Omnis Weekly Market Update – 20th January 2025
Last week’s performance – major stock markets
| S&P 500 | 2.93% |
| Nikkei 225 | -1.89% |
| CSI 300 | 2.14% |
| Euro Stoxx 50 | 3.44% |
| FTSE 100 | 3.14% |
Investors were concentrated on headlines coming out of the UK last week after the gilt market continued in its struggles. Mounting investor concerns about the UK’s debt levels and the Labour government’s ability to shore up the public finances while implementing budget plans put downward pressure on gilt prices. At the beginning of last week however, the UK’s December inflation report showcased a softer headline rate of 2.5%, beneath the projected 2.6%. The improvement was partly thanks to an unpredictable drop in airline prices. Nonetheless, inflation trends still hover above desired levels, though they show signs of moderation. And despite the encouraging dip, high energy prices and a depreciated pound hint at future inflationary pressures.
The easing inflation figures provide a breather for both investors and policymakers, potentially stabilizing the embattled gilt market. With the likelihood of a near-term rate cut now on the table, bond yields could experience downward pressure, possibly offering more attractive conditions for sectors reliant on borrowing, including the UK government whom investors have had concerns over.
The Bank of England, poised to continue its measured easing phase, might eye an interest rate cut in February – a move made more plausible by lower-than-expected inflation.
As the week carried on however, the UK’s economy saw a humble 0.1% growth in GDP for November, underperforming against the 0.2% prediction and hinting at a stagnant economic landscape following October’s contraction. Softer inflation rates have added complexity to the Bank of England’s interest rate move deliberations, with pressures growing for potential lowering in February’s meeting. However, the Bank of England remains steadfast, unlikely to deviate from its “gradual” lowering stance, as it navigates through the challenges of maintaining a cautious economic strategy amid persisting weak growth.
As a result of these data developments, the gilt market seen a decent recovery from the yield highs (or price lows) we had seen which will have helped your portfolio (should it be invested in UK gilts) recover value from this sector. UK Equities performed very well again last week gaining 3%, a standout equity performer year to date when measured against other global markets. Again, this is a positive for portfolios which are invested in UK equities.
We work experienced investment managers in the UK space, including Martin Currie of Franklin Templeton, Ninety One Asset Management, Fidelity International, and Columbia Threadneedle Investments. We’ll continue to provide you updates and insights from us and our partner investment managers on the current situation and outlook for the UK.
Elsewhere last week, the US seen good stock market performance, rising 2.9%. The highlight of the week’s US economic calendar came on Wednesday with the Labour Department’s December inflation report. While the headline number indicated an acceleration from November, core inflation (which excludes food and energy) rose by 0.2% in December, a tick lower than the prior month and the smallest increase since July.
The data is unlikely to be significant enough to convince the Federal Reserve, the US central bank, to cut interest rates at its upcoming January policy meeting; however, the December numbers provide optimism that the Fed is still making progress on bringing down inflation following several months of elevated readings, which keeps the door open for potential interest rate cuts later in the year.
Last week at Omnis, we published our 2025 economic outlook.
