The latest economic news and market highlights from the UK and abroad.
The key takeaways
⏸️ Middle East ceasefire? – Israel and Hamas appear close to finalising a ceasefire to pause the war in Gaza. Backed by the US and Qatar, this agreement looks likely to be approved imminently – but this isn't the first time such an agreement has ‘almost’ been reached.
📉 UK inflation eases – good news for the UK economy. The annual inflation rate saw a surprise fall to 2.5%, thanks to slower price rises across services, restaurants, and hotels.
⚡ US inflation climbs – the annual inflation rate rose for the third straight month, hitting 2.9% in December. This was driven by higher energy costs compared to last winter’s lows.
💹 Chinese expansion – December saw China’s GDP grow 5.4% (year on year) to exceed market expectations. September’s stimulus measures, and a boost in exports, fuelled this momentum.
📱 China considers selling TikTok to Musk – with a potential US ban looming, ByteDance may sell TikTok to Elon Musk as Chinese officials explore options to sidestep regulatory hurdles.
What does that mean for you and your clients?
The UK's surprise December slowdown in inflation may provide some respite to investors – and Rachel Reeves. This comes after last week’s sudden uptick in government bond yields, sparked by concerns around the country’s economic outlook. This week, yields have eased slightly, and this month’s inflation figures provide more justification for the Bank of England to continue cutting interest rates. However, this is only one data point. Investors will have to see if this downward trend can be sustained into 2025.
Chart of the week - price-to-book ratio of S&P500 reaches record high
Source: Bloomberg, Apollo chief Economist, January 2025
Why’s this worth sharing?
The above chart shows the price-to-book (P/B) ratio – which compares the value of a company’s assets (minus liabilities) to its market value – of the S&P500 index since 1990. With similar metrics telling the same story, this serves as more evidence that US stocks are expensive compared to historical levels.
In recent years, investors have flocked into the US, drawn by claims of ‘exceptionalism’ and the dominance of their mega-cap tech stocks. This has caused valuations to climb and decouple from other regional markets that haven’t seen such growth.
While there’s no guarantee that this trend won’t continue, caution is urged when allocating to equities. Investors must be conscious of the risks to the current growth-run and such high valuation ratios could be an indicator of lower future returns.
The Markets
UK markets on the rise – UK markets saw a boost thanks to lower than expected inflation numbers. Strong performance across mining, aerospace, and defence continued this upward trend.
No US surprises – US markets managed modest gains, with inflation data in line with expectations. Tech and financials in particular contributed to the gains.
Asian markets mixed – in Asia, the Hang Seng rose, boosted by optimism around China's improved growth rate. However, a strengthening of the Yen negatively hit Japan’s export-heavy market.
Oil rises yet again – oil increased on OPEC+ (Organisation of the Petroleum Exporting Countries) recommitting to supply cuts alongside an expected uptick in demand from China. Meanwhile gold saw a slight increase thanks to its safe-haven status, given continued US-China trade tensions.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | 1.77% | 2.74% |
| FTSE 250 | 4.06% | -0.37% |
| S&P 500 | 1.86% | 3.37% |
| NASDAQ | 1.63% | 3.29% |
| Hang Seng | 2.44% | -0.28% |
| Nikkei 225 | -0.26% | -0.01% |
| Brent Crude | 2.55% | 9.32% |
| Gold Spot | 0.77% | 3.46% |
| UK 10yr Gilt yield | -12bps | +11bps |
| US 10yr Treasury yield | -8bps | +4bps |
Source: FE FundInfo, goldprice.org, exchangerates.org.uk, investing.com and finance.yahoo.com. GBP returns as at close Thursday 16th January 2025.
This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.
