Equity markets rose this week and bond yields in the US and UK fell from recent highs ahead of Donald Trump’s inauguration on Monday. There was some good news on inflation in the UK and the US, with fourth-quarter earnings season kicking off with some solid statements from Wall Street’s investment banks.
The FTSE 100 was up 2.7% over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading 4.2% ahead.
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Market moves
What’s going on in the bond market? Is the recent fall in US and US government borrowing costs the end of the recent bond-market sell-off?
Oliver Faizallah, Charles Stanley’s Head of Fixed Income, talks to Eric Whyte about this week’s rally in Gilts and Treasuries and the outlook for bond markets.
2025 Outlook
What lies in store for markets in 2025? The political and policy upheaval we can expect out of the US, the stimulus program out of China, economic stagnation in Europe, and the budget tightrope walk in the UK. How will these factors impact underlying demand for company sales, margin pressure, inflation pressure, central bank action, long-term bond yields and, ultimately, market outcomes?
Garry White and Chief Investment Officer, Patrick Farrell sat down to discuss the investment themes that we expect to effect markets next year. Watch webcast here.
Economics
The global economy is set to post pedestrian growth this year as fears such as additional US tariffs hit global trade, according to the World Bank. Its predicted growth of 2.7% would be the joint weakest performance since 2019, apart from the sharp contraction seen at the height of the Covid-19 pandemic. Deputy chief economist Ayhan Kose said this would not be enough to improve people's living standards in both richer and poorer countries.
Good inflation news on both side of the Atlantic sparked hopes that the Bank of England and Federal Reserve could cut interest rates in coming months. Following on from the turmoil in bond markets, an unexpected drop in UK inflation helped government borrowing costs to fall after yields hit the highest level in 16 years recently. Consumer price inflation (CPI) cooled to 2.5% in December, from 2.6% in November. It was also welcome news for Chancellor Rachel Reeves whose Budget policies have been criticised for contributing to rising borrowing costs. The UK economy also returned to growth for the first time in three months in November 2024, but the expansion was less than expected. The 0.1% rise over the month was driven by trade for pubs and restaurants, as well as the construction industry after it shrank in October and September.
There was also as fall in US core CPI inflation to 0.2% month on month after it remained static at 0.3% for four consecutive months. This measure is widely watched by the US Federal Reserve when making interest rate decisions. This was a relief following very strong recent jobs market data which boosted expectations of a lengthy pause in the Federal Reserve’s interest rate cuts.
UK retail sales shrank in December, as consumers took a cautious approach to Christmas shopping. Retail sales volumes dipped by 0.3% month-on-month in December, the Office for National Statistics reported, missing forecasts of a 0.4% rise.
The German economy has now shrunk for two years in a row. Its economy shrank 0.1% quarter-on-quarter in the final three months of 2024. Germany’s gross domestic product fell 0.2% last year, according to the country’s Federal Statistical Office, following a contraction of 0.3% in 2023.
China's economic growth met the government's ambitious target of “around 5%” in 2024. That followed a better-than exposed outturn in the fourth quarter of 5.4% year on year. This followed a series of stimulus measures announced by Beijing.
Geopolitics
Donald Trump will be inaugurated for his second term as US president on Monday 20 January.
Outgoing President Joe Biden warned of the dangers of an oligarchy gaining power in the US as he delivered his farewell address. "Today, an oligarchy is taking shape in America of extreme wealth, power and influence that really threatens our entire democracy, our basic rights and freedom," he said. Mr Biden took aim at the ultra-wealthy "tech-industrial complex" which he said could wield unchecked power over Americans.
International Monetary Fund (IMF) managing director Kristalina Georgieva warned that jitters surrounding Donald Trump’s threat to impose trade tariffs were driving up longer-term borrowing costs and would add to pressures facing the global economy in 2025.
Scott Bessent, president-elect Donald Trump's choice to head the Treasury Department, said that extending Trump's 2017 tax cuts that are set to expire at the end of this year is the single most important economic issue of the day. "If we do not renew and extend, then we will be facing an economic calamity," Mr Bessent told the US Senate Finance Committee at his confirmation hearing. “We must make permanent the 2017 Tax Cuts and Jobs Act,” he said.
Hamas and Israel remain on the brink of implementing a ceasefire agreement.
The UK is pushing back the implementation of the Basel 3.1 international banking reforms by one year to allow more time for the US to clarify its approach under the Trump administration. The Basel 3 requirements have significantly lower capital requirements for small and medium-sized enterprises, trade finance and infrastructure lending.
The transatlantic influences on governments
Hamas and Israel remain on the brink of implementing a ceasefire agreement on Friday morning. Israeli Prime Minister Benjamin Netanyahu said a deal to return Hamas-held hostages in the Gaza Strip has been reached and that his security cabinet will meet later in the day to give final approval of the deal.
