Weekly Market Recap

UK GDP expanded by 0.3% sequentially in November, after contracting in the previous two months. The result beat a consensus forecast of 0.1% growth for the economy. Key drivers included expansion across both services and production, including manufacturing, which was supported by the reopening of Jaguar Land Rover's auto factories following a cyberattack.

A slew of political and trade-related headlines drew attention throughout the week. These included President Donald Trump outlining plans for a 10% cap on credit card interest rates and a proposed 25% tariff on imports from countries doing business with Iran. Separately, news that the Department of Justice was investigating Federal Reserve Chair Jerome Powell over his congressional testimony on renovations to the Fed’s headquarters reignited investor concerns about Fed independence.

Core consumer prices rose at the slowest annual pace since March 2021 in December, according to the Bureau of Labor Statistics (BLS). On Tuesday, the agency reported that its core consumer price index (CPI)—which excludes volatile food and energy costs—increased 0.2% month over month (MoM) and 2.6% year over year (YoY), below estimates for 0.3% and 2.7%, respectively. Headline prices increased 0.3% MoM and 2.7% YoY.

The BLS also reported its government shutdown-delayed November producer price index (PPI)—which gauges price increases at the wholesale level. The data showed that producer prices rose 0.2% MoM and 3% YoY, increasing from the prior month’s readings of 0.1% and 2.8%, respectively. The increase was primarily driven by rising energy prices.

Elsewhere, Census Bureau data showed that consumer spending was stronger than expected in November, as retail sales rose 0.6%, beating estimates of around 0.4% and rebounding from a slight decline in October. However, growth in control group sales—which exclude several categories and feed into the calculation of gross domestic product (GDP)—decelerated to 0.4% from 0.6% in the prior month.

In other economic news, several housing market reports surprised to the upside this week. On Tuesday, the Census Bureau reported that sales of new single-family homes for October came in at a seasonally adjusted annual rate (SAAR) of 737,000. This was a slight decrease from the prior month but ahead of estimates for around 725,000.

The National Association of Realtors (NAR) also reported that existing home sales rose 5.1% in December to a SAAR of 4.35 million, beating estimates of around 4.18 million. MoM home sales increased in all regions, as “conditions began improving, with lower mortgage rates and slower home price growth,” said NAR Chief Economist Lawrence Yun.

Meanwhile, mortgage rates continued their recent downward trend, with the average 30-year fixed rate approaching 6% by the end of the week, according to Freddie Mac data.

The German economy grew for the first time in three years in 2025 as households and the government increased spending. Official data showed that GDP expanded 0.2% in the fourth quarter and for the full year. Trade as a growth engine appeared to stutter. Exports fell 0.3% in 2025 due to higher US tariffs, a stronger euro, and Chinese competition. Imports, on the other hand, rose a price-adjusted 3.6%, after shrinking for two years. Consequently, Germany’s trade surplus tumbled to EUR 110 billion from EUR 241 billion in 2024—one of the smallest in more than two decades.

Higher production of capital goods helped the eurozone's industrial output increase by 0.7% in November, marking the third consecutive month of gains. Investor sentiment improved in January and was the strongest since July 2025, driven by stronger economic expectations, according to market research firm Sentix.

After 25 years of talks, the European Union's 27 member states provisionally endorsed a free trade agreement with South America’s Mercosur bloc, comprising Argentina, Bolivia, Brazil, Paraguay, and Uruguay. The deal—the largest ever for the EU in terms of tariff reductions—will see the gradual elimination of tariffs on more than 90% of bilateral trade. The EU’s trade with Mercosur was worth over EUR 111 billion in 2024.

Under new margin rules, investors must provide margin equal to the full value of the securities they buy on credit, up from 80% previously, Bloomberg reported, citing a regulatory statement. The new rules apply to investors in China’s three stock exchanges in Shenzhen, Shanghai, and Beijing and reflect officials’ growing unease with the pace of the market’s recent gains. Earlier in January, the CSI 300 Index surged to a four-year high, and the amount of outstanding loans taken out by investors to buy stocks hovered near a record, Bloomberg reported. Despite an ongoing property market downturn and persistent deflationary pressures, Chinese stocks have rallied sharply in the past month, driven by artificial intelligence trades and optimism about homegrown tech startups.

