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Monthly Market Review – January 2025

Overview

In January 2025, global economic and financial markets experienced a mix of stability and volatility influenced by various factors. The International Monetary Fund (IMF) projected global growth at 3.3% for both 2025 and 2026, slightly below the historical average of 3.7%. This outlook reflects an upward revision for the United States, offset by downward adjustments in other major economies. The IMF emphasized that medium-term risks are tilted to the downside, with elevated policy uncertainty posing challenges to the disinflation process and financial stability. Similarly, the United Nations reported that global economic growth is expected to remain at 2.8% in 2025, unchanged from 2024. This subdued performance is attributed to ongoing structural challenges such as weak investment, slow productivity growth, high debt levels, and demographic pressures.

Additionally, the technology sector experienced volatility due to developments in artificial intelligence (AI). A significant sell-off in U.S. tech stocks, led by Nvidia losing almost $600 billion, was triggered by the unveiling of a cost-effective large language AI reasoning model DeepSeek by a Chinese company. This raised concerns over high capital spending by the US tech giants and their efficiency.

Looking at the performance of major asset classes, January recorded a good month for most of the assets. Financial markets were notably impacted by geopolitical developments, particularly concerns over potential trade conflicts. Global stock markets faced significant stress due to fears of a trade war ignited by potentially new U.S. tariffs. Gold recorded the best performance with 6.6% upside whereas DJ commodity index increased by 2.4%. The UK, European, and U.S. equites did well with 6.2%, 6.15%, and 2.8%, respectively, driven by the strength of the US economy as well as hopes for loosening credit environment. However, Asian equities lost values as Chinese and Japanese equities dropped by 3% and 0.8%, respectively, amid broader macroeconomic concerns in each of the respective economies. The benchmark for shariah-compliant investments, DJ Islamic market index, appreciated by 2.6%. On the fixed income side, DJ sukuk index increased only 0.5% as yields remain highly volatile in the month amid sticky inflation and anticipation of higher for longer interest rate environment. Lastly, the UK pound depreciated by 0.93% against US dollar as US dollar strengthened amid strong US economy compared to UK as well as rising worries over US tariffs on imported goods.

Market Snapshot

News & Key Events in January

UK

• Annual inflation rate in the UK unexpectedly edged lower to 2.5% in December 2024 from 2.6% in November, below forecasts of 2.6%. However, it matched the BoE’s forecast from early November.

• The United Kingdom’s unemployment rate rose to 4.4% from September to November 2024, compared to market estimates and 4.3% in the previous two periods.

US

• The annual inflation rate in the US rose for a 3rd consecutive month to 2.9% in December 2024 from 2.7% in November, in line with market expectations. This year-end rise is partly driven by low base effects from last year, particularly for energy.

• The Federal Reserve kept the fed funds rate steady at the 4.25%-4.5% range during its January 2025 meeting, in line with expectations. The central bank paused its rate-cutting cycle after three consecutive reductions in 2024 that totaled a full percentage point. Chair Powell said the Fed is not in a hurry to lower interest rates, and that it paused cuts to see further progress on inflation.

• 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.

• Donald Trump sworn in as 47th president of the United States.

Europe

• The annual inflation rate in the Euro Area edged up to 2.5% in January 2025 from 2.4% in December, slightly above market expectations of 2.4%, a preliminary estimate showed.

• The European Central Bank lowered its key interest rates by 25 bps in January 2025, as expected, reducing the deposit facility rate to 2.75%, the main refinancing rate to 2.90%, and the marginal lending rate to 3.15%.

• The Eurozone economy unexpectedly stalled in Q4 2024, marking its weakest performance of the year, following a 0.4% growth in Q3 and an anticipated 0.1% expansion, according to preliminary estimates.

China

• China’s annual inflation rate edged down to 0.1% in December 2024 from 0.2% in the previous month, aligning with market estimates and marking the lowest print since March. The latest result underscored mounting deflation risks in the country, despite government stimulus measures and the central bank’s supportive monetary policy stance.

• The People’s Bank of China (PBoC) kept its key lending rates unchanged for the third consecutive month in January fixing, 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, which serves as a reference for property mortgages, was retained at 3.6%.

• The Chinese GDP grew by a seasonally adjusted 1.6% in Q4 2024, accelerating from an upwardly revised 1.3% rise in Q3 and marking the strongest quarterly increase since Q1 2023.

Others

• The annual inflation rate in Japan jumped to 3.6% in December 2024 from 2.9% in the prior month, marking the highest reading since January 2023.

• The Bank of Japan (BoJ) raised its key short-term interest rate by 25 basis points to 0.5%, the highest level in 17 years, in line with market consensus. The move reflected wage hike momentum and steady progress in inflation.

• The annual inflation rate in Russia rose sharply to 9.5% in December of 2024 from 8.9% in the previous month, the highest since base effects from Russia’s invasion of Ukraine kicked in in February 2023.

• The annual inflation rate in Canada eased to 1.8% in December of 2024 from 1.9% in the previous month, slightly below market expectations that it would remain at 1.9%, to mark the softest rate of price growth since September.

• South Korean president Yoon Suk Yeol got arrested amid his impeachment over his attempt to impose martial law on 3 December 2024.

• Bitcoin experienced a significant price volatility in January amid rapidly changing macroeconomic situation and hopes for loose crypto regulations under President-elect Donald Trump.

Disclaimer

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