General market commentary

Equity markets ended lower on Friday as investor sentiment was dampened by news that the White House would impose fresh tariffs on Canadian, Mexican, and Chinese imports. The Dow fell 0.75%, the S&P 500 lost 0.5%, and the Nasdaq slipped over 0.25%. Uncertainty surrounding the economic impact of these tariffs added to concerns about inflation and the Federal Reserve’s monetary policy outlook. Despite this, some analysts believe the tariffs may be short-lived, serving more as a negotiation tactic than a long-term policy shift.

Beyond the day’s losses, corporate earnings remain a key driver of market sentiment, with the S&P 500 on track for its strongest earnings growth since 2021. While technology shares have seen some volatility—partly due to competition concerns from Chinese AI firms—financial and industrial sectors have outperformed in recent months, signalling a broadening market rally. The outlook for equities remains positive, with expectations of continued earnings expansion and pro-growth policies providing support.

The broader economic picture remains stable, with Q4 GDP growing at an annualised 2.3%, fuelled by strong consumer spending. The Federal Reserve held interest rates steady last week, acknowledging slowing disinflation but maintaining a cautious approach to rate cuts. With inflation still above target, monetary easing is likely to be gradual, but the expected end of quantitative tightening should help stabilise bond yields and ease financial conditions. A combination of lower interest rates, resilient employment, and broadening earnings growth should sustain economic expansion and support a diversified market rally.

Latest market and economic update

  • Asian stock markets fell sharply on Monday, driven by fears of a global trade war following U.S. President Trump's announcement of new tariffs on China, Canada, and Mexico. Japan, South Korea, and Australia saw significant declines, with the KOSPI and Nikkei 225 dropping 3%, while concerns over rising inflation further dampened market sentiment.
  • U.S. equity futures fell sharply after President Trump's new tariffs on Mexico, Canada, and China raised economic concerns, with retaliatory measures expected. Investors are focusing on upcoming earnings reports from major companies and the January nonfarm payrolls data, which could impact the economic outlook and monetary policy.
  • European equities ended Friday near the flatline, holding weekly gains as softer inflation data reinforced expectations of further ECB rate cuts. The STOXX 50 closed at 5,280, near a 24-year high, while the STOXX 600 hit a record 539, with ASML, Schneider Electric, and Infineon among the top gainers, helping offset losses in AI infrastructure shares.
  • The yield on the 10-year U.S. Treasury note eased to 4.5% on Friday, its lowest in six weeks, as inflation data came in line with expectations, supporting bets on rate cuts. The U.S. GDP grew by 2.3% in Q4, below the consensus, while markets awaited further clarity on potential tariffs on Canada and Mexico.
  • The dollar index surged to nearly a two-year high after President Trump's tariff announcements on Mexico, Canada, and China, raising inflation concerns, with EUR/USD trading at 1.0220. In response, traders reduced expectations for Federal Reserve rate cuts, while the Canadian dollar and Mexican peso saw significant declines.
  • Bitcoin and Ether plunged on Monday, with Bitcoin dropping 10% to $91,695.8 and Ether falling 22.7% to $2,434.84, as U.S. President Trump's new trade tariffs stoked fears of a global trade war. The tariffs undermined risk sentiment, overshadowing any potential benefits from crypto-friendly policies under the new administration.
  • Oil prices rose in Asian trading on Monday, with Brent crude up 0.6% and WTI jumping 1.1%, as concerns over potential disruptions to supply chains grew following U.S. President Trump's new tariffs. The tariffs, particularly on Canadian and Mexican oil imports, are expected to increase costs for U.S. refiners, potentially leading to higher fuel prices and production cuts.
  • The U.S. government plans to impose 25% tariffs on Canada and Mexico, and 10% tariffs on China, according to White House spokeswoman Karoline Leavitt. The announcement was made on Friday, though details on possible exemptions were not provided.
  • U.S. headline PCE inflation rose 0.3% in December and 2.6% annually, while core PCE increased 0.2% monthly and 2.8% annually, both in line with expectations. With inflation moderating but the U.S. economy remaining strong, the Fed is expected to ease policy gradually in 2025, with markets pricing in two rate cuts.
  • Chinese manufacturing growth in January was weaker than expected, with the Caixin PMI rising only to 50.1, as U.S. tariff fears continued to weigh on sentiment. Despite some government stimulus measures, concerns over trade tensions with the U.S. are expected to further challenge China's economic outlook.

