Market Wrap – January 2025

Global Markets

The launch of DeepSeek’s open-source R1 model disrupted global markets, impacting AI-related investments. Despite this, the MSCI World Equity Index gained +3.5%, led by European equities as investors rotated away from US tech. US Treasury yields edged lower as the market delayed expectations of Fed rate cuts, influenced by potential inflationary effects from Trump’s proposed trade policies.

United States

The US economy showed resilience, with 256,000 new jobs added in December, beating expectations. However, core CPI fell below estimates at 0.225% MoM. Trump’s inauguration on January 20 saw immediate policy shifts, including tariff announcements on Canada, Mexico, and China. The Fed left interest rates unchanged, with Chair Powell stating a “wait and see” approach.

Australia

Inflation eased to 3.2%, strengthening expectations of a February RBA rate cut. Retail sales growth underperformed at +0.8%, but labour market data remained strong with 56,300 jobs added. The S&P/ASX200 gained +4.6%, hitting a record high, driven by consumer discretionary and financials.

Other Regions

• New Zealand: Inflation held at +2.2% YoY, remaining within the RBNZ’s target band.

• Europe: EU unemployment remained steady at 6.3%, while inflation ticked up to +2.4% YoY. The ECB cut rates and hinted at further easing.

• China: December GDP beat expectations at +5.4%, but trade risks loomed due to Trump’s tariff policies.

Australian Dollar & Fixed Income

The AUD rebounded +0.50%, recovering from early-month losses. Australian bond yields initially followed global trends but reversed post-strong US payroll data.

Global Equities & Credit

The MSCI World Index rose +3.5%, led by European stocks. US and Asian markets also gained, despite AI-driven volatility. Credit markets performed well, with tightening spreads in both the US and Europe.

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