The US launched a probe into alleged anti-competitive measures by China to support its semiconductor industry. The US Trade Representative’s office said it was investigating “China’s acts, policies and practices related to targeting of the semiconductor industry for dominance”.
Companies
US fourth-quarter earnings started with the investment banks, with the sector having a rosy 2024. Bank of America reported robust fourth-quarter results which beat Wall Street expectations. Its profit rise was driven by record trading revenue and a recovery in investment banking fees. JP Morgan’s annual profit rose to a record high and Goldman Sachs reported its biggest quarterly profit in four years. Morgan Stanley posted record full-year revenues and shares in Wells Fargo rose after their results.
The Competition and Markets Authority (CMA) is looking at whether Alphabet-owned Google is using its dominant position to harm competition or choice for users. It is its first investigation after gaining new powers to investigate and enforce changes at firms it determines to have "strategic market status" in digital markets. The CMA says it wants to ensure the tech giant is "delivering good outcomes for people and businesses" and that there is a "level playing field" for rivals.
Taiwan Semiconductor Manufacturing Company’s (TSMC’s) fourth-quarter revenue and profit beat market expectations, as demand for advanced chips used in artificial intelligence (AI) applications continued to surge. Management expects that 2025 revenue will grow in the mid-twenty-percent range. AI demand was called out as a key growth driver and that part of the business is expected to grow at an average rate in the mid-forties over the next five years.
Mining giants Rio Tinto and Glencore have reportedly engaged in preliminary discussions about a potential merger, reports suggested. However, the talks are said to have ended in October 2024. The talks between the two companies followed peer BHP’s failed £39bn bid for Anglo American last year, which prompted rivals to review strategic options.
Boeing said it delivered just 348 aircraft in 2024, its lowest figure since the Covid-19 pandemic hit. Stricter scrutiny of the manufacturer’s practices as well as industrial action hampered production. In contrast, its European rival Airbus delivered 766 aircraft to customers.
Oil giant BP is to cut about 4,700 staff, more than 5% of its total workforce, as part of its cost-cutting plans. The company has a global workforce of about 90,000 people but has not said how many roles will be affected in each country it operates in. Reports noted an email to staff also confirmed that about 3,000 contractor positions will also go this year.
Shares in Swiss-listed luxury group Richemont rose after third-quarter sales at the luxury goods giant beat expectations. The news lifted shares in the wider sector, with shares in companies such as LVMH and Burberry rising on hopes? the recent downturn in sales had started to abate. The stalling luxury goods market.
The US markets regulator issued a lawsuit against Elon Musk alleging that he failed to disclose that he had amassed a stake in Twitter, a move which allowed him to buy shares at "artificially low prices”." The Securities and Exchange Commission (SEC) alleges that the multi-billionaire Tesla boss saved $150m (£123m) in share purchases as a result. According to SEC rules, investors whose holdings passes the 5% level have 10 days to report that they have crossed that threshold. Musk did so 21 days after the purchase, the filing says.
US President-elect Donald Trump will find a way to save the social media platform TikTok before a ban on the app is due to take effect this weekend, his incoming national security adviser has said. Congressman Mike Waltz said Trump would intervene if the Supreme Court upheld a law that bans the platform in the US unless it is sold by 19 January. Chinese owner ByteDance has said it plans to shut off the app for its 170 million US users by Sunday. The app has been banned on national security grounds, because of concerns that its data could be collected by the Chinese Communist Party.
Toyota subsidiary Hino Motors has agreed to pay $1.6bn and plead guilty to deceiving US regulators about the levels of emissions produced by its diesel engines. The truck company will be banned from exporting its diesel engines to the country for five years.
Activist investor Engine Capital has called on Smiths Group to explore a breakup of its business. The US group, which holds a 2% stake in Smiths, said the engineer, should launch a strategic review. "We believe that Smiths has significant value that is currently unrealised due to its conglomerate structure, and that it is time for the board to announce a strategic alternatives process to maximise value for shareholders," it said.
The UK’s competition regulator said it would be launching a probe into Keysight Technologies’ £1.16bn bid for Spirent Communications. The Competition and Markets Authority said it was considering whether the deal was classed as a merger and would therefore impact competition in the UK market. The UK automated testing company also reported a strong rise in order growth in the fourth quarter but said it expected full-year revenues will be lower after a "challenging" year.
Publisher Pearson reported underlying sales growth of 3% for 2024, excluding its online programme management (OPM) and strategic review businesses, alongside a 10% rise in adjusted operating profit to between £595m and £600m. Management noted progress in key strategic areas, including enterprise and AI integration into its digital offerings.
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