The January Federal Open Market Committee (FOMC) minutes highlighted the need for further progress on inflation before considering rate cuts, with trade and immigration policies cited as potential factors affecting the outlook. While policymakers expect inflation to move toward 2% over time, they acknowledged that the path may be uneven. The Fed is also considering pausing or slowing the pace of quantitative tightening until the U.S. debt ceiling situation is resolved.
S&P Global reported that U.S. business activity growth softened in February, with the flash Composite Purchasing Managers’ Index (PMI) declining to 50.4, a 17-month low. A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction. The services sector slipped into contraction for the first time in over two years, with a PMI of 49.7, while manufacturing activity remained in expansion. According to the report, uncertainty surrounding federal government policies and rising input cost pressures contributed to the overall slowdown in business activity.
In the UK, stronger-than-expected inflation and wage data prompted markets to dial back expectations for three Bank of England (BoE) rate cuts this year. Annual consumer price inflation accelerated to 3.0% in January from 2.5% in December, its fastest pace since March 2024, driven by higher transport costs and rising food and non-alcoholic beverage prices. Services inflation—a key metric for policymakers—rose to 5.0% from 4.4%, while core inflation, which excludes volatile food and energy prices, climbed to 3.7% from 3.2%.
Meanwhile, wage growth remained strong, with average earnings excluding bonuses rising 5.9% year-on-year in the three months to December, up from 5.6% in the previous quarter. Separately, the UK unemployment rate held steady at 4.4% over the same period, slightly below consensus expectations, according to data released on Tuesday.
Eurozone business activity remained in expansionary territory for a second consecutive month in February, with the HCOB Flash Eurozone Composite PMI Output Index unchanged at 50.2, according to S&P Global. The data highlighted diverging trends across the region—Germany saw output expand for a second month, while France experienced a sharp contraction. The rest of the bloc posted solid growth.
Stronger-than-expected earnings from Alibaba and other Chinese tech firms fuelled renewed investor interest in the country’s internet sector, following local AI startup DeepSeek’s technological showcase in January. Sentiment was further buoyed by a high-profile meeting between President Xi Jinping and leading tech entrepreneurs, reinforcing a more supportive stance toward the private sector.
Major U.S. equity indices declined over the holiday-shortened week, with the Dow Jones Industrial Average and Nasdaq Composite both falling 2.51%, while the S&P 500 lost 1.66%
In Europe, the Euro Stoxx 50 Index ended the week 0.34% lower, as investors weighed U.S. trade policy developments and ongoing diplomatic efforts to resolve the Russia-Ukraine conflict. The UK’s FTSE 100 also edged lower, finishing the week down 0.84%.
Mainland Chinese equities advanced, supported by strength in technology stocks. The Shanghai Composite Index gained 0.97% in local currency terms, while Hong Kong’s Hang Seng Index rose 3.90%, driven by a rally in Alibaba shares. In contrast, Japanese equities weakened, with the Nikkei 225 slipping 0.95% amid yen appreciation and rising domestic bond yields.
Market Moves of the Week
The South African government's annual budget speech, originally scheduled for 19 February 2025, was unexpectedly postponed due to disagreements within the Government of National Unity (GNU). The key point of contention was the proposed 2% increase in the value-added tax, which faced opposition from coalition partners, notably the Democratic Alliance (DA). The budget speech has been rescheduled for 12 March 2025, allowing for further deliberations to achieve consensus within the government.
This week, the G20 Foreign Ministers' Meeting convened in Johannesburg on the 20th and 21st of February 2025, bringing together foreign ministers and senior diplomats to address pressing global challenges. Discussions centred on the Russia-Ukraine conflict, with South African President Cyril Ramaphosa emphasising the need for cooperation on geopolitical tensions, climate change, and economic insecurity. South African Foreign Minister Ronald Lamola highlighted the importance of peace initiatives, while China signalled support for U.S.-led diplomatic efforts on Ukraine. Australia also engaged in discussions with Russia, raising specific humanitarian concerns.
The JSE All-Share Index advanced 0.22% over the week, driven by a 1.87% gain in industrials, while financials and property posted modest increases of 0.73% and 0.53%, respectively. In contrast, the resource sector declined 3.81%, weighing on overall performance. By Friday's close, the rand slightly strengthened by 0.05% against the U.S. dollar, trading at R18.33.
Chart of the Week:
The Hang Seng Tech Index has surged over 50% since September, far outpacing the Nasdaq's 12% gain, as stimulus measures and AI-driven optimism fuel investor confidence.
Credits: Strategic IQ
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