In a speech at the World Economic Forum in Davos, President Trump demanded that OPEC lowered oil prices and insisted that central banks should lower interest rates. President Trump’s first few days in office have seen him sign a raft of executive orders, including withdrawing the US from the WHO and the Paris Climate Accord, and attacking global taxes on US multinationals. He has also announced he will hit Mexico and Canada with 25% tariffs by the start of February.
UK
The FTSE 100 closed the week unchanged.
Maroš Šefčovič, the EU’s trade chief, floated the idea of Britain joining the Pan-Euro-Mediterranean (PEM) convention, a customs agreement between the EU and 20 countries, including several in the Middle East and the Balkans, where all countries share the same “rules of origin”. UK ministers are said to be looking into the idea as part of post-Brexit “reset” talks which begin in earnest this year.
The S&P Global UK Composite PMI rose to 50.9 in January, rebounding from a 14th month low of 50.4 in December. The expansion was solely carried by the services sector (51.2 vs 51.1 in December 2024), offsetting the softer contraction for manufacturers (48.2 vs 47).
US
The S&P 500 jumped 1.8% over the week, reaching a fresh high, while the Nasdaq rose 2.0%.
US stocks, as measured by the forward earnings yield (expected profits as a percentage of stock prices) are now the most expected compared to US Treasuries since the dotcom era. The forward earnings yield on S&P 500 equities is now yielding around 75 bps less than the yield on the 10-year Treasury.
The S&P Global Flash US Composite PMI eased to 52.4 in January, down from December’s 55.4. Growth in the manufacturing sector (PMI at 50.1 vs 49.4 in December) resumed after six months of contraction, while the service sector (PMI at 52.8 vs 56.8) maintained slower but sustained expansion.
Pimco said it expected US rates to remain on hold for the foreseeable future and that rate rises were possible.
Europe
The Eurofirst 300 advanced 1.2% over the week as fears over US tariffs eased and investors bought cheaper European stocks following strong corporate earnings. Shares hit fresh highs amid expectations for robust bank results, with banks expected to return record amounts to shareholders in higher dividends and buy-backs.
The HCOB Eurozone Composite PMI rose to 50.2 in January, from 49.6 in the previous month, marking the first expansion in the Eurozone’s private sector activity since August 2024. The fresh expansion was solely carried by the services sector (51.4 vs 51.6 in December 2024), offsetting a sharp contraction for manufacturers (46.1 vs 45.1), albeit the latter was better than expectations.
Japan
The Nikkei 225 rallied 3.8% over the week.
The Bank of Japan raised interest rates by 25 bps to “around 0.5%”, the highest level in 17 years. Policymakers said that economic activity and wage and price inflation were at targets to justify its push to “normalise” monetary policy.
The au Jibun Bank Japan Composite PMI increased to 51.1 in January, from a final 50.5 in December and indicating the fastest pace since September 2024.
Japan’s inflation rate jumped to 3.6% in December from 2.9% in the prior month, marking the highest reading since January 2023.
Pacific Basin ex Japan
The Monetary Authority of Singapore eased monetary policy for the first time in four years, saying it would slow the rate of appreciation in the Singapore dollar relative to a basket of its trading partner’s currencies. This comes amid rising expectations of US tariffs and slowing domestic inflation.
Chinese stocks were boosted after Donald Trump remarked on a “friendly” conversation with President Xi Jinping and hinted at a potentially softer approach toward tariffs. The Chinese authorities also told local insurance companies and mutual funds to invest more in domestic stocks.
Emerging Markets
The MSCI EM Index gained 1.4% in USD terms over the week.
The Central Bank of Turkey cut rates by 250 bps to 45%. This follows another 250-bps cut in December.
Bonds
The yield on the 10-year US Treasury eased 1 bp over the week to 4.61%. 2-year yields fell 3 bps to 4.25%.
The yield on the 10-year German Bund rose 4 bps to 2.57, while 10-year JGB yields rose 3 bps to 1.23%.
Commodities
Gold rose above $2,770 per ounce, just short of the record high it reached in October 2024, amid weaker dollar and after President Donald Trump called for a reduction in interest rates.
Currencies
The US dollar fell sharply after President Trump appeared to take a softer stance on tariffs on Chinese imports and signalled he wanted US rates to fall.
