January 2025

Looking back at the goings-on in January, it’s clear that there are mountains to climb in 2025. January was marked by shifting geopolitics as conflicts and strategic rivalries reshaped alliances, impacting energy security and trade routes. The inauguration of Donald Trump for his second term as the 47th President of the United States added a new dimension to global economic and political dynamics, influencing trade policies and investor sentiment. Uncertainties surrounding Trump’s proposed tariffs drove investors toward safe-haven assets, pushing gold prices to record highs.

Simultaneously, major economies grappled with persistent inflation, divergent monetary policies, and volatile financial markets as investors responded to shifting growth prospects and geopolitical uncertainty.

Monetary policy divergence also played a crucial role, with central banks in major economies, notably the Fed and the ECB, signalling contrasting approaches to interest rate adjustments in response to stubborn inflation and uneven economic growth, influencing currency and bond markets. China’s slower-than-expected recovery, amid weak consumer demand and real estate sector instability, dampened global growth expectations, affecting commodity prices and emerging market equities.

Sharp movements in tech, driven by mixed earnings reports and regulatory pressures, added to the volatility. Ongoing adjustments in global supply chains, especially in semiconductors and green energy, further influenced trade flows and corporate earnings.

Central banks worldwide implemented various monetary policy measures in response to evolving economic conditions. The Fed maintained the federal funds rate at 4.25–4.50% during its January 29 meeting, influenced by a robust labour market, inflation exceeding the 2% target, and potential near-term tariff increases. The ECB cut key interest rates by 0.25 percentage points on January 30, marking its fifth rate cut since June 2024, to stimulate growth amid economic stagnation.

Global equity markets exhibited notable volatility. In the US, the S&P 500 rose 2.7%, and the Nasdaq Composite gained 1.6%. The emergence of DeepSeek, an AI application from China, triggered a sharp sell-off in US tech stocks, with Nvidia experiencing the largest single-day loss in US market history. European markets outperformed, benefiting from US trade policy shifts and a weaker euro, with the DAX surging 9.2% and the FTSE 100 hitting record highs, up 7.2%. In contrast, Asian markets were more subdued due to concerns over Trump’s tariffs on China and weakening economic data, with the Shanghai Composite down 3.0% and the Nikkei 225 dropping 0.8%.

The USD strengthened against the EUR and GBP, driven by economic and policy factors. The ECB’s rate cut contributed to euro depreciation, while expectations of a February rate cut from the Bank of England add to GBP pressures. Trump’s protectionist trade measures and pronouncements further bolstered the USD.

Commodity markets experienced notable fluctuations. The Bloomberg Commodity Index closed up 4.0%. Gold surged 7.4% to a record high, while silver rose 10.4%, driven by safe-haven demand amid tariff-related uncertainties. Oil prices were volatile, with early gains from US sanctions on Russia and a Gaza ceasefire offset by declines after Trump’s calls for increased US production and OPEC pressure. WTI ended the month up 1.1%, and Brent rose 1.4%.

The cryptocurrency market saw significant moves, with regulatory shifts and new digital assets. Bitcoin hit an all-time high above $109,000 following Trump’s inauguration but closed the month up 7.8% after some retracement. Despite US government support, Elliott Management offered a health warning that the administration’s crypto promotion could fuel a speculative bubble, posing risks of significant market disruptions.