With the Nasdaq Composite leading the charge and showing a 2.58% increase, U.S. stocks closed the week on a bright note. Russell indices show that growth companies outpaced value shares for the second time this year. Small-cap stocks suffered, however, shown by the underperformance of the Russell 2000 Index against the S&P 500 by 146 basis points.
The declaration by President Donald Trump that the U.S. government will postpone imposing additional worldwide tariffs was a major factor influencing market attitude. Rather, tariffs would be taken country-by- nation and decisions anticipated by April 1 would result. Although this declaration did not completely remove tariff-related uncertainty, it gave the markets respite and welcomed the possibility of further discussions covering a comprehensive policy approach.
Midweek, market focus turned to inflation statistics, which once again proved to be a main concern for investors. While the core CPI developed 0.4%, the Consumer Price Index (CPI) climbed 0.5% in January from 0.4% in December. These numbers revealed ongoing inflationary pressures even in some of the Producer Price Index (PPI), which came in higher than predicted showing indications of cooling. In response to these inflationary worries, Federal Reserve Chair Jerome Powell underlined once again that inflation remains above the Fed’s objective and that thus, ongoing tight monetary policy is necessary.
These inflation numbers changed the expectations of futures markets for the next rate decrease, moving it from September to December. Though they finally relaxed, Treasury rates responded to these worries in a way that reflected the balance of the market between inflation worries and the potential of further Fed tightening. With a year-to– date increase of 3.96%, the S&P 500 showed investor confidence despite the continuous inflationary backdrop; the Dow climbed 4.71%.
European Markets Show Resilience Against Geopolitical Anxiety
European stocks shown considerable resiliency across the Atlantic. Reaching a fresh record high, the STOXX Europe 600 Index rose 1.78% in local currency terms. Strong profit results from businesses all around the Ukraine-Russia conflict and hope for a possible settlement helped to lift mood. Germany’s DAX jumped 3.33%; France’s CAC 40 rose 2.58%; Italy’s FTSE MIB improved 2.49%. But the FTSE 100 for the UK trailed and added only 0.37%.
Against predictions of a contraction, the Office for National Statistics revealed in the UK a surprising 0.1% GDP increase in the last quarter of 2024. Development in the building and service industries drove this outcome by countering reduced industrial output. The UK economy expanded by 0.9% annually in 2024, appreciatively from 0.3% increase in 2023.
Chief Economist Huw Pill of the Bank of England issued a warning against early interest rate reductions, stressing significant salary increase as a main contributor to the continuous inflation problem. He said more work is required to lower inflation. Likewise, member of the Monetary Policy Committee Catherine Mann cautioned that earlier more forceful measures could have been needed to lower inflation. Although annual growth in the Eurozone was at 0.7%, industrial output in the bloc dropped by 1.1% in December mostly owing to reductions in capital and intermediate products.
Asian Markets Exude Positive Velocity
With Japan’s Nikkei 225 soaring 0.93% and the wider TOPIX rising 0.80%, Asian markets saw robust gains. While Japanese government bond rates rose on anticipation that the Bank of Japan (BoJ) may tighten monetary policy sooner than expected, the lower yen gave exporters a benefit. The highest level in over 15 years, the yield on the 10-year JGB climbed to 1.35%.
Unprecedentedly, the government of Japan said it would be releasing rice from reserves to assist down growing food costs, therefore reducing the pressures on inflation in the nation. BoJ Governor Kazuo Ueda underlined the importance of always being alert in the face of rising food prices, which can influence inflation projections.
Supported by prospects of a less belligerent U.S. trade policy and confidence in artificial intelligence, China’s markets also climbed. The Shanghai Composite climbed 1.30%; the CSI300 gained 1.19%. Driven by excellent tech-sector performance, Hong Kong’s Hang Seng jumped 7.04%. But deflationary pressures remained in the Chinese economy as producer prices were dropping for the 28th straight month.
Moody’s downgraded China Vanke, a big real estate developer, into junk territory based on financial instability. This illustrates the continuous difficulties in China’s property industry, which drives the government to implement policies meant to fill up financing shortages and stabilise the market.
Looking Ahead
Investors will stay focused on important macroeconomic indicators as we enter the next weeks, especially on central bank policies and inflation statistics, which will continue to be quite important in determining market attitude. Furthermore offering extra direction on the global economic situation are geopolitical events, particularly around the Ukraine-Russia war, and business earnings releases. The next weeks are probably going to be erratic as investors change their expectations as market players balance inflation issues against a background of improved business fundamentals.