North America
Major US indices closed higher across the holiday-shortened week higher (markets were closed Monday in observance of the Martin Luther King, Jr. holiday). The S&P 500 Index touched a new record high on Thursday before edging slightly lower across a week which saw growth stocks outperform their value counterparts for the first time in 2025. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average closed higher by 1.8%, 1.7% & 2.2%, respectively. The broad market gains came in the wake of Monday’s inauguration of President Donald Trump. Markets watched President Trump’s first day in office, fearful of a new round of tariffs (fears which did not materialise). Instead, Trump called on federal agencies to conduct a review of US trade policies to determine the impact of potential future tariffs. True-to-form however, Trump did speak on tariffs, pledging to impose 25% tariffs on Canada and Mexico as soon as February. Later in the week, comments from Trump had investors hopeful of a potential trade deal with China, after voiced his reticence in imposing trade restrictions on China, stating that he would “rather not have to use” tariffs on China. Further fuelling sentiment, Trump announced a wave of AI infrastructure & data centre development, “Stargate” via a new joint venture between Softbank, OpenAI, Oracle, and investment firm MGX. Stocks with exposure to AI rallied following the announcement in anticipation of the potential jump in spending. President Donald Trump has pledged cheaper prices and lower interest rates, but an economy transformed by the pandemic will make those promises difficult to keep. On Thursday during the World Economic Forum’s annual event in Davos, Switzerland, Trump said he would reduce oil prices, and then “I’ll demand that interest rates drop immediately, and likewise, they should be dropping all over the world.” Following this statement, Trump told reporters that lower energy costs would reduce inflation, which would “automatically bring the interest rates down.” Asked if he expects the Fed to listen to him on rates, Trump said: “Yeah.” On the economic data front, new data shows that the US’ pace of economic outperformance in comparison to the remaining G4 developed economies has slowed of 2024. The US composite PMI output index (covering goods and services) had risen to a 32-month high of 55.4 in December, but the flash estimate for January showed a marked fall to 52.4, signalling the slowest output growth since last April. The US PMI readings remained higher than the figures in Europe and Japan, but it was the only economy to see the PMI turn lower in January.
The new week saw US tech giant Nvidia lost over a sixth of its value after the surging popularity of a Chinese artificial intelligence (AI) app spooked investors in the US and Europe. DeepSeek, a Chinese AI chatbot reportedly made at a fraction of the cost of its rivals, launched last week but has already become the most downloaded free app in the US. AI chip giant Nvidia and other tech firms connected to AI, including Microsoft and Google, saw their values tumble on Monday in the wake of DeepSeek’s sudden rise.

Europe & UK
Major European markets followed that of their US counterparts higher, gaining across a wave of pro-risk investing following President Trump’s swearing in and his limited discussion of tariffs. The pan-European STOXX Europe 600 Index ended 1.2% higher, followed by France’s CAC 40 and Germany’s DAX at 2.8% and 2.4%, respectively. Index climbed 2.83%, and Germany’s DAX gained 2.35%. The UK’s FTSE 100 Index closed flat across the same period. Comments from ECB policymakers appeared to bolster European market returns, with many now pricing-in a 5th rate cut by the ECB on January 30. ECB President Christine Lagarde said in an interview: “The pace is very clear…the pace we shall see depends on data, but a gradual move is certainly something that comes to mind at the moment.” Francois Villeroy, head of the French central bank, told the World Economic Forum meeting at the resort that rates could fall quickly because the ECB is confident about inflation slowing to its 2% target. Further adding to the narrative, Dutch governor Klaas Knot appeared to endorse cuts in January and March, citing “encouraging” economic data. Meanwhile, Eurozone economic performance, whilst still he eurozone flash PMI rose from 49.6 in December to 50.2 in January (levels above 50 signify expansion), edging back into growth territory after two months of decline, while the UK PMI nudged up to 50.9 from 50.4. In the UK, positive news wage growth reaching a 6-month high of 6.0% in the three months through November appeared to balance out news of an unexpected rise in unemployment (4.4%).

Japan
As with European equities, Japanese equities were boosted by US President Donald Trump refraining from imposing new tariffs on his first day in office. The Nikkei 225 and TOPIX closed higher by 3.9% and 2.7%, respectively. The week also saw the BoJ hike rates for a third time in a year (+0.25%), bringing the benchmark policy rates to 0.5%, the highest since the 2008 global financial crisis. The hike was in line with market expectations, and was underpinned by an upward revision to the BoJ’s inflation expectations for the 2025 fiscal year, with all measures above the 2% target. The BoJ reiterated its baseline view that: if the outlook for economic activity and prices is realized, it will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation. The latest inflation data, showed price growth well above the BoJ’s 2% target, further supporting the BoJ’s case for monetary policy normalisation. Japan’s core consumer price index rose 3.0% year on year in December 2024, matching expectations and up from 2.7% year on year in November. With the hike in rates, the Japanese yen appreciated to the high end of the JPY 155 range against the USD, from the low 156 range at the end of the previous week.