A review of last week: Markets plunged and the dip was bought.

London stocks closed lower on Friday, pulling back from record territory.

The FTSE 100 declined 0.31% to 8,700.53 points after hitting an all-time high on Thursday, while the FTSE 250 lost 0.79% to end at 20,807.84 points. This meant the FTSE 100 was up 0.31% last week while the 250 finished 142 points down or -0.68%.

In currency markets, sterling was down 0.29% on the dollar, trading at $1.2399, while it gained 0.18% against the euro to trade at €1.1997.

As expected, The Bank of England cut its benchmark interest rate by a quarter point to 4.5%, saying it had made sufficient progress on subduing inflation and wage growth. The Monetary Policy Committee voted 7–2 in favour of the move, with two members backing a half-point reduction due to a sharper-than-expected economic slowdown.

The BoE also halved its forecast for UK economic growth this year to 0.75% which will be problematic for Rachel Reeves and the new Labour government having promised growth in its manifesto. Governor Andrew Bailey said that economic activity is weakening and the jobs market is slowing down.

According to the BoE’s latest projections, inflation is set to stay above target until 2027, six months longer than previously forecast. Governor Bailey said that he expected the BoE to be able to lower borrowing costs further, adding that “we will have to judge meeting by meeting, how far and how fast.”

House prices jumped in January to reach fresh highs, industry data showed on Friday, reversing December’s fall. According to the latest house price index from Halifax, prices rose by a surprise 0.7% in January, following a 0.2% dip a month earlier. Analysts had been expecting a far smaller improvement of 0.2%.

The average property price now stands at £299,138 - a new record high.

However, growth slowed marginally year-on-year, to 3% from 3.4% in December. It was the slowest annual rate since July. Amanda Bryden, head of mortgages at Halifax, said: "Affordability is still a challenge for many would-be buyers, but the market’s resilience is noteworthy.

"There’s strong demand for new mortgages and growth in lending. With a stamp duty increase looming, some of this demand may have come from first-time buyers eager to complete transactions before the end of March. "Despite geopolitical uncertainties and waning consumer confidence, other key indicators look fairly positive for the housing market."

Europe

The pan-European STOXX Europe 600 Index ended last week 0.60% higher, just off a recent record level, defying concerns about US trade policy and stalling economic growth. Individual major stock indexes rose. Italy’s FTSE MIB gained 1.60%, Germany’s DAX added 0.25%, and France’s CAC 40 Index rose by 0.29%.

Annual consumer price growth in the eurozone stayed above the European Central Bank’s target for a third consecutive month in January, accelerating to 2.5% from 2.4% in December. Core inflation, which excludes food, energy, alcohol, and tobacco prices, held at 2.7%. Services price inflation, which policymakers monitor closely, came in at 3.9%. ECB President Christine Lagarde said the rise in the inflation rate was anticipated and largely reflected base effects from energy prices a year ago.

Factory orders in Germany jumped 6.9% in December, rebounding from a 5.4% drop the month before and exceeding consensus expectations for an increase of 2.0%. The breakdown of the data showed a sizable increase in other vehicle construction, capital goods, and consumer goods orders. Orders were still 3.0% lower, however, compared with the same month in 2023. Meanwhile, industrial production contracted 2.4% in December, hitting its lowest level since May 2020, when the first waves of the coronavirus pandemic hit the country. Automotive output fell 10%, while machine maintenance and assembly dropped 10.5%.

The US

Major indices in the US declined last week, although the S&P 500 Index held up best, falling just 0.24%. Stocks opened sharply lower to start the week in response to the prior Friday’s announcement from President Donald Trump stating that the U.S. would be implementing 25% tariffs on imports from Mexico and Canada, along with 10% levies on Chinese imports, as of February 1. However, by the end of the day Monday, Trump had agreed to postpone tariffs on Mexico and Canada for 30 days, which provided some relief and seemed to help stocks recover some of their early losses by the end of the week.

Meanwhile, earnings-related headlines seemed to be the other notable driver of sentiment as investors digested another busy week of releases. According to data from FactSet, 77% of S&P 500 Index companies that have reported fourth-quarter results through Friday have posted consensus-topping earnings, with an average growth rate of 16.4% (compared with estimates for 11.9% earnings growth). Of the companies that have reported thus far, 63% have also surpassed sales expectations.

The week’s economic data releases kicked off on Monday with the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI), which indicated that factory activity in the U.S. expanded in January for the first time since 2022. However, on a call with reporters following the data release, ISM Manufacturing Business Survey Chair Timothy Fiore noted that potential tariffs represent a “huge threat” to a sustained recovery in the U.S. manufacturing sector.

Later in the week, the ISM reported that its Services PMI for January declined from December, although the reading remained in expansion territory at 52.8 (readings above 50 indicate expansion).

