China services growth at 7-month high

General market commentary

As we move into 2025, the equities market reflects a mix of cautious optimism and anticipation, with investors keeping a close eye on key developments. The upcoming inauguration of Donald Trump, along with the Federal Reserve's first interest rate decision of the year, adds an element of uncertainty to the market’s outlook. Despite this, the U.S. economy has shown resilience, with moderate growth projected, while inflation remains under control. Oil prices have strengthened, driven by geopolitical factors and cold weather forecasts in the U.S., offering support to the energy sector. On the flip side, concerns persist in luxury goods, particularly in Paris, and some market segments, such as Tesla, have faced notable losses due to weaker performance and high valuations.

Looking ahead, while the strong performance of 2024 may not be easily replicated, expectations remain positive. The global economy is expected to experience steady, albeit more modest, growth, with U.S. consumer spending and manufacturing activity providing a solid foundation. However, market volatility could arise from policy uncertainty, particularly around tariffs and taxes, and from any unforeseen economic or geopolitical shocks. Despite this, corporate profits are expected to continue rising, and equities valuations, though elevated, still offer some opportunities for growth, particularly in sectors like energy and cyclical stocks. As such, a diversified investment approach, with a focus on sectors poised for growth, remains a sensible strategy for navigating the evolving market landscape in 2025.

Latest market update

Asian equities had a weak start to 2025, with Japanese markets underperforming, as the Nikkei 225 dropped 1.3% amid concerns over U.S. interest rates and economic uncertainty. Meanwhile, markets in China, Hong Kong, and Australia traded in narrow ranges, while South Korea's KOSPI surged 1.6% on bargain hunting after steep losses in December.

U.S. equity futures remained steady on Monday as investors brace for key economic data later in the week, including the December jobs report and ADP Employment Survey. Despite a shortened trading week with markets closed on Thursday, strong corporate earnings and a rally in technology equities are likely to set the tone for the week ahead.

US equities rebounded on Friday, with the S&P 500 rising 1.2%, the Dow Jones gaining over 300 points, and the Nasdaq 100 advancing 1.7%, driven by strong performances from tech shares like Nvidia and Super Micro Computer. Despite the Friday rally, the broader market ended the week in the red, with the S&P 500 and Dow down over 1%, and the Nasdaq facing a nearly 2% decline.

European equities ended the holiday-shortened week lower, with luxury and spirits shares leading the declines, as concerns over China's economy and potential U.S. policy shifts under a Trump presidency weighed on sentiment. The STOXX 600 index dropped 0.5%, with notable losses in sectors exposed to China, such as luxury goods, miners, and automakers, while Italian spirits group Campari and Anheuser-Busch InBev also saw significant drops.

The U.S. dollar index remained near its two-year highs at 109, supported by anticipation of key labour market data and cautious Federal Reserve policies. EUR/USD traded at 1.0308, reflecting the dollar's strength as investors also await further signals from U.S. economic reports and potential inflationary impacts from proposed policies under former President Trump.

Oil prices fell on Monday, with Brent crude dropping 0.3% to $76.30 a barrel and WTI losing 0.3% to $73.77, as a strong U.S. dollar and concerns over supply disruptions weighed on sentiment. Investors are also awaiting key economic data later in the week, including the U.S. payrolls report and the Federal Reserve's rate outlook, while tensions around sanctions on Russian and Iranian oil added to the market's uncertainty.

In December 2024, China's Caixin General Services PMI rose to 52.2, marking the fastest sector expansion since May, driven by stronger domestic demand, though new export business fell. Meanwhile, the Composite PMI dropped to 51.4, its lowest in three months, with weaker manufacturing growth, declining employment, and a slowdown in new orders, particularly from exports.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Microsoft plans to invest $80 billion in fiscal 2025 to develop data centres for AI model training and to support cloud-based applications, amid growing demand for computing power. More than half of this investment will be allocated to the United States, highlighting the country’s leadership in the global AI race.

U.S. Surgeon General Vivek Murthy issued an advisory urging alcoholic drinks to carry cancer warning labels, highlighting alcohol as the third leading preventable cause of cancer in the U.S., linked to various types including breast and liver cancer. This move could affect major alcohol companies, including Anheuser-Busch InBev and Diageo, by potentially altering packaging and consumer behaviour amid increased awareness of alcohol's cancer risks.

Shares in Constellation Energy and other nuclear power companies rose Friday after the Biden administration eased tax-credit rules for clean hydrogen production, benefiting firms like Vistra and NextEra Energy. The move is expected to boost investment in hydrogen and support nuclear power plants at risk of closure, with Constellation shares increasing by another 4% following the announcement.

MicroStrategy plans to raise up to $2 billion through perpetual preferred equity offerings to strengthen its balance sheet and acquire more bitcoin. This move is part of a larger strategy to raise $42 billion in equity and fixed income over the next three years.

Shares of Rivian surged over 24% on Friday after the company exceeded expectations for fourth-quarter deliveries and resolved a component shortage that had previously limited production. With 14,183 vehicles delivered in Q4, Rivian's highest quarterly total in over a year, the focus now shifts to its path toward profitability, with analysts awaiting further guidance in February.

United Airlines will begin testing Starlink’s satellite-based in-flight internet service in February on Embraer E-175 aircraft, with plans to outfit its entire regional fleet by the end of 2025. The service will eventually be available across all flights, with free access for MileagePlus members, following a previous plan to offer complimentary Wi-Fi to all passengers.

Wells Fargo analysts predict Citigroup’s shares could double in value over the next three years, driven by surging profits, cost moderation, and a major reorganisation improving management accountability. The analysts raised their price target to $110, citing Citi’s potential for outperformance, particularly if a recession is avoided.

Upcoming data and events

Wall Street faces a busy week ahead, with investors awaiting the U.S. December jobs report, Federal Reserve meeting minutes, and key economic data, including durable goods orders and services PMI. Additionally, the Consumer Electronics Show will feature notable speeches, while Delta Air Lines will unofficially start the earnings season.

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