Monthly Comment - January 2025
In January 2025, global financial markets started strong, with equities like the MSCI World Index and S&P 500 posting significant gains. Bond yields rose sharply in the U.S., while European bonds remained stable. The U.S. dollar stayed strong, impacting commodities like gold and oil. Central banks, including the ECB and Federal Reserve, continued easing policies, with the ECB cutting rates. Inflation in the Eurozone trended downward, and global growth projections remained modest.
January 2025
January 2025 saw a strong start to the year for global financial markets, with
most asset classes experiencing positive momentum despite ongoing economic
challenges. Here's a comprehensive summary of the performance across key
asset classes:
Equities
Global equity markets started 2025 on a high note, with major indices posting
significant gains. The MSCI World Index, a benchmark for global exchanges,
reached a record closing high of 3873 points on January 30, ending the month up
3.47% from December's close.
United States
The S&P 500 continued its strong performance from late 2024, returning
2.70% in the first month of 2025. Technology stocks, however, experienced some
volatility due to developments in artificial intelligence. Notably, Nvidia saw a
significant sell-off, losing almost $600 billion in market value after a Chinese
company unveiled a cost-effective large language AI reasoning model.
Japan
The Nikkei 225 was flat for the month with returns of -
.081% in January.
Europe
Germany's DAX index also performed well and was one of the top performers
with 9.15% gain.
Bonds
The bond market presented a mixed picture in January 2025, with divergent
performances across regions.
United States
US Treasury yields rose sharply since September 2024, with the 10-year
yield reaching 4.5% by January 2025, up 0.9% in just four months. This increase
occurred despite the Federal Reserve cutting its benchmark rate by 1% since
September 2024, presenting attractive income opportunities for investors.
Europe
European bonds showed minimal movement despite the European Central
Bank (ECB) cutting its deposit rate by 1% to 3% since June 2024.
China
Chinese sovereign bonds in renminbi were the standout performers, gaining
7% over 2024 and into January 2025. The Chinese 10-year bond yield eased
below US and German yields to just 1.6%, driven by deflation concerns.
Emerging Markets
Emerging market sovereign bonds in US dollars remained strong performers,
gaining 7% including coupons since the start of 2024.
Currencies
The US dollar maintained its strength from Q4 2024 into January 2025,
impacting various asset classes. The USD basket DXY close the month at 108.50
from a high of 110.00.
Interest Rates
Central banks continued their easing cycles in January 2025:
European Central Bank
The ECB cut its key interest rates by 25 basis points on January 30, 2025.
The deposit facility rate, which steers the monetary policy stance, was lowered
based on the updated inflation outlook and the strength of monetary policy
transmission.
Federal Reserve
The Federal Reserve refrained from moving rates on its meeting on January
29th leaving Fed Funds rate between 4.25 to 4.50%.
Commodities
Commodities showed resilience despite the strong US dollar, with mixed
performances across different sectors.
Gold
Gold remained a favored diversifying asset and managed to make a new
closing high at $2817.00 12 after being up 36.50% in 2024.
Copper
Copper prices increased by 4.39% since the beginning of 2025. The metal is
getting a boost from increase in new electric vehicles sales from China, continued
electrification from utilities as they try to cope with the Artificial Intelligence industry
exponential needs for power.
Oil
Crude prices reached a high of $80.00 a barrel before some profit taking too
place and finished the month at $71.00 a barrel.
Inflation and Employment
Inflation in the Eurozone continued its downward trajectory, with the ECB
expecting it to settle around its 2% target in the course of 2025. The job market in
Europe remained strong, with unemployment around the lowest it has been since
the start of the euro, although firms were advertising fewer job vacancies.
Economic Outlook
The International Monetary Fund (IMF) projected global growth at 3.3% for
both 2025 and 2026, slightly below the historical average of 3.7%. The United
Nations reported that global economic growth is expected to remain at 2.8% in
2025, unchanged from 2024.
February 2025 Outlook
As we move into February 2025, markets are likely to remain cautiously
optimistic. The ECB's recent rate cut and expectations of further easing from major
central banks could continue to support equity markets. However, geopolitical
uncertainties and the potential impact of AI developments on the tech sector may
introduce volatility. In the commodities space, gold is expected to maintain its
appeal as a safe-haven asset, while copper prices may continue to benefit from
growing EV demand. Bond markets, particularly in the US, may offer attractive
income opportunities given the higher yields. Investors should remain vigilant of
inflation trends, central bank policies, and global economic indicators as they
navigate the financial landscape in the coming month.