On the economic front, China reported that exports surged 6.6% in December, the fastest pace in three months, and that its trade surplus hit a record USD 1.2 trillion in 2025. The latest trade data showed that the combined increase in exports to Southeast Asia and Europe outweighed a tariff-driven slump in exports to the US. While the data highlighted China’s manufacturing prowess and ability to withstand US tariffs, it also risks inflaming tensions with its trade partners as its exports flood into Africa, Latin America, and other markets.

The stock markets hovered around record highs on news that Japan’s Prime Minister Sanae Takaichi is preparing to call a snap general election in early February, seeking a majority for the ruling Liberal Democratic Party. Investors anticipate that a Takaichi victory would provide greater certainty about political direction and clear the way for more aggressive fiscal stimulus, reviving what investors have dubbed the “Takaichi trade,” which has boosted markets centred on artificial intelligence, nuclear energy, and defence.

The yen depreciated sharply on news of a snap election before recovering to JPY 158.1 against the US dollar, holding relatively steady from the prior week. Some support for the yen came from a verbal intervention by Japan’s Finance Minister Satsuki Katayama, who reasserted that the government could take decisive action against sharp currency moves that do not reflect fundamentals. Within fixed income, the yield on the 10-year Japanese government bond rose to 2.18% from 2.09% at the end of the previous week, reflecting concerns about the potential for even greater fiscal stimulus and the impact this would have on the health of Japan’s finances.

On the monetary policy front, while many investors had converged around the view that the Bank of Japan (BoJ) could next raise interest rates in July, the historic and sustained weakness of the yen prompted some speculation that the BoJ could consider bringing forward the timing of its next interest rate hike, possibly to as early as April. When the BoJ last raised rates at its December 2025 meeting, Governor Kazuo Ueda offered limited insights into the pace of further monetary policy normalisation—although he reiterated that the central bank will raise interest rates when its forecasts for the economy and prices are realised and emphasised the importance of seeing sustained wage growth.

Growth in Australian household spending remained firm at 1.0% MoM in November, above the consensus of 0.6% MoM. YoY growth accelerated to 6.3%, marking the fastest pace of growth since September 2023. While the increase was broad-based across categories, household spending data still appears to be affected by seasonal shifts tied to large sales events, particularly in October and November. In contrast, the Westpac Consumer Sentiment survey showed a 1.7% MoM decline in confidence in January, driven by a deterioration in views on the outlook, with expectations for the next 12-month economic conditions and family finances declining. Australian job vacancies declined slightly, falling 0.2% quarter-over-quarter (QoQ) in the three months to November, driven by a decline in the private sector.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 0.4% (2.4% YTD).

The US S&P 500 Index ended the week down -0.4% (1.4% YTD). Value stocks outpaced their growth counterparts for the third straight week, while small-cap stocks outperformed large-cap stocks. The Russell 1000 Growth Index returned -1.2% (-0.6% YTD), the Russell 1000 Value Index 0.7% (4.1% YTD), and the Russell 2000 Index 2.0% (8.0% YTD), reaching an all-time high during the week. The technology-heavy Nasdaq Composite pulled back -0.7% (1.2% YTD).

Earnings season kicked off during the week with several big banks reporting fourth-quarter results, and market reactions were mixed. Shares of JPMorgan Chase and Citigroup declined after both banks reported a drop in quarterly profits, while shares of Morgan Stanley and Goldman Sachs rose on results that largely topped analysts’ forecasts. Later in the week, contract chip manufacturer Taiwan Semiconductor Manufacturing reported a jump in fourth-quarter profits, boosting sentiment around artificial intelligence-related stocks.

In Europe, the MSCI Europe ex-UK Index added 0.7% (3.7% YTD), supported by resilient economic data and earnings results. Major stock indexes were mixed. Germany’s DAX Index edged up 0.1% (3.3% YTD), France’s CAC 40 Index declined -1.2% (1.3% YTD), and Italy’s FTSE MIB Index put on 0.2% (1.9% YTD). Switzerland’s SMI ticked down -0.1% (1.1% YTD). The euro was little changed against the US dollar, closing the week at USD 1.16 for EUR.

