Market Update - Month Overview (January 2025)

Summarised by Shara Cox (Report via Zenith)

The international markets had a strong start to 2025, with European stocks outperforming the US. The US market had strong performances in financials, healthcare, and communication services. However, the information technology sector struggled, falling 1.5%, including sharp drop in NVIDIA’s share price as Chinese start-up DeepSeek, challenged US dominance in the sector. The AI giant saw its stock tumble by as much as 20% after concerns emerged that DeepSeek’s generative AI could match industry leaders at a significantly lower cost.

In terms of monetary policy, the US Federal Reserve kept interest rates steady and hinted that further rate cuts may not be imminent. Bond markets initially reacted to strong payroll data and a robust 2.8% economic growth rate. Meanwhile, in Europe, the European Central Bank cut rates by 25 basis points to 2.9%, its fifth cut in this cycle. German stocks gained 9.2% over the month, supported by improving economic conditions. In Japan, the Bank of Japan raised rates to 0.5%, reflecting confidence that inflation and wage growth are now on track to meet the central bank’s targets.

The Australian share market had a strong month, outperforming the US market. The financial sector performed particularly well, climbing more than 6%, while consumer discretionary stocks gained 6.8%, and materials were up nearly 4%. The domestic economy provided a supportive backdrop for equities, with inflation data showing signs of easing. Core inflation dropped to 3.2% in December, down from 3.6%, with the quarterly increase of just 0.5% marking the slowest rise since mid-2021. This data result in the interest rate cut by the Reserve Bank of Australia we saw earlier in the week, with further cuts expected throughout the year.

Emerging markets saw mixed performance in January. The MSCI Emerging Markets Index rose 1.8%, bringing its 12-month return to 14.8%. Chinese equities edged up 0.9%, supported by stronger-than-expected PMI data and improved credit growth in December. US trade tensions continue to loom over emerging markets, particularly China and Mexico, as President Trump’s administration reintroduced tariffs, including a temporary 25% tariff on Canada and Mexico, causing market volatility. Meanwhile, Indian equities struggled, falling 3.6%, while South Korea performed strongly with a 6.3% gain. Latin America had a particularly strong month, led by a 12.4% jump in Brazilian stocks. China’s economic growth surprised on the upside, expanding by 5.4% in the fourth quarter of 2024. Strong exports and industrial production provided support, though the property sector continues to face headwinds.

Commodity markets had a mixed month, with gold being the standout performer, rising 6.8% to US$2,798 per ounce. This took its annual gain to an impressive 37.3%, supported by rising geopolitical risks, inflation concerns, and strong demand from central banks in emerging markets. Brent crude oil increased 2.6% to US$76.77 per barrel but remained within its recent trading range. Copper prices were higher, while iron ore stayed above US$100 per tonne, though it has lost over a quarter of its value since 2024 as China’s economic slowdown continues to impact demand.

In currency markets, the Australian dollar remained weak, trading near 62 cents against the US dollar. The AUD has fallen more than 10% from its September 2024 peak of 69 cents, reflecting widening interest rate differentials with the US and weaker commodity prices. The US dollar strengthened over the month, with the USD Index gaining nearly 1%. The Japanese yen saw a brief boost after the Bank of Japan’s rate hike but remains weak due to the country’s low interest rates compared to the US. Meanwhile, the Chinese yuan remained near record lows at 7.3 per USD, with the People’s Bank of China continuing to carefully manage its depreciation to prevent capital flight.

 Overall, January 2025 was a strong month for global and Australian markets, with positive economic data and easing inflation concerns supporting equity performance. However, risks remain, particularly regarding US trade policy, the strength of the US dollar, and ongoing geopolitical uncertainties.