Overview
In February 2025, global financial markets experienced notable fluctuations influenced by geopolitical developments, trade policies, and economic indicators. European markets, particularly defence stocks, rallied driven by talks on increased defence spending, boosting investor confidence. Concurrently, the Euro and British Pound strengthened against the U.S. Dollar, reflecting optimism in the region’s stability. In the United States, markets were marked by volatility due to President Donald Trump’s announcement of impending tariffs on imports from Europe, Canada, Mexico, and China. These measures raised concerns about increased consumer costs, rising inflation, and potential economic slowdowns. The technology sector faced additional pressures as China’s AI startup DeepSeek introduced a cost-effective AI model, challenging the dominance of U.S. tech giants like Nvidia.
Looking at the performance of major asset classes, February recorded a mixed and volatile month for most of the assets amid AI technology developments from China as well as geopolitical developments, particularly concerns over potential trade tariffs. European equities got substantial boost after surging defence stocks’ prices amid a push to increase defence spending. Euronext 100 surged by 2.64% while UK FTSE 100 index gained 2% in February after a very strong January performance. China’s Shanghai index increased 2.16% driven by tech stocks rally after announcement of DeepSeek AI, a close rival to Open AI ChatGPT. US tech stocks struggled after this news where S&P 500 retreated by 1.3% as investors became concerned over US tech dominance. DJ Islamic market index fell 2.5%. Japan’s Nikkei 225 dropped roughly 6% in February amid rising inflation and interest rates. Gold booked another 2% gains after a strong price run in the previous month as investors looked for safe heaven assets amid rising geopolitical stress, however, DJ commodity index remained flat as crude oil slipped by 3.8%. On the fixed income side, DJ sukuk index increased by 1.1% as yields softened during the month. Lastly, the UK pound appreciated by 1.47% against US dollar as the later paired some gains made in the previous month.
Market Snapshot
News & Key Events in February
UK
• The annual inflation rate in the UK accelerated sharply to 3% in January 2025, the highest since March 2024, from 2.5% in the previous month and above forecasts of 2.8%.
• The Bank of England cut its benchmark Bank Rate by 25bps to 4.5% in its February 2025 decision, as expected, to mark the third rate cut since the start of its cutting cycle in August of last year.
• The British economy expanded 0.1% on quarter in Q4 2024, following no growth in Q3, and beating forecasts of a 0.1% contraction, according to preliminary estimates.
• The United Kingdom’s unemployment rate held steady at 4.4% from October to December 2024, defying expectations of a rise to 4.5%.
US
• The annual inflation rate in the US edged up to 3% in January 2025, compared to 2.9% in December 2024, and above market forecasts of 2.9%, indicating stalled progress in curbing inflation.
• A majority of Fed policymakers acknowledged that the high level of uncertainty warranted a cautious approach when considering further adjustments to monetary policy, minutes from the January 2025 FOMC meeting showed. Many participants suggested that the Committee could maintain the policy rate at a restrictive level if the economy remained robust and inflation stayed elevated.
• The US economy expanded an annualized 2.3% in Q4 2024, the slowest growth in three quarters, down from 3.1% in Q3 and forecasts of 2.6%, according to the advance estimate from the BEA.
• The University of Michigan consumer sentiment for the US was revised sharply lower to 64.7 in February 2025 from a preliminary of 67.8, reaching the lowest level since November 2023
Europe
• The annual inflation rate in the Euro Area eased to 2.4% in February 2025, down from a six-month high of 2.5% in January but slightly above market expectations of 2.3%, according to a preliminary estimate.
• The Gross Domestic Product (GDP) In the Euro Area stagnated 0 percent in the fourth quarter of 2024 over the previous quarter.
• In the 2025 German federal election held on February 23, the conservative Christian Democratic Union/Christian Social Union (CDU/CSU), led by Friedrich Merz, emerged as the largest party, securing 28.5% of the vote and 208 seats in the Bundestag. Meanwhile, outgoing Chancellor Olaf Scholz’s SPD had its worst performance in decades, only securing 16.4% of the vote.
China
• China’s annual inflation rate climbed to 0.5% in January 2025 from 0.1% in December, surpassing market expectations of 0.4%.
• The People’s Bank of China (PBoC) kept its key lending rates unchanged for the fourth consecutive month in February, aligning with market expectations. The one-year loan prime rate (LPR), a benchmark for most corporate and household loans, was maintained at 3.1%, while the five-year LPR, a reference for property mortgages, remained at 3.6%.
• The Caixin China General Manufacturing PMI rose to 50.8 in February 2025 from 50.1 in the previous month, surpassing market expectations of 50.3.
Others
• The annual inflation rate in Japan climbed to 4.0% in January 2025 from 3.6% in the prior month, marking the highest reading since January 2023.
• The annual inflation rate in Canada inched higher to 1.9% in January of 2025 from 1.8% in the previous month, in line with market expectations.
• The annual inflation rate in Russia rose to 9.9% in January of 2025 from 9.5% in the previous month, the highest since base effects from Russia’s invasion of Ukraine kicked in in February 2023.
• Bitcoin experienced a significant price volatility in February and closed the month with $85000 per token compared roughly $102000 at star of the month.
Disclaimer
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