Weekly Comment: Markets surge as Germany prepares for pivotal election

4 minute read

Weekly podcast – Market overview

This week’s host, Equity Research Analyst Oli Creasey, discusses the ups and downs of the past week with Head of Fixed Interest Research, Richard Carter and Equity Research Analyst Jarek Pominkiewicz. Among the topics discussed – Trump’s tariffs, movements in Europe and more.

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Market overview

Last week, the MSCI All Country World Index (MSCI ACWI) rose by 1.8%, bringing its year-to-date (YTD) performance to 5.3%.

United States

US markets posted a positive week despite a higher set of US inflation data. The Bureau of Labor Statistics (BLS) reported that the headline consumer price index (CPI) rose 0.5% month over month and 3.0% year over year in January. Core CPI – which excludes volatile food and energy prices – and the producer price index (PPI) also rose more than expected by 0.4%.

Brushing off the news and boosted by President Trump’s decision not to introduce new global tariffs just yet, US large caps finished the week up 1.5% (4.1% YTD). Growth indices returned 2.0% (3.8% YTD), while value gained 0.7% (5.1% YTD). Technology-heavy stock benchmarks climbed 2.6% (3.8% YTD), closing the week within 1% of all-time highs.

Despite the positive week, Federal Reserve Chair Jerome Powell noted that while progress has been made in bringing down inflation, policymakers are “not quite there yet” and intend to keep policy restrictive for now.

Europe (excluding the United Kingdom)

Hopes of an end to the Ukraine-Russia conflict and robust earnings reports buoyed sentiment across many European markets, as the MSCI Europe ex UK Index ended the week 2.2% higher (10.1% YTD). Major stock indices rose, with German large caps surging 3.3% (13.1% YTD), France’s rallying 2.6% (10.9% YTD), and Italy’s jumping 2.5% (11.5% YTD).

The euro strengthened against the US dollar, ending the week at US$1.05, up from US$1.03.

United Kingdom

The UK economy unexpectedly grew by 0.1% in the final quarter of last year, according to the Office for National Statistics (ONS). Analysts had forecast a contraction of -0.1%, but growth of 0.4% in December lifted the quarter into positive territory. GDP grew 0.9% in 2024, up from 0.3% in 2023. Bank of England (BoE) Chief Economist Huw Pill emphasised the need for caution in cutting interest rates due to strong pay growth. Fellow Monetary Policy Committee (MPC) member Catherine Mann argued for a more aggressive rate cut, citing a weakening labor market and slowing consumer demand.

Reacting to the news, both large and mid cap UK stocks rose, 0.5% (7.0% YTD) and 0.6% (1.7% YTD) respectively. The British pound appreciated against the US dollar, ending the week at US$1.26, up from US$1.24.

German Election

Following the collapse of Chancellor Olaf Scholz’s three-way coalition, Germany is set to head to the polls this week in an election that is expected to significantly impact both domestic and international policies.

During the final debate, the economy, the Ukraine-Russia conflict, and the influence of US Vice Presiden JD Vance were at the forefront of discussions. Current polls indicate that the CDU/CSU is leading, followed by the AfD with 20.7%, and the SPD with 15.9%.

The CDU/CSU's lead suggests a potential continuation of conservative economic policies, which may favour business and investment. However, the rise of the AfD could introduce more nationalist and protectionist measures if they were to come into power.