Markets kicked off the year on a strong note, with both global equities and bonds delivering positive returns. European stocks took the lead, while U.S. markets lagged - largely due to a sell-off in mega-cap tech, sparked by concerns over AI advancements from China’s DeepSeek. Meanwhile, bond markets saw some volatility as investors reacted to fiscal policy expectations under the new U.S. administration. Gold had a standout month, climbing higher as investors looked for safe-haven assets.
Global Markets
Global equities broadly gained, with European stocks leading the way. The MSCI Europe ex-UK Index jumped 7.0% (EUR), driven by strong performances in financials and consumer discretionary sectors. The European Central Bank (ECB) gave markets a boost by cutting interest rates by 25 basis points, which lifted investor sentiment. The MSCI All Country World Index (ACWI) was up 3.3% (NZD-hedged) for January, reflecting broad-based gains across developed and emerging markets.
Over in the U.S., the S&P 500 gained 2.7% (USD), thanks to solid economic data and optimism around deregulation. However, tech stocks took a hit - Nvidia alone lost $1 trillion (NZD) in market value on January 27 following news of China’s DeepSeek AI developments. On the economic front, U.S. GDP grew at an annualised rate of 2.3% in Q4, while inflation ticked up to 2.9% in December, keeping investors guessing as to what the Federal Reserve might do next.
Japan’s TOPIX edged up 0.1% (JPY) as the Bank of Japan raised rates, to their highest level in 17 years, while emerging markets had a mixed month. The MSCI Emerging Markets Index rose 1.8% (USD), with China’s GDP expanding 1.6% in Q4, though a 0.1% inflation reading raised deflation concerns. India’s market fell 2.4% (MSCI India - INR) on weak earnings results.
Bond markets had a volatile month, with U.S. Treasury yields rising early in the month before pulling back. The Bloomberg Global Aggregate Bond Index ended January up 0.4% (NZD-hedged). The Fed held rates steady at 4.25%-4.50%, making it clear that rate cuts aren’t likely before midyear. Meanwhile, gold surged 7.1% (USD-terms), with investors seeking safety in the face of uncertainty.
New Zealand Market
Back home, the New Zealand share market didn’t fare as well, with the NZX50 down 0.88%. Domestic bonds were essentially flat, slipping -0.04%.
The latest inflation data showed that CPI came in at 2.2% for Q4 2024, while unemployment ticked up to 5.1% - leading many to expect that the RBNZ will cut the OCR by 50 basis points in February. While business confidence remained high, consumer confidence weakened, with ANZ-Roy Morgan's index falling 4 points to 96.0 as households are becoming increasingly hesitant to spend.
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