Stocks shrug off the uncertainty, for now. The TPP weekend update

Stocks shrug off the uncertainty, for now.

The big news in the UK this week was that Britain's economy unexpectedly grew by 0.1% in the final quarter of last year, according to the Office for National Statistics. Analysts polled by FactSet had forecast GDP would shrink by 0.1%, but growth of 0.4% in December lifted the quarter. The ONS said growth in services and construction was partly offset by a drop in production. GDP grew 0.9% in 2024, up from 0.3% in 2023.

Good news for GDP however did not filter through to the FTSE 100 this week. This is partly due to the pound getting stronger as international profits are reduced due to currency exchange rates. The pound/dollar briefly touched £1.26 which (a strong pound and a weakening dollar both contributed).

Entain surged 6.77% after disclosure that US hedge fund Corvex Management had built a 5.3% voting stake in the company, fuelling investor interest. The broader gambling sector also gained, with Flutter Entertainment rising 4.95% after US-based DraftKings raised its 2025 revenue outlook to $6.45bn.

Miners contributed to market gains, with Glencore rising 2.84%, Antofagasta up 0.84%, and Rio Tinto gaining 1.27%.

XPS Pensions Group leapt 11.08% after stating that its full-year results would be “materially ahead” of expectations and Ferrexpo climbed 3.54% on renewed optimism for a resolution to the war in Ukraine, where the company has significant operations.

However, NatWest Group fell 2.79% despite reporting annual results that marginally exceeded expectations.

The bank’s pre-tax profit rose 0.3% to £6.2bn, ahead of forecasts, with loan growth and stronger deposit inflows supporting income. Net interest margins edged up to 2.13%, and return on tangible equity reached 17.5%, surpassing guidance.

Despite those positives, the stock declined as investors focused on cautious forward guidance, with NatWest forecasting a return on tangible equity between 15% and 16% this year and just over 15% by 2027.

“NatWest’s numbers were solid enough - and actually came in slightly above expectations - but the 2025 outlook was only in line with the existing guidance and the market has reacted negatively to the lack of upgrades,” said Russ Mould, investment director at AJ Bell.

HSBC meanwhile slipped 0.83% following reports from Bloomberg that the bank was planning fresh investment banking job cuts, starting in Asia before expanding globally - the exact scale of the redundancies remained unclear.

Bank of England (BoE) Chief Economist Huw Pill told a business group that policymakers must still be cautious about cutting interest rates because of continuing strong pay growth. In an interview with Reuters, he added that more work had to be done to bring down inflation, "and that means we can't just remove all restriction overnight, cut rates aggressively, etc." Fellow Monetary Policy Committee (MPC) member Catherine Mann, previously one of the most hawkish members of the MPC, argued that the BoE should have cut rates by half a percentage point at its last meeting instead of a quarter point because a weakening labour market and slowing consumer demand were helping to subdue inflation.

Europe

Europe’s woes continue but this didn’t stop European markets from posting a strong week. The STOXX Europe 600 Index ended 1.78% higher after reaching a fresh record level. Hopes of an end to the Ukraine-Russia conflict boosted sentiment, although exactly how this plays out is anyone’s guess. It looks like giving Putin what he wants is a concession Donald Trump is prepared to make, but almost certainly not something Ukraine will agree to.

Major stock indexes rose as well. Germany’s DAX rallied 3.33%, France’s CAC 40 gained 2.58%, and Italy’s FTSE MIB increased by 2.49%. A solid week but a lot of the hope is pinned on Russia and Ukraine finding a middle ground that both are happy with.

Eurozone industrial production in December shrank 1.1% sequentially due to sharp declines in capital goods and intermediate goods output. The consensus forecast of analysts surveyed by FactSet was for a contraction of 0.5%. Year over year, production was 2.0% lower, dragged down by an 8.0% fall in the production of capital goods.

Meanwhile, the eurozone economy expanded at a quarterly 0.1% pace in the final three months of last year instead of stagnating, according to a second estimate (which includes more countries) produced by the European Statistics Agency. Annual growth was 0.7% for the full year.

The US

US stocks finished mostly higher with the Nasdaq Composite leading the way, gaining 2.58% during the week. As measured by Russell indexes, growth stocks outperformed value shares for the second week this year. Small-cap stocks lagged, with the Russell 2000 Index trailing the S&P 500 Index by 146 basis points (1.46 percentage points) for the week. The S&P 500 Index and Nasdaq Composite both closed the week within 1% of all-time highs.