The FTSE 100 Index in the UK rose 1.1% (3.1% YTD), and the FTSE 250 Index gained 1.2% (3.8% YTD). The British pound was stable against the US dollar, closing the week at USD 1.34 for GBP.

Japan’s stock markets advanced strongly over the week. The TOPIX Index jumped 4.1% (7.3% YTD), and the TOPIX Small Index surged 3.6% (6.5% YTD).

In Australia, the S&P/ASX 200 Index rallied 2.1% (2.2% YTD) on higher commodity prices and strong November household spending. Australian government bond yields moved modestly higher, with the curve largely unchanged. The Australian dollar marginally strengthened by 0.2% against the US dollar.

In Canada, the S&P/TSX Composite advanced 1.3% (4.3% YTD).

The MSCI Emerging Markets Index rose 2.3% (5.8% YTD), with markets in India, Taiwan, South Korea and Brazil contributing to the gains. 
The onshore Chinese stock market contributed negatively.Mainland Chinese stock markets declined after regulators tightened rules on margin financing for domestic stock investors. The onshore CSI 300 Index, the main onshore benchmark, lost -0.5% (2.3% YTD), and the Shanghai Composite Index shed -0.4% (3.4% YTD). Hong Kong's benchmark Hang Seng Index rallied 2.4% (4.8% YTD). The MSCI China Index, which primarily consists of offshore-listed stocks, added 1.6% (4.7% YTD).

In Poland, the central bank held its scheduled monetary policy meeting, and policymakers decided to keep the key interest rate, the reference rate, at 4.00%. Other interest rates controlled by the central bank were also unchanged.

According to the relatively short post-meeting statement, policymakers, based on incoming economic data, felt that fourth-quarter economic growth was “probably similar” to third-quarter readings. They noted that “annual growth of retail sales, industrial output and construction and assembly production” decreased in November and that labour market data point to a slowdown in wage growth over the last year.

Regarding inflation, central bank officials noted that annual CPI inflation decreased from 2.5% in November to 2.4% in December. They also estimated that inflation net of food and energy prices “was close to the November numbers.” Given the relative stability of both economic growth and inflation, policymakers decided to leave interest rates unchanged.

In South Korea, the central bank’s Monetary Policy Board decided to keep the key interest rate, the Base Rate, at 2.50%. Policymakers made this decision based on their expectations that inflation would stabilise gradually and that economic growth would continue to improve.

In South Korea’s economy, central bank officials noted that, despite “sluggishness” in construction investment, growth has been “supported by a sustained recovery in consumption and by continued export growth.” They expect export activity “to remain favourable due to the strong semiconductor sector,” and they believe that “upside risks…have increased somewhat” due to “the accelerating upward trend in the semiconductor sector” and stronger growth in major global economies.

Regarding inflation, policymakers noted that consumer inflation slipped to 2.3% in December despite higher petroleum product prices, while core inflation stayed at 2.0%. They anticipate that inflation will “gradually decline” to the 2% level. However, they consider “the elevated exchange rate” to be “a source of upside risk.”

Last week, the Bloomberg Global Aggregate Index (hedged to USD was little changed (0.1% YTD), the Bloomberg Global High Yield Index (hedged to USD) returned 0.2% (0.5% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.1% (-0.1% YTD).

US Treasury yields fluctuated throughout the week. The spread between the yields on the 2- and 10-year US Treasury notes dipped below 60bps during the week for the first time since mid-December. Over the week, the 10-year Treasury yield rose by 5bps, ending at 4.22% from 4.17% (up 6bps YTD). The 2-year Treasury yield rose by 6bps, ending the week at 3.59% from 3.53% (up 11bps YTD).

US corporate bonds posted gains, outperforming US Treasuries as steady investor demand absorbed heavy new issuance. Investment-grade spreads tightened, while activity in the high yield market remained strong, though energy-related bonds lagged amid oil price moves and geopolitical concerns.

Over the week, the 10-year German Bund yield decreased by -3bps, ending at 2.83% from 2.86% (down -2bps YTD). The 10-year UK gilt yield rose by 3bps, ending the week at 4.40% from 4.37% (down -8bps YTD).