January was an eventful month for global markets, with record highs, political shifts, and renewed trade tensions shaping the economic outlook. The FTSE 100 soared to an all-time high, Trump’s trade tariffs rattled markets, and the tech sector faced fresh competition from China. Here’s a look at the key developments across major economies in our February 2025 Market Commentary.

UK: A Record-Breaking Month for the FTSE 100

The FTSE 100 hit a record high, closing at 8,646.88 points on 30th January 2025—a 6.1% gain for the month and its best performance since November 2022. The FTSE 250 also climbed, though at a slower pace.

Why the Surge?

• The Interest Rate Cut – The Bank of England announced a 0.25% rate cut on 6th February, which brings the base rate to 4.5%—the lowest in 18 months.
• Reduced Trade War Fears – In January, investors believed a trade war could be avoided, boosting confidence. However, recent events suggest tensions may rise again.
• Strong Sector Performance – The aerospace and defence sectors were among the biggest winners, with companies like Smiths Group seeing share price growth after key business decisions.

New Pensions Minister Brings Stability

January also saw a shake-up in the UK government, with Torsten Bell appointed as the new pensions minister. Bell, a former economist and CEO of the Resolution Foundation, is widely respected in the financial sector. His appointment was seen as a positive step towards greater stability in pensions policy.

Europe: Growth and Tariff Threats

European stock markets started 2025 on a strong note, but Trump’s tariff threats have cast a shadow over investor optimism.

Market Highlights

• European investors shifted focus back to domestic markets, partly due to concerns over the overvalued US tech sector.
• The DAX and CAC fell in early February as the US announced tariffs on Canada, Mexico, and China, with the EU seemingly next in line.

Eurozone Economic Outlook

• Bond yields rose as the Eurozone’s manufacturing PMI exceeded expectations, hinting at modest economic improvement.
• The ECB cut interest rates by 0.25% to 2.75%, marking the fifth reduction since summer 2024. Another cut is expected in March to stimulate growth.

United States: Trade Tensions and Tech Volatility

With Donald Trump back in the White House, markets braced for major policy shifts—and they didn’t have to wait long.

Key Developments

• Trump announced tariffs on imports from Canada (25%), Mexico (25%), and China (10%), triggering volatility. The Dow Jones fell over 500 points in response.
• Nvidia’s stock dropped 18% after China’s DeepSeek unveiled a more cost-effective AI model. Trump called it “a wake-up call” for US tech, sparking debate over how the sector will respond.

Despite these shocks, investor sentiment remained positive, with 61% of Americans believing the stock market will rise in the next six months—the highest confidence level since 2001.

Far East: China Faces Market Pressures

China’s CSI 300 Index had a rocky start to the year, dropping 2.9% on the first trading day—its worst New Year opening since 2016.

China’s Market Challenges

• US Tariffs & Economic Slowdown – The new 10% tariff on Chinese goods added pressure to an already slowing economy.
• Government Intervention – To boost confidence, China ordered mutual and pension funds to increase local investments, requiring them to grow holdings by at least 10% per year for three years.

Elsewhere in Asia, Japan raised its key interest rate to 0.5%, the highest since 2008, as inflation hit 2.5% in Tokyo. Unlike other central banks, Japan appears committed to further rate hikes.

Emerging Markets: Mixed Fortunes Amid Global Uncertainty

• Mexico was immediately hit by the 25% US tariffs, raising concerns over the impact on emerging economies.
• India remains a top investment destination, according to Davos fund managers, despite interest rate cuts expected from the Reserve Bank of India.
• Brazil raised interest rates again to 13.25% as inflation remained stubbornly high.
• Egypt’s non-oil private sector posted its best growth in four years, partly due to improved market conditions and a ceasefire in Gaza.

Looking Ahead: What to Watch in February

• US-EU Trade War? Trump has hinted at targeting the EU next—if he follows through, expect more volatility.
• AI Wars – The US response to DeepSeek will be key to tech sector stability.