Market Update

Global government bond yields eased from recent peaks, supported by softer-than-expected inflation data in the US and the UK. Investor sentiment was further bolstered by anticipation of Donald Trump’s upcoming inauguration on Monday and the release of key corporate earnings later this month.
In the US, December inflation reports provided reassurance. Headline inflation rose to 2.9%, partly driven by low base effects from the previous year, particularly in energy prices. However, core inflation, which excludes food and energy, slowed to 3.2%, slightly under expectations. Additionally, a weaker-than-anticipated increase in producer prices reinforced the view that inflationary pressures are easing, keeping the Federal Reserve on track for potential rate cuts later in the year.
Corporate earnings further lifted market optimism. Major banks, including JPMorgan Chase, Goldman Sachs, and Citigroup, exceeded fourth-quarter expectations, demonstrating resilience despite the high-interest-rate environment.
In the UK, the FTSE 100 hit a record high, despite mixed economic signals. GDP grew by 0.1% in November, narrowly avoiding recession after contractions of 0.1% in both October and September, though the figure fell short of the anticipated 0.2% growth. December’s inflation data also came in lower than expected, strengthening the likelihood of a Bank of England rate cut next month.
Retail sales figures released on Friday added to the case for monetary easing, as sales unexpectedly declined in December due to weak food sales at supermarkets during the holiday period. These developments, combined with expectations of lower interest rates and a weaker pound, supported the FTSE 100, which benefits from its heavy exposure to international revenue streams. UK government bond yields also fell, offering relief to investors and borrowers.
Asia-Pacific markets had a mixed session on Friday, with encouraging economic data from China offering a bright spot. China’s GDP expanded by 5.4% in the fourth quarter, its fastest pace in 18 months, while retail sales and industrial production both exceeded forecasts. These results indicate strengthening consumer confidence and suggest that stimulus measures are gaining traction, providing a positive outlook for the region.
In Europe, stocks ended the week on a high, driven by a broad-based rally fueled by declining government bond yields and robust economic data from China. December inflation data aligned with expectations, with the annual rate rising to 2.4%, up from 2.2% in November. This increase was attributed to base effects, as energy price declines from the prior year no longer influenced the annual comparisons.
The combination of easing inflation, resilient earnings, and encouraging signals from China offers a supportive backdrop for global markets as they head further into 2025.