Well, she was an American girl Raised on promises Tom Petty

Equity and bond markets had not had the best of ends to 2024 or the best of starts to 2025. However, last week, after some in-line inflation data from Europe, the US and the UK economies resulted in a more dovish sentiment in the market, driving a rally in both asset classes. A strong start to the US earnings season from the banking sector also improved sentiment, and market breadth also improved. The S&P 500 gained almost 3% on the week. A slightly better-than-forecast UK inflation print alongside a weaker-than-expected GDP report revived hopes the Bank of England will be minded to cut interest rates again after failing to deliver in December. UK gilts likewise had a good week. Despite evidence that the oil market remains in surplus, threats of further sanctions on Russia helped push the price of crude back up to $80. The Vix index fell sharply on the week, reflecting the improved sentiment.

Not many people have praised Rachael Reeves’s budget and recent handling of the UK economy since coming to power. However, the IMF seemed duly impressed in the report released in its bi-annual assessment of the global economy. They forecast the Bank of England would cut rates to 3.75% by the end of the year. They upgraded growth expectations, admittedly by just 0.1%. They now expect the UK economy to grow by 1.6% this year. Adding a comment, the UK government’s budget rules showed that it was committed to bringing down the UK debt over the long term. Overall, they expect the global economy to grow by 3.3% in 2025, with the US growing at 2.7%. The IMF’s main caveats to their forecasts are based on the potential risks to policy change from the incoming US administration.

This week, US equity markets will be closed on Monday for two reasons: President Trump’s inauguration for his second term and Martin Luther King Day. As the week progresses, there will be plenty to focus on. Earnings season gets into full flow; this week, the headlines will be made with the likes of Johnson and Johnson, Netflix, Abbot Labs, Verizon, Procter and Gamble, Texas Instruments and Alcoa. We also get the results of the monthly flash Purchasing Manager Surveys across the globe.  The UK will focus on the labour market, where unemployment is projected to rise to 4.4%, and pay growth is set to accelerate for a third month. Fewer people are getting paid more. After confirming its 5% growth target for 2024 in Asia, China enters a quiet week for economic releases, with markets looking for clues about potential stimulus measures before the Chinese New Year shutdown. Aside from what Trump may say in his inauguration speech, which could have some market impact, there will again be rumblings around the US debt ceiling. Davos takes place this week, an event to be seen or not seen at, depending on your point of view.