February Market Update

The start to the year has been a lively ride with Donald Trump dominating the news cycle, issuing a series of executive orders and expressing some contentious viewpoints during his first month in office. Amid the political noise, financial markets have generally remained resilient, with all major equity regions recording positive returns in January.

Trumponomics: A Turbulant Beginning

The ambitious intentions of the Trump administration were anticipated, yet the scale and tone of the executive orders enacted have been striking. Actions such as declaring a national energy emergency, a national border emergency, granting pardons to those involved in the January 6th riots, and withdrawing from the World Health Organization are notable examples. Moreover, the ongoing threat of global tariffs and efforts to eliminate Diversity, Equity, and Inclusion initiatives within the United States contribute to a landscape that is increasingly turbulent in economic, political, and cultural terms. Corporate responses have not been uniform; while some leaders, like Mark Zuckerberg, align with Trump and retract DEI policies, others have remained steadfast in their commitment to these initiatives.

For investors, the rapid changes implemented by Trump -whether affecting currency, bitcoin, or equity markets - are not unfamiliar. Risk remains a fundamental component of functional financial markets, yet navigating the present circumstances appears to be more complex than usual.

Bond Yields in Flux

In light of recent developments, the decision by the Federal Reserve to maintain interest rates was both logical and anticipated. With ongoing inflation concerns and a labor market showing resilience, there was no pressing need to ease financial conditions, despite external pressures for lower rates.

After enduring several weeks of volatility, bond yields exhibited a notable shift. The US 10-year yield surged to 4.8% before concluding the month around its initial level. The UK market mirrored this trend, peaking at 4.9% before retracting. The fluctuations were primarily influenced by movements within the US market rather than local factors; however, the UK government’s waning credibility continues to pose challenges with respect to debt costs. Rachel Reeves’ recent speech advocating for growth did not significantly alter market sentiment, indicating that tangible change is required to foster a more positive outlook.

In Europe, the European Central Bank reduced interest rates to 2.75% in an effort to stimulate growth and counteract potential tariffs. Unlike the UK, the ECB perceives the inflation battle as largely won, allowing for greater flexibility in adjusting policy rates.

Conversely, the Bank of Japan increased rates by 0.25%, diverging from trends observed in many other developed economies. With confidence that inflation and wage growth are becoming embedded in Japan’s economic fabric, the BoJ raised rates to 0.5%, marking the highest level in 17 years. This adjustment did not provoke significant reactions in the currency markets, a departure from the volatility seen in previous years.

DeepSeek reshapes AI

Tech stocks experienced a momentary disturbance following the introduction of DeepSeek, a Chinese AI tool claimed to have been developed at a significantly lower cost than its competitors while utilising older technology. Its impressive performance prompted scrutiny over the substantial expenditure of other companies and prevailing perceptions around market leadership. Regardless of whether DeepSeek ultimately emerges as a transformative player, the 17% decline in Nvidia shares within one trading session illustrates the volatility in big tech stocks, which are currently trading at exceptionally high valuations.

The Gaza ceasefire

A ceasefire was agreed for Gaza, bringing much-needed positive news. The hope is that the terms will be maintained and pave the way to a lasting resolution.

Disclaimer: This content is for your general information purposes only and does not constitute investment advice. The commentary is intended to provide you with a general overview of the economic and investment landscape. It is not an offer to purchase or sell any particular asset and it does not contain all of the information which an investor may require in order to make an investment decision. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

Past performance is not a reliable indicator of future results. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. Your capital is at risk and the value of investments, as well as the income from them, can go down as well as up and you may not recover the amount of your original investment.