Week ending 3rd January 2025.

With limited time to settle into the new year, market activity remained mixed as investors navigated the early days of 2025. After an outstanding year for global equities in 2024, some market participants took the opportunity to lock in profits as the year ended. The first week of trading in 2025 was a brief one, with most markets closed for the New Year holiday. Thursday marked the official return to trading for many, and the mood was one of cautious optimism.

UK and European stocks performed well on the first trading day of the year. Energy stocks benefited from higher oil prices, and mining shares also gained on hopes that China might introduce more stimulus to boost its economy. The UK’s FTSE 100 led the way on Thursday with a 1.07% increase. Shares of major energy companies like BP and Shell, saw strong performances. European markets also enjoyed a brief respite, with investors clinging to the optimism that 2025 could see some economic recovery—though China’s ongoing manufacturing struggles and the eurozone’s manufacturing sector, which is now on a 30-month decline, dampened spirits. In the UK, house prices have been rising, nearing record levels. However, the market could see more volatility ahead, driven by upcoming stamp duty changes and a weakening pound against the dollar.

US markets began the first week of trading in 2025 on a more subdued note, following the trends seen toward the end of 2024.

On the economic front, the reports that came in were a mixed bag. Initial jobless claims dropped to 211,000, the lowest since April 2024, signalling a resilient labour market. However, the manufacturing PMI showed a slight decline, suggesting moderate contraction in the sector, while construction spending fell short of expectations.

Adding to the cautious tone, individual stock news weighed on broader market sentiment. Tesla’s fourth-quarter delivery numbers missed expectations, and a decline in iPhone shipments to China led to a drop in Apple’s shares. However, US stocks staged a strong recovery on Friday, bouncing back from recent losses. Tech stocks led the charge as investors sought bargains following the pull back in the prior session. Investor sentiment was also lifted by better-than-expected manufacturing data and dovish remarks from a Federal Reserve policymaker.

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As the market looks ahead to next week, all eyes will be on key economic reports from the UK, US, and Eurozone. Expect PMI data from all three regions, as well as UK retail sales and inflation data from the Eurozone. US investors will also get a closer look at the minutes from the Federal Reserve’s December meeting, where the central bank announced a 25-basis point rate cut. And while US markets will be closed on Thursday, January 9th, in observance of a National Day of Mourning following the passing of former President Jimmy Carter, the latter part of the week will bring more economic data, including the all-important non-farm payrolls and unemployment rate figures.

Kate Mimnagh, Portfolio Economist