Market Briefing: 3rd February

Global stock markets gave up a bit of ground last week but that didn’t take the shine off an excellent first month of 2025, with gains of just over 4%. Much of the focus was on the US technology sector last week, particularly the emergence of a Chinese lower-cost-competitor: DeepSeek. This put pressure on certain US companies associated with the production, maintenance, and distribution of Artificial Intelligence chips. Encouragingly though, other US technology stocks posted strong earnings numbers, and corporate America remains firmly on track for its 6^th consecutive quarter of positive earnings growth. UK stocks had a strong week (rounding off a 5.5% gain in January) and this week we look forward to the Bank of England meeting on Thursday where we expect to see interest rates being cut to 4.5%.

Last week

• Global stock markets lost ground: weighed down by heavyweight US technology names
• UK shares posted a good week to round off an excellent month
• European shares got a boost from a cut in interest rates
• US corporates continued to post strong earnings numbers

This week

• It’s another busy week of corporate earnings. Diageo report tomorrow, GSK and Ford on Wednesday and then we have the likes of AstraZeneca, Amazon, and Eli Lily on Thursday.
• The Bank of England meets on Thursday: we expect interest rates to be cut to 4.5%.
• Monthly US jobs numbers are released 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 lost a bit of ground last week (falling by 0.2%), but this didn’t take the shine off a positive month: seeing them rise by 4.1%. Negative returns from the US technology sector weighed on returns last week, with Nvidia being the main drag. Nvidia (which alone makes up c4.2% of the global share market) fell by 15.6% last week (in GBP) on concerns that there may be a lower cost producer of artificial intelligence (AI) technology. 15.6% is clearly a big drop in one week but it’s worth bearing in mind that Nvidia is still up 9-fold since the end of September 2022!
• The UK share market rose by 2% last week, which took returns for the year-to-date to 5.5%. There was some decent data around mortgage approvals, with the December number (released last week) strongly surprising to the upside. Within the UK share market, it is the banking sector which continues to perform best (up 8.9% for the year-to-date), with Lloyds bank (which has relatively high exposure to the UK mortgage market) leading the charge: up by 13.8% for the year-to-date.
• European share markets continued to perform well last week and were further helped by an interest rate cut from the European Central Bank (the “ECB”). The ECB cut interest rates to 2.75%. This now makes for 1.25% of interest rate cuts that have been enacted by the ECB since June last year and follows flatlining growth in the fourth quarter of 2024 for the Eurozone economy. ECB President Christine Lagarde noted that the disinflation process was “well on track” and that the policy was still “restrictive.” This is in keeping with Eurozone inflation running at 1.8% (i.e., below the 2% target) and the bond market expecting a further 3 interest rate cuts from the ECB this year.
• US technology was where most of the action was last week, and this followed news of the emergence of a Chinese AI developer called DeepSeek. DeepSeek released a new open-source large language model that is much cheaper, much less energy sapping and requires less powerful processing chips than its US counterparts. This led to a big fall in US tech, namely Nvidia but also in associated names in AI infrastructure. Reassuringly though for investors, the fall was narrow and didn’t permeate to other tech players, which saw gains last week. We’d also note that rather than taking an opportunity to bear down on China, President Trump asserted that this (Deepseek’s reported technical advantage) should be seen as a “wakeup call” for American AI firms.
• US corporate earnings continued last week and we’re now just over 1/3^rd of the way through the reporting season. Taken in the round, earnings numbers have been good and have been better than expected with aggregate earnings growth (year-over-year) coming in at 13.2% which is better than the 11.8% number that had been expected by analysts (according to Factset) as at 31^st December 2024. Last week we saw Meta beat strongly on earnings and revenue (as well as pledging to invest between $60 and $65 billion in capital expenditures in 2025), Apple beat on earnings and revenues, Microsoft beat narrowly on both measures, whilst Tesla narrowly missed on its numbers.
• Preliminary US growth numbers for the 4^th quarter were released last week. Q4 growth came in at 2.3%, which was a touch below expectations. However, we’d note that this is still a decent number (and above trend) and also that the Personal Consumption element continues to run strong: growing at 4.2%. Consumer spending represents c2/3rds of the US economy and last week’s reading made for the highest reading since the first quarter of 2023.
• Bond markets rose last week, with Sovereign yields falling. This resulted in gains of c0;8% on the week for UK gilts and the UK 10-year gilt closed out the week yielding 4.54%.

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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