Markets Navigate Tariffs, AI Disruption, and Geopolitical Tensions

Global markets experienced a generally positive start to 2025, even with the introduction of new tariffs by the US administration. While concerns about inflation and geopolitical tensions persisted, the overall outlook for global growth remained relatively stable. This commentary examines the key market trends and events of January, including the impact of trade policies, technological advancements, and developments in emerging markets.

Highlights in the article reveal:

• Global growth forecast remains stable at 3.3% despite trade tensions.
• US Fed holds interest rates steady; inflation remains a concern.
• Chinese markets experience volatility; deflationary pressures persist.
• DeepSeek’s AI model disrupts tech markets.

Global markets saw positive performance in January despite the new US administration’s announced tariffs on key trading partners. Headline inflation is expected to moderate to 4.2%.

The US Federal Reserve maintained its key interest rate at 4.25%-4.5%. Economic activity continues to expand steadily, and unemployment remains low at 4.1%, though inflation persists at 2.9% year-on-year. US Treasury yields experienced volatility, with the 10-year yield peaking at 4.8% before settling around 4.5%. Global bond returns were similarly volatile, influenced by inflation, central bank policies, and political developments. European equities and gold prices remained elevated.

Chinese markets were volatile, impacted by economic data, geopolitical tensions, and the proposed US tariffs. The MSCI China Index briefly entered a bear market, although some recovery was observed towards month-end. China’s official PMI rose slightly to 49.2.

China’s Consumer Price index (CPI) increased by just 0.1% year-on-year in December 2024, reflecting ongoing deflationary pressures.

Major equity indices posted gains: the Dow Jones Industrial Average (+4.8%), the S&P 500 (+2.8%), and the Nasdaq Composite (+1.7%). The MSCI World Index and MSCI All-Country World Index both advanced by around 3.5%. The MSCI Emerging Markets Index rose by 1.8%, while Japan’s Nikkei 225 declined by -0.8%.

The Bank of Japan (BOJ) raised its short-term policy interest rate from 0.25% up to 0.5% in January. This reflects the BOJ’s view that wages will continue to rise and inflation can be maintained around the 2% mark. 

European equities, represented by the STOXX All Europe index, rallied by 6.2%. 

Eurozone inflation edged up to 2.5%, primarily due to higher energy prices. The European Commission extended equivalence for UK CCPs until 20 June 2028. AstraZeneca abandoned its £450m vaccine plant expansion in Liverpool due to reduced government funding. 

In the technology sector, DeepSeek’s release of a cost-effective AI reasoning model disrupted markets, briefly impacting the Nasdaq. OpenAI responded by announcing a free new AI model. 

The Panama Canal’s operational control became a point of contention, with Panama’s President rejecting any foreign influence. 

Mexico’s GDP is expected to reflect growth of 1.2% in 2025, a decrease from 1.6% last year, due to high interest rates and weaker private spending.

India’s fiscal growth at the end of September 2024 reached 6%, below the Reserve Bank’s 6.8% projection, likely due to weather-related disruptions in the secondary sector. The services sector and manufacturing exports remain key growth drivers. 

In the Democratic Republic of Congo, conflict involving M23 rebels and Rwandan troops has disrupted mining operations for key resources like cobalt, lithium, gold, copper, and tin. 

Commodity markets generally strengthened. Brent crude oil settled at $75.67 per barrel. Gold, platinum, and palladium saw gains of 6.6%, 8.3%, and 11.4%, respectively. Copper and silver both rose by around 3.2% and 8.3%, respectively, and iron ore prices increased by 4.7%. The USD/ZAR exchange rate closed the month at R18.67. 

About RisCura Global monthly market commentary 

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