Lacklustre markets...but still pushing higher

Key takeaways

Against a fast-moving geo-political backdrop in Europe, most assets apart from oil delivered weak but positive returns. Lower inflation and hopes of a soft landing currently outweigh the threats of a US-initiated tariff dispute.

European shares in the spotlight
The benchmark pan-European STOXX Europe 600 Index reacted positively to the near-term easing of the tariff threat from the US, a strong corporate earnings reporting season, as well as news of contact between Presidents Trump and Putin. This contact comes ahead of formal talks between the US and Russia about the Ukraine war, and raises the prospect of an end to the war after three years. A further bright spot was China, where share prices continued to rally, with artificial intelligence-linked companies rising strongly. This helped Hong Kong’s Hang Seng Index, which rose by 7% during the week.

A higher-than-expected US inflation report for January
On an annualised basis, US core inflation accelerated to 3.3% in January, compared to 3.2% in December. Regarded by many as a sign that US inflationary pressures remain prevalent, it has reinforced expectations that the US central bank, the Federal Reserve (Fed), will retain a restrictive policy on interest rates, perhaps until the second half of this year. The benchmark US 10-year government bond yield rose in response (while the 10-year bond price, which moves in the opposite direction, fell), although it eased off by the end of the week. The prospect of no reduction to US interest rates initially supported the strength of the US dollar, but upbeat, pro-risk investor sentiment (supporting higher risk assets like shares) resulted in the dollar weakening against other major currencies like the euro and pound.

Oil price slips on Ukraine peace hopes
Ahead of talks between the US and Russia about an end to the war in Ukraine, the oil price eased, with Brent Crude trading just under $75 a barrel. If a peace deal between Ukraine and Russia does materialise, this could lead to a lifting of sanctions on the availability of Russian oil, increasing supply and driving the oil price lower. The potential for weaker oil demand, should a reciprocal tariff dispute between the US and the rest of the world occur, is also weighing on sentiment. A lower oil price will have the benefit of keeping inflation down – a positive for the global economy.

Market moves

• The European EuroSTOXX 50 and Germany’s DAX share indices reached new all-time highs, with the DAX up almost 10% in the last month.

• The gold price continued to push higher, reflecting a weaker US dollar and the possible risks of a trade war.

• The dollar eased, back to its level of mid-December 2024.

What to look out for this week

• On Tuesday, UK employment data for December will be released, and is expected to be unchanged at 4.4% month-on-month.

• On Wednesday, UK consumer inflation for January is expected to be 2.4% year-on-year – a slowing from December’s equivalent 2.5%.

• On Saturday, Germany has a federal election to choose a new chancellor and members of the Bundestag (parliament).

Important Information

Handelsbanken Wealth & Asset Management Limited is authorised and regulated by the Financial Conduct Authority (FCA) in the conduct of investment and protection business, and is a wholly-owned subsidiary of Handelsbanken plc. For further information on our investment services go to wealthandasset.handelsbanken.co.uk/important-information. Tax advice which does not contain any investment element is not regulated by the FCA. Professional advice should be taken before any course of action is pursued.

• Find out more about our services by contacting us on 01892 701803 or exploring the rest of our website: wealthandasset.handelsbanken.co.uk
• Read about how our investment services are regulated, and other important information: wealthandasset.handelsbanken.co.uk/important-information
• Learn more about wealth and investment concepts in our Learning Zone: wealthandasset.handelsbanken.co.uk/learning-zone/
• Understand more about the language and terminology used in the financial services industry and our own publications through our Glossary of Terms: wealthandasset.handelsbanken.co.uk/glossary-of-terms/

All commentary and data is valid, to the best of our knowledge, at the time of publication. This document is not intended to be a definitive analysis of financial or other markets and does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned. The value of any investment and income from it is not guaranteed and can fall as well as rise, so your capital is at risk.

We manage our investment strategies in accordance with pre-defined risk objectives, which vary depending on the strategy’s risk profile.

Portfolios may include individual investments in structured products, foreign currencies and funds (including funds not regulated by the FCA) which may individually have a relatively high risk profile. The portfolios may specifically include hedge funds, property funds, private equity funds and other funds which may have limited liquidity. Changes in exchange rates between currencies can cause investments of income to go down or up.

This document has been issued by Handelsbanken Wealth & Asset Management Limited. For Handelsbanken Multi Asset Funds, the Authorised Corporate Director is Handelsbanken ACD Limited, which is a wholly-owned subsidiary of Handelsbanken Wealth & Asset Management, and is authorised and regulated by the Financial Conduct Authority (FCA). The Registrar and Depositary is The Bank of New York Mellon (International) Limited, which is authorised by the Prudential Regulation Authority and regulated by the FCA. The Investment Manager is Handelsbanken Wealth & Asset Management Limited, which is authorised and regulated by
the FCA.

Before investing in a Handelsbanken Multi Asset Fund you should read the Key Investor Information Document (KIID) as it contains important information regarding the fund including charges and specific risk warnings. The Prospectus, Key Investor Information Document, current prices and latest report and accounts are available from the following webpage: wealthandasset.handelsbanken.co.uk/fund-information/fund-information/, or you can request these from Handelsbanken Wealth & Asset Management Limited or Handelsbanken ACD Limited: 77 Mount Ephraim, Tunbridge Wells, Kent, TN4 8BS or by telephone on
+44 01892 701803.

Registered Head Office: No.1 Kingsway, London WC2B 6AN. Registered in England No: 4132340