Written by Ilaria Massei
The economic landscape has become increasingly complex in recent weeks, leaving investors with the challenging task of navigating ongoing uncertainties. Equity markets ended the week in negative territory, with the MSCI All Country World Index closing down -0.9% in Sterling terms. In contrast, fixed income performed positively, with the Bloomberg Global Aggregate index of global bonds gaining +0.8% in Sterling terms, as the asset class benefited from heightened uncertainty and a shift towards a more risk-averse sentiment among investors.
US markets are undergoing a sustained correction, with the S&P 500 recording another negative week, down -0.6% in Sterling terms. A significant factor influencing this was Nvidia’s sharp 8% decline in a single day, as its seemingly stellar earnings report failed to alleviate growing investor concerns over a potential slowdown in AI-related spending and questions surrounding long-term profitability.
US Treasury yields fell last week amid renewed concerns about the sustainability of medium-term growth, driven by declining consumer confidence. The largest rallies were seen in bonds with longer-term maturities, and as bond prices rise inversely to yields, the Bloomberg US Treasury 20+ Years Index posted gains, up +3.2% for the week. Additionally, the Federal Reserve Bank of Atlanta’s GDP forecasting model has predicted a decline in US GDP for Q1 2025, highlighting once again how markets can behave contrary to conventional wisdom as the narrative of US exceptionalism loses momentum. This was driven by the “net exports” component of the GDP calculation as imports surged to try to front-run tariffs.
After a strong start to 2025, China gave back some of its gains, with the MSCI China posting a -4.0% return in GBP terms last week. This decline was influenced by the imposition of an additional 10% tariff on Chinese products by the US, alongside efforts to persuade other countries to adopt a similar stance. However, innovation remains a bright spot for China, with Xiaomi’s new electric vehicle selling out its initial 10,000-unit run in just 10 minutes, signalling robust demand and a renewed indication of the country’s strength not only as a producer but also as a leading adopter of electric vehicles.
In Europe and the UK, equity markets are experiencing a renewed sense of confidence. The MSCI Europe ex-UK rose by +0.2%, while the FTSE All Share gained +1.4%, both in Sterling terms. Both regions are becoming increasingly relevant in the ongoing Russia-Ukraine peace talks, with UK Prime Minister Keir Starmer committing to raise defence spending to 2.5% of national income by 2027. On a more micro level, the Nationwide House Price Index in the UK rose by 3.9% year-on-year in February 2025, exceeding expectations of 3.3%. Housing market activity has remained resilient despite ongoing affordability challenges due to elevated interest rates. In Europe, the disinflationary trend continues, with year-on-year inflation at 2.5% in January, in line with expectations, and the region is benefiting from positive flows that are contributing to its solid performance year-to-date.
The economic landscape has undoubtedly become more complex, and in this environment, concentrating risk in a single area exposes investors to the potential for sharp corrections. We believe that maintaining a globally diversified portfolio offers the best protection against such uncertainties.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 3rd March 2025.
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