Bank of England (BoE) cut interest rates last week which was a further boost to UK assets. It saw stocks and bonds rise although the currency sold off a touch. It was a very strong vote (by the BoE), with all 9 members voting in favour of cutting interest rates and 2 members actually voting to cut rates by 0.5% as opposed to the more standard increment of 0.25%. Interestingly, one voter (Catherine Mann) voted for a 0.5% cut where she’d previously voted for no interest rate cuts last year (when the BoE made 2 cuts of 0.25%). This change in stance fed through very positively to markets, with both stocks and bonds moving to price in lower rates. The bond futures markets are now pricing in 2.5 more cuts this year (for a total of 3.5: i.e., between 3 and 4 cuts in total). This is a marked change from the start of the year when they were pricing in just 2 cuts in total.
• Bond markets posted decent gains last week, with UK government bonds rising by about 0.5%. This saw the UK 10-year bond yield close out the week yielding 4.48%.
• The US earnings season continued its strong tack last week. However, the market has become very discerning about some of the big technology companies given the scale of their spending (they are heavily investing money into their businesses to grow their AI capabilities). We’ve now had 62% of companies in the US market report and the blended growth rate of earnings is 16.4% (according to data from Factset). This is an excellent growth number and is much better than the (already strong) 11.8% which had been estimated at end December 2024.
• Despite the strong aggregate US earnings numbers, the stock market has become more discerning over the investment plans of some of the big, highly profitable US tech and consumer firms (often referred to as the “Magnificent 7”).
• Last week saw Alphabet (Google’s parent company) and Amazon both beat on their expected earnings numbers (very strongly so in the case of Amazon), yet the stocks fell by 8.8% and 3.2% respectively on the week. Alphabet did narrowly miss on its revenue expectations, but it was the planned $75 billion expenditure (a much bigger number than expected) on capital investment to build out its AI offerings which perturbed the market. Amazon also guided towards high capital expenditure (c$100billion in 2025) as well as guiding down lower on the current quarter’s numbers. It’s worth noting that these companies were up by 38% (Alphabet) and 47% (Amazon) last year and have grown their profits by 39% and 96% respectively in 2024. They rightly deserve the “magnificent” moniker but are also trading on fairly expensive valuations and there’s an element of the market now saying, “show me the money” (with respect to the investment in AI) given the chance that there might be a lower cost producer out there (e.g. DeepSeek).
• Tariffs from President Trump got a lot of air-time last week! The good news for markets was that they were not as bad nor as immediate as feared. The week began with President Trump saying he’d be levying 25% tariffs on imports from Mexico and Canada, along with 10% levies on Chinese imports. However, by the end of Monday it was announced that the tariffs on Mexico and Canada would be postponed for 30 days: this provided some relief to stock markets.
• US economic data was a mixed bag last week, with some strong manufacturing data and moderate signs of cooling in the jobs market. The US manufacturing PMI (a gauge of business activity in the manufacturing sector) flipped to a reading that suggests “expansion.” This is a minor cause for celebration since it makes for the first such reading since October 2022! We’d note that manufacturing constitutes just c10% of the US economy hence celebrations are tempered! Meanwhile, the monthly jobs data showed that 143,000 new jobs had been created in January: this was modestly below expectations (as per Bloomberg) for 175,000 jobs. Wage growth ticked up (to 4.1%), which helps support households’ spending.

The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.

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