Equities on the move

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

  • U.S. President Trump and Nvidia CEO Jensen Huang discussed DeepSeek and tightening AI chip exports during a meeting at the White House, amid rising concerns about China's AI development. The Trump administration is considering further restrictions on Nvidia’s AI chip sales to China, with the Commerce Department investigating whether DeepSeek has used U.S. chips in violation of export controls.
  • OpenAI introduced a new "Deep Research" mode for ChatGPT, allowing it to perform complex, multi-step research with real-time internet access, though responses may take longer. Initially available to Pro users, the model aims to assist in knowledge-intensive tasks but is still prone to occasional errors, despite improvements in accuracy.
  • KLA Corporation reported stronger-than-expected fiscal Q2 results, with earnings of $8.20 per share and revenue of $3.08 billion, surpassing analyst forecasts. The company also provided an optimistic Q3 outlook, leading analysts to raise their price targets for KLA stock.
  • Exxon Mobil posted mixed fourth-quarter results, with strong oil and gas production driving higher profits, but its refining and chemicals business saw a significant decline. Despite this, shares fell 1.7%, as global oil demand underperformed expectations, impacting the wider energy sector.
  • Chevron reported weaker-than-expected fourth-quarter earnings, with refining losses and softer margins contributing to a decline in profits. However, the company saw strong oil production, particularly in the Permian Basin, and plans for growth in 2025, alongside a 5% dividend increase.
  • AbbVie forecasted 2025 profits above expectations, driven by strong sales of its immunology drugs Skyrizi and Rinvoq, which offset a 49% decline in Humira sales. The company also raised its revenue projections for these newer drugs and remains optimistic about its pipeline, despite setbacks in psychiatric treatments.
  • The Bancorp's fourth-quarter earnings surpassed expectations, with total deposits hitting $7.75 billion and a 42% year-on-year increase in EPS. The company also saw significant growth in its loan portfolio and payment processing segment, while reaffirming its 2025 guidance of $5.25 per share.
  • Commerzbank reported a 20% increase in net profit for 2024, reaching a record €2.68 billion, exceeding analyst expectations. The bank also announced a €400 million share buyback and a higher dividend, while defending its independence amid interest from UniCredit for a potential tie-up.
  • Unilever is considering a New York listing for its ice cream business, which includes brands like Ben & Jerry's and Magnum, as part of its planned spin-off by the end of 2025. The move aims to streamline the company and address controversies surrounding Ben & Jerry's political stances.
  • RBC Capital Markets raised LVMH's price target to €780, citing stronger-than-expected growth in Fashion & Leather Goods and Watches & Jewellery, despite profitability pressures. The brokerage maintains an "outperform" rating, emphasising LVMH’s strong brand and long-term growth potential, although near-term margins face challenges.
  • Bernstein raised its Boeing price target to $179, citing optimism about production ramp-ups and key aircraft certifications, but maintained a "market-perform" rating due to execution risks. The firm highlighted challenges with increasing 737 MAX production and noted risks related to supply chains, labour, and ongoing FAA oversight.
  • Baird downgraded UPS to "Neutral" due to the impact of Amazon's planned 50% reduction in shipping volume, which poses a long-term challenge. Despite UPS's shift to higher-margin segments, the loss of Amazon's business is expected to reduce 2025 sales by around 6%.

Upcoming data and events

In the week ahead, U.S. markets will focus on the jobs report and ISM PMIs, while major earnings from Amazon, Alphabet, PepsiCo, AMD, and Walt Disney take center stage. In Europe, attention will be on Eurozone inflation, global PMIs, and the BoE’s expected rate cut, alongside key corporate earnings.

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