Stocks had their best day of the week on Thursday, largely in response to President Donald Trump’s decision to not introduce new global tariffs, instead signing an order that, following further study, could lead to the implementation of reciprocal tariffs on a country-by-country basis by April 1. While the news left some uncertainty, investors appeared to be encouraged as the move will further delay the implementation of additional tariffs and seemingly allow room for negotiation between the U.S. and its individual trade partners.

The week’s economic calendar was highlighted by Wednesday’s inflation data, which came in higher than expected. According to the Bureau of Labor Statistics (BLS), the headline consumer price index (CPI) rose 0.5% month over month and 3.0% year over year in January, accelerating from December’s readings of 0.4% and 2.9%, respectively. Shelter costs rose 0.4% and accounted for nearly 30% of the total increase during the month. Core CPI, which excludes volatile food and energy prices, rose 0.4% in January, up from December’s reading of 0.2%.

Thursday brought more inflation data in the form of the BLS’s producer price index (PPI), which similarly rose more than expected, advancing 0.4% in January compared with consensus expectations for a 0.3% increase.

Treasuries were somewhat volatile as yields rose in response to the week’s data, with the benchmark 10-year Treasury yield touching an intraday high of 4.66% following Wednesday’s CPI report, before decreasing later in the week.

Asia

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 0.93% and the broader TOPIX Index up 0.80%. The weakness of the yen provided a favourable backdrop, and sentiment was further boosted by U.S. President Donald Trump’s decision to refrain from immediately imposing reciprocal tariffs on its trading partners. Japanese authorities said that they would assess the details and impact of any potential U.S. reciprocal tariffs and respond appropriately.

While the current consensus view appears to be that the Bank of Japan (BoJ) is next likely to raise rates in the second half of this year, Japanese government bond (JGB) yields trended upward as a growing number of investors converged around the view that the pace of interest rate hikes by the BoJ could be faster than expected. The yield on the 10-year JGB rose to 1.35% from 1.28% at the end of the previous week, reaching its highest level in almost 15 years.

Mainland Chinese stock markets rose, lifted by hopes that U.S. tariffs on Chinese imports may prove to be milder than expected following the Trump administration’s decision to impose a 10% tariff on the country’s products in early February. The onshore benchmark CSI 300 Index added 1.19% and the Shanghai Composite Index rose 1.30% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index surged 7.04%, driven by strength in tech shares as investors bought up artificial intelligence names.

On the economics front, China’s consumer price index rose a higher-than-expected 0.5% in January from a year ago, accelerating from December’s 0.1% rise, according to the country’s statistics bureau. January’s increase marked the first pickup in consumer inflation since August and was likely driven by a spending surge ahead of the eight-day Lunar New Year holiday. However, the producer price index fell 2.3% in January, unchanged from December’s reading and marking the 28th consecutive month of factory deflation. Stamping out deflation is a matter of growing urgency for Beijing, which unleashed a slew of monetary and fiscal stimulus last September to bolster demand. But a yearslong housing slump has prompted people to save rather than spend, frustrating officials’ attempts to boost consumer spending.

The Week Ahead

Next week there are a few events of note in Europe. On Tuesday we get an update on UK unemployment figures. This is expected to increase slightly to 4.5%. This steady increase is expected as employers tackle the rise in National Insurance.

German economic sentiment is expected to rise a touch but only back to December levels a still below the average. The ZEW Indicator of Economic Sentiment for Germany fell to 10.3 in January 2025 from 15.7 in December, well below forecasts of 15.3, as the German economy contracted for a second year in a row in 2024 and as inflationary pressures are rising. "A lack of private household spending and subdued demand in the construction sector continues to stall the German economy.

An update on UK inflation is on Wednesday. The Consumer Price Index increased 0.3% month-over-month in December 2024, following a flat reading in November and below forecasts of 0.4%.

It is expected to climb on a year-over-year basis, but it’s the monthly figure we put more importance on and this should be fairly flat. A low reading would be very welcome as more cuts to interest rates could be the only way to boost growth. Now the pound has gained strength, there is more room to do so.

Finally, on Friday the week closes with UK retail sales which are expected to have picked up, as well as PMI readings from Europe, the UK and the US.

Readings above 50 imply growth while below 50 shows a contraction. The numbers are expected to be fairly similar across the board with growth in services (apart from in France) and contraction in manufacturing. Production does seem to be what’s keeping a lid on economic growth at the moment.

Here’s to another good week in the markets and enjoy the rest of your weekend.

‍

‍

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.

Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to the corresponding past performance.

‍