Market update: 18 February 2025
Global markets had a strong week, rallying on optimism over potential Ukraine peace talks, robust corporate earnings, and resilience in tech stocks. Investors largely looked past hotter-than-expected U.S. inflation data, with markets still pricing in rate cuts despite a more cautious stance from central banks.
In Australia, the ASX 200 gained 0.5%, reaching a new closing high on Friday as markets brushed off concerns about U.S. reciprocal tariffs. Industrials (+2.9%) led the charge, while Healthcare (-3.7%) struggled, weighed down by CSL’s results. The February reporting season is in full swing, with most earnings meeting or exceeding expectations, though some outlooks have disappointed, leading to sharp market reactions. Next week will be a key period for earnings, alongside Tuesday’s RBA decision, where markets are pricing in a 90% chance of a 25bps rate cut, though some analysts believe the odds are closer to 50/50.
In the U.S., the Nasdaq surged 2.6%, with the S&P 500 and Dow Jones up 1.5% and 0.5%, respectively. Markets initially wobbled after January CPI came in above expectations, with headline inflation at 3.0% YoY and core inflation at 3.3% YoY, widening the gap to the Fed’s 2% target. While this led some economists to believe the Fed won’t cut rates in 2025, markets are still pricing in 1.6 rate cuts by year-end, particularly after U.S. retail sales fell sharply, posting the biggest decline in nearly two years. Meanwhile, Trump’s administration announced reciprocal tariffs on multiple trading partners and agreed to Ukraine talks with Putin, marking a major shift in U.S. foreign policy.
In Europe, equities continued their winning streak, with the Euro Stoxx 50 up 3.2%, as strong earnings and optimism around peace talks offset inflation concerns. The ECB remains cautious on rate cuts, with policymakers urging patience. In the UK, GDP grew 0.1% QoQ, avoiding contraction and exceeding expectations.
Greater China markets posted strong gains, with the Hang Seng up 7.0% and the Shanghai Composite up 1.3%, extending a five-week rally. Investor enthusiasm around AI startup DeepSeek continued to fuel gains, with global investors reassessing their positioning in China’s tech sector. Inflation data also showed core CPI rising to 0.6% in January, driven by Lunar New Year spending.
In Japan, the Nikkei rose 0.9%, helped by renewed risk appetite following the Trump-Putin discussions, which led to Yen weakness as investors adjusted expectations around geopolitical risks.
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