Global share markets rallied in January, with US and Australian equities gaining 3-5%. European markets performed even better, rising 6%, while China struggled, falling 3%. The key factor driving these movements was the uncertainty around tariffs, following Donald Trump’s inauguration on 20 January. The likelihood (or omission) of tariffs had a significant impact on each market and the companies within them.
Commodity prices also reflected this uncertainty. Gold surged 7% during the month, as investors sought safety amid trade concerns. Meanwhile, oil rose by 1%, with fears of supply disruptions from Russian sanctions and potential tariffs on Canadian oil.
The political landscape in Washington took centre stage in January as President Trump began his new term. Markets continued to benefit from optimism around deregulation, but uncertainty over tariffs persisted. On 1 February, President Trump announced a 25% tariff on imports from Canada and Mexico, with a 10% tariff on Canadian energy products, set to take effect on 4 February. However, after discussions with Canadian Prime Minister Justin Trudeau and Mexican President Claudia Sheinbaum, a 30-day suspension of these tariffs was agreed upon, contingent on both nations enhancing border security measures. Additionally, a 10% tariff on Chinese imports was declared, also effective from 4 February.
The artificial intelligence (AI) sector also saw some turbulence. Chinese startup DeepSeek made waves by announcing its new AI model, DeepSeek R1, which it claims is both high-performing and significantly cheaper to run than existing models. This raised concerns that major AI players – OpenAI, Alphabet, Microsoft, Meta, NVIDIA, among others – may be overinvesting in expensive AI infrastructure. However, while DeepSeek’s emergence is noteworthy, we believe the market may have overreacted. A deeper analysis suggests its impact may not be as disruptive as some fear, and we remain comfortable with our AI-related investments.
On the monetary policy front, the US Federal Reserve (Fed) held interest rates steady at 4.25-4.50% during its January meeting, as expected. The key takeaway was mixed – while the Fed’s statement leaned hawkish, Chair Powell sounded more dovish, reinforcing market expectations that a rate cut won’t come before June at the earliest. Meanwhile, the European Central Bank (ECB) cut rates by 0.25% to 2.75%, while the Bank of Japan (BoJ) raised its key interest rate from 0.25% to 0.50%, citing stable inflation.
Closer to home, Australia’s inflation data for the December quarter was lower than expected. Underlying CPI rose 0.5% for the quarter and 3.2% for the year. Crucially, underlying inflation has now remained within the Reserve Bank of Australia’s (RBA) 2-3% target range for the last six months, sitting at an annualised 2.7%. Following this data, markets quickly priced in a 0.25% rate cut at the RBA’s next meeting on 17-18 February, with another 0.25% cut expected by June.
Looking ahead, we remain cautiously optimistic for 2025. Inflation has stabilised at more acceptable levels, and central banks are expected to maintain or ease monetary policy. This environment should support global economic growth and corporate earnings, providing favourable conditions for markets in the year ahead, however, with potential for increased levels of volatility.