The latest economic news and market highlights from the UK and abroad.
The key takeaways
📝 Donald Trump inaugurated as the 47th U.S. President – and he’s hit the ground running with a flurry of executive orders, revoking almost 80 policies from President Biden’s administration.
🏦 Mixed UK labour market – the headline unemployment rate rose to 4.4% in November, above the 4.3% consensus. Wage growth surged to 5.6%, making it harder for the Bank of England to cut interest rates.
🪜Japan’s inflation and interest rates climb – inflation has hit a 16-month high in Japan, leading the central bank to raise interest rates to 0.5% – the highest level in 17 years.
📈 US jobless claims edge higher – continuing jobless claims increased from 1,853K to 1,899K, slightly exceeding expectations.
🎵 World leaders meet at Davos – at the World Economic Forum, global leaders acknowledged President Trump’s influence, as he demands the world dance to his America First tune.
What does that mean for you and your clients?
President Trump is back, and cannot be avoided. Since his election victory, several market movements have been attributed to expectations for the new US Presidency. Now that President Trump is in office, we’re seeing a continuation of these fluctuations, often hinging upon his unexpected and frequent words.
This volatility could create potential opportunities for active managers, but more broadly investors can be optimistic as President Trump continues to signal his support for economic growth.
It may be too early to rule out any market disruption linked to a further unwinding of the carry trade, particularly with Japan signalling more interest rate hikes to come. However – this week’s increase has been fully priced in for some time, unlike the surprise move at the end of July.
Chart of the week - steep rise in US bond yields since the election
Source: Schroders and FactSet as at 10 January 2025
Why’s this worth sharing?
Over the first few weeks of 2025, the biggest story in markets has been the rise in longer-dated bond yields, as shown in the chart. Government debt was sold off in expectation of a Trump government running a wider fiscal deficit, alongside inflationary policies. A larger deficit would require increased issuance of government debt, while inflationary measures would limit the Federal Reserve’s ability to cut rates – both factors demanding higher yields.
The truth will be revealed over the months and years to come, and could have significant implications for both Trump’s presidency and global markets. In his speech at Davos on Thursday, President Trump called on Saudi Arabia and other OPEC (Organisation of the Petroleum Exporting Countries) members to lower oil prices. His goals? Primarily to pressure Russia into ending their war with Ukraine. He also highlighted that it would lower inflation, and demanded interest rate cuts follow both at home and abroad. If he gets his way, we could see yields begin to fall.
Further downward pressure on yields could arrive by the middle of the year if Wall Street expectations are correct, and the Fed ends its quantitative tightening programme. Lastly, the fiscal deficit’s future may hinge on Elon Musk, who is now sole head of the cabinet Department of Government Efficiency (DOGE) after Vivek Ramaswamy’s departure.
The markets
UK strength: the FTSE 100 continues to break records, driven by positive earnings updates and expectations of further rate cuts, which are offsetting concerns about President Trump’s tariff policies. Meanwhile, heavy declines from CMC Markets, Inchcape, and IG Group weighed on the FTSE 250 index.
US optimism: the good mood for US stocks continued, with 2% returns in dollar terms this week – the largest gain in the first week of a new Presidency since 1985. The S&P 500 hit a new high after seven gains in eight days.
Japanese stocks swell: chipmakers soared higher, and SoftBank surged over 9% after President Trump confirmed its inclusion in the $500BN venture to build AI infrastructure in the US.
Oil under pressure: Brent Crude slumped this week in response to Trump’s demands for increased production and lower oil prices.
Golden age: Trump’s arrival has done little to stop Gold’s stellar performance, delivering over 7.5% to UK investors so far this year.
| | Weekly Change | YtD Change |
|---|---|---|
| FTSE 100 | 0.71% | 4.87% |
| FTSE 250 | -0.34% | -0.37% |
| S&P 500 | 1.01% | 5.76% |
| NASDAQ | 1.11% | 5.81% |
| Hang Seng | -0.50% | -0.12% |
| Nikkei 225 | 2.84% | 2.35% |
| Brent Crude | -4.86% | 5.48% |
| Gold Spot | 0.78% | 7.52% |
| UK 10yr Gilt yield | -2bps | +7bps |
| US 10yr Treasury yield | +2bps | +7bps |
Source: FE FundInfo, goldprice.org, exchangerates.org.uk, investing.com and finance.yahoo.com. GBP returns as at close Thursday 23rd 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.
