Neither political turmoil nor rising inflation could hold back the markets
European markets continued their upward march, with the Stoxx Europe 600 Index (representing 600 companies from 17 European countries) setting another record, as speculation around a Ukraine peace deal drove energy prices lower. U.K. stocks underperformed, as a stronger-than-expected gross domestic product (GDP) print reduced the likelihood of rate cuts. Earnings disappointments from Unilever, British American Tobacco and Barclays also dragged the index down. However, on the continent, Nestlé posted its biggest one-day gain since 2009 (+6.5%) after a strong fourth quarter, while Siemens surged by 7.3% on improving demand for its industrial automation products. The mood is great in Europe, even in the face of possible trade tensions. The Euro Stoxx 50 Index (comprised of the 50 largest European companies) is up by more than 10% year-to-date.
In the U.S., inflation remained a problem. The U.S. Consumer Price Index (CPI) came in hotter than expected, at 0.5% on a month-over-month basis. While the U.S. Federal Reserve (the Fed) commented that it doesn’t make policy after one or two bad months, this marked a seventh consecutive monthly increase. Fed chair Jerome Powell acknowledged that January’s figure was higher than most forecasts. His takeaway? “We’re close, but not there yet.” Translation: U.S. interest rates will stay higher for longer. Markets initially sold off, but in a now-familiar pattern, dip buyers pushed the Nasdaq back into the green, while gold erased early losses to close higher. It’s very hard to keep this market down; apparently even trade wars and rising inflation can’t do it.
Meanwhile, president Trump confirmed his first public discussion with Russia’s president Putin since returning to office, revealing that the two leaders spoke about possible Ukraine peace negotiations. While no formal agreements were made, markets wasted no time reacting. Oil dropped on speculation that supply risks could ease, and Ukrainian bonds surged, leading gains among emerging-market debt. Even European stocks reacted positively to the news.
Despite all the political uncertainty, rate fears and global tensions, markets have had an exceptional start to 2025. Stocks across Canada, Brazil, the U.S. and Europe have outperformed expectations. Even China’s battered technology sector has staged a wonderful rally. For all the noise, risk assets have continued to find a way higher.
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