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Summary
UK and US stock indices fell last week amid geopolitical tensions and concerns regarding consumer spending. European equities were fairly flat and Japanese and emerging markets equities made gains.
Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
The week ahead
- European markets will be digesting the results of the German election, with a clear win for the centre right. Thoughts will now turn to fiscal policy in the country.
- A snapshot of US consumer spending health will emerge over the week as the US consumer confidence survey and Core PCE Price data will be released. The latter captures data for goods and services targeted towards and consumed by individuals, including medical expenses, which are excluded in CPI data.
More details:
US
Major US stock indexes declined during a shorter week with markets closed on Monday in observance of Presidents’ Day. A strong start with the S&P 500 Index closing at record highs on Tuesday and Wednesday gave way to sharp losses later in the week. Headlines centered upon President Trump’s proposals to end the Russia-Ukraine conflict and his plans to impose additional tariffs on vehicles, pharmaceuticals, and lumber products.
The negative shift in sentiment on Thursday appeared to be partially due to Walmart’s fourth quarter earnings report. The mammoth retailer published consensus beating results for the quarter, but it’s guidance for the rest of 2025 was behind expectations, sparking broader investor concerns around consumer spending. There was a rationale for this concern as the Walmart news followed Commerce Department data the previous week showing retail sales across the economy dropped in January.
UK
UK inflation jumped to 3% in January from 2.5% in December, a sharper increase than expected. This poses a dilemma for the Bank of England as it considers further interest rate cuts amid weak economic growth.
It was a dour week for the consumer and retail sectors with Tesco, Next and Marks & Spencer all predicting a tougher year ahead as the government’s National Insurance increases, and their potential impact on prices and employment, filter through into the economy. Additionally, Unilever will spin out it’s Ben & Jerry’s ice cream division in 2025 and announced the primary listing for the IPO will be in Amsterdam where the business is headquartered. Some perceived this as a snub to the London stock market. Whether this is a one off or a developing trend is something we will be monitoring.
China and Hong Kong
Mainland Chinese and Hong Kong stock market indices gained over the week in local currency terms, driven by gains in technology shares. The onshore benchmark CSI 300 Index rose 1.00% and the Shanghai Composite Index added 0.97%. In Hong Kong, the benchmark Hang Seng Index gained 3.79%. In particular, the leading e-commerce and cloud computing company Alibaba advanced after reporting decent sales growth in the most recent quarter. Sentiment towards the tech sector in China is apparently growing following the showcase of capabilities by artificial intelligence player DeepSeek in January and it was also underpinned by a high profile meeting between President Xi Jinping and leading Chinese tech entrepreneurs. This is a more supportive stance after previous crackdowns, including the cancellation of IPOs, in 2020.
Bonds
Broad UK Conventional Gilt indices lost -0.56% over the week following the confirmation of rising inflation in January.
Conversely, US Treasuries gained over the week in US Dollar terms following the release of the most recent Fed meeting minutes, which showed that policymakers were prepared to hold rates steady until inflation improves. Comparatively weak PMI data on Friday triggered another rally in Treasuries. Turning the lens to corporates: high-yield bonds aren’t showing signs of distress but low spreads mean less extra yield for investors, but they are also indicative of a healthy economy. Corporate profits remain high and demand for corporate bonds remains strong, allowing companies to issue new debt with favorable terms.
The Fed’s balance sheet has declined from nearly $9 trillion to $6.8 trillion over the past three years as many of its bond holdings matured without replacement. Market consensus remains that this quantitative tightening will likely end in Q2 2025 but it remains to be seen if this is practicable. Passing a budget reconciliation bill is critical to enacting Republicans’ policy objectives for taxes and spending, and the next couple of weeks will mark an important first step in Congressional Republicans’ efforts on this front.
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.
The content of this article is not intended to be or does not constitute investment research as defined by the Financial Conduct Authority. The content should also not be relied upon when making investment decisions, and at no point should the information be treated as specific advice. The article has no regard for the specific investment objectives, financial situation or needs of any specific client, person, or entity.