The highlight of last week’s economic calendar arguably came from Friday’s closely watched nonfarm payrolls report. The Labour Department reported that the U.S. economy added 143,000 jobs in January, down from an upwardly revised reading of 307,000 in December and below economists’ expectations for 170,000. The unemployment rate also declined unexpectedly, to 4.0% from 4.1% in the prior month.

Asia

Japan’s stock markets lost ground over the week, with the Nikkei 225 Index falling 2.0% and the broader TOPIX Index down 1.8%. The latest hawkish comments from the Bank of Japan (BoJ) led the yen to strengthen to the high end of the JPY 151 against the U.S. dollar range, from 155.2 at the end of the previous week. The strength of the yen weighed on the profit outlooks of Japan’s export-heavy industries.

The yield on the 10-year Japanese government bond rose to 1.28%, from the prior week’s 1.23%, on expectations of further interest rate increases by the BoJ this year. The central bank’s base case is that it will raise interest rates if the economy and prices (as well as wages) develop in line with its forecasts.

The case for further rate hikes was supported by data showing a sharp rise in nominal wages in December and the second consecutive month of positive growth in real (inflation-adjusted) wages, although the surge was largely due to a significant increase in companies’ winter bonuses. Separate data showed that household spending rebounded by more than expected in December. The BoJ has repeatedly emphasized the need for real wages to rise so that private consumption can follow an uptrend.

Mainland Chinese stock markets rose in an abbreviated trading week as evidence of strong consumer spending over the Lunar New Year holiday offset President Trump’s decision to slap a 10% tariff on Chinese imports. The onshore benchmark CSI 300 Index advanced 1.98% and the Shanghai Composite Index added 1.63% from Wednesday to Friday, according to FactSet. Stock markets in mainland China were closed from January 28 to February 4 for the nationwide holiday. In Hong Kong, the benchmark Hang Seng Index advanced 4.49%, its best weekly performance in four months, driven by gains in technology companies.

Travel and retail spending over the Lunar New Year holiday, a key consumption period for China, pointed to improved domestic demand. Box office receipts over the eight-day holiday jumped 18% to £1.05 billion over last year’s holiday, Bloomberg reported, citing data from ticketing site Maoyan. The number of domestic trips rose to a record 501 million during the holiday, up 5.9% from last year, while spending on domestic trips rose 7% to the equivalent of £76.2 billion, according to China’s Ministry of Culture and Tourism.

The Week Ahead

Macroeconomic headlines show no sign of letting up over the coming week as UK gross domestic product data and US inflation figures get released.

After fears around tariffs under Donald Trump hampered global stocks and sparked fears over inflation earlier in the month, the US consumer price index will be in focus. Wednesday will see the figures for January released, with markets expecting inflation to have slowed from 0.4% to 0.3% over the month and remain at 2.9% on an annual basis.

With inflation still above the target, policymakers seek more evidence of disinflation before considering rate cuts with no Fed cuts priced in until June. However, tariff, tax, and spending policies under the Trump administration add some uncertainty to inflation risks.

The UK economy will then emerge in the spotlight on Thursday, as December and fourth quarter gross domestic product growth figures are unveiled. After flatlining in the previous two months, the Bank of England slashed its forecast for UK economic growth this year as it cut interest rates. According to Trading Economics, expectations are for another month of just 0.1% growth, leaving the economy contracting by 0.1% over the quarter.

“Growth conditions still face stagnation risks,” IG added, “if GDP returns to contraction, it will likely increase calls for further easing” as markets anticipate another rate cut in May.

BP, Barclays, NatWest, Unilever and housebuilders promise to deliver a busy week of UK earnings ahead. Following a quiet Monday, BP will kick off proceedings on Tuesday after signalling job cuts recently and grappling with lower oil prices.

Bellway is set to get the housebuilding updates underway in the meantime, before Barrat Redrow reports on Wednesday. A packed Thursday then brings reports from Unilever, BAT and Barclays, before NatWest closes out the week in London on Friday.

Over in the US we will also have earnings from McDonald’s, Coca-Cola, Shopify, Super Micro Computer, CME, Kraft Heinz, Cisco, Airbnb, Coinbase and Moderna.

It’s going to be a busy week but US inflation will be the one that could move the market. Anything above 0.3% on the year and we could even start hearing rumblings of a rate cute (nobody is going to see that one coming), but less that 0.3% and the ‘good news’ can continue and stocks should rally on the back of it.

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On our platform:

Yet again, our platform moved from an underweight equities position at the start of last week, to a fair sized exposure, before evolving into an underweight position as the week ended after profit was taken.

It will be interesting to see how this week unfolds.

The last two weeks have been incredibly volatile at the start of week, resulting in positions being added to our exposure on the BUY side.

Will this week follow the same theme?

I guess time will tell.

Have a great week in the markets and here it to a profitable February.

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Disclaimer: The views expressed in this article are the author’s own and should not be considered in rendering any legal, business or financial advice.

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