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Fin-X Weekly Update 28th January 2025

Brett Careedy

President Trump commenced his second term by signing a significant number of executive orders and telling the World Economic Forum to expect tariffs on goods manufactured outside the US. He also announced a new AI infrastructure investment program, which prompted a rally in technology stocks, helping the S&P500 to a new high.


The Bank of Japan raised rates by +0.25% on Friday, with the ECB, Bank of Canada and Swedish Riksbank all expected to cut by the same amount this week. The Federal Reserve is expected to hold, while the quarterly CPI figures will provide a clearer indication of whether the RBA will cut in February.


A large volume of US earnings reports will also be published.


The technology sector experienced a significant drawdown overnight with the Nasdaq down 2.97% (Nvidia – 16.97%, ARM – 10.19%, Broadcom – 17.4%, TSM – 13.33%). The reason for the pullback is attributed to an AI chatbot by Chinese tech startup DeepSeek which is suggesting despite all the technology restrictions, the Chinese have caught up with the American companies at the cutting edge of AI at a fraction of the cost. If the reports are accurate it puts doubt on the vast amounts invested by companies like META and Microsoft  on AI and into data centres. Bernstien analyst Stacy Rasgon  (a semiconductor expert) described the reaction as “overblown” as the “models they (DeepSeek) are fantastic, but they aren’t miracles either…They’re not using any innovations that are unknown or secret or anything like that…what their (DeepSeek) economics look like, I have no idea…But I think the price points freaked people out”.


A good week for stocks saw the S&P500 and MSCI AC World indices reach new record highs last week, while the S&P/ASX300 and Nasdaq approached the December highs.


Unlike in August last year, equities withstood a very well-telegraphed +0.25% hike by the Bank of Japan to 0.50% on Friday.


Netflix shares rose by +14% after a pleasing earnings report and news that the company had surpassed 300 million subscribers.


In the local market, Bain matched the CC Capital bid of $4.60 for Insignia, and both companies were allowed to commence due diligence work.


President Trump dominated the news flow, signing a flurry of executive orders and addressing the leaders and captains of industry gathered at the World Economic Forum in Davos. Early indications are that the president intends to follow through on his campaign promises, even though some of the orders aimed at pleasing his political base are already being challenged in the courts.


Notable actions include withdrawing from the UN Paris Climate Accord and the World Health Organisation, removing restrictions on fossil fuel production and removing a $300bn investment in green infrastructure.


He announced a joint venture with OpenAI, Oracle and Softbank to invest $500 billion in AI infrastructure named “Stargate”. Investors responded by piling into technology names. Oracle shares jumped more than +14% and Meta shares added +6%. Nvidia, Microsoft, and Amazon rose between +3% and +4%, while the Apple share price slipped by -3%.


To the Davos audience, he said it was the prerogative of global firms to produce goods outside the United States. But he reiterated that tariffs would be levied on goods not produced domestically, adding that the amounts could vary without specifying further. Over the weekend, President Trump threatened to impose up to +50% tariffs on Colombian imports until the country agreed to receive deported migrants from the US.


The news will not be welcomed by a global manufacturing sector that has been in contraction for the last two years. Last week, South Korea’s GDP undershot expectations, rising by just +0.1% in Q4 and +1.2% yoy.


The Australian mining sector (-1.4%) underperformed the broader index, as tariffs are expected to impact Chinese growth.


Yesterday, the official Chinese PMIs showed manufacturing slipping into contraction (49.1) and non-manufacturing struggling to grow (50.2). Industrial profits, however, are up +11% compared to a year ago. The Lunar New Year holidays commence today.



S&P Global’s flash manufacturing PMIs suggested that the contraction may be bottoming, while the December spike in the US services PMI retraced.


Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:


“US businesses are starting 2025 in an upbeat mood on hopes that the new administration will help drive stronger economic growth. Rising optimism is most notable in the manufacturing sector, where expectations of growth over the coming year have surged higher as factories await support from the new policies of the Trump administration, though service providers are also entering 2025 in good spirits.


"Although output growth slowed slightly in January, sustained confidence suggests that this slowdown might be short-lived. Especially encouraging is the upturn in hiring that has been fueled by the improved business outlook, with jobs being created at a rate not seen for two-and-a-half years.

"However, rising price pressures are a concern, with companies reporting supplier-driven price hikes as well as wage growth amid poor staff availability.”


Longer-dated yields were little changed as an expected lower oil price offset some of the broader inflation concerns.


The president also said to the Davos audience, "With oil prices going down, I'll demand that interest rates drop immediately, and likewise, they should be dropping all over the world".


The ECB, Bank of Canada and Swedish Riksbank are all expected to lower policy rates by -0.25% to 2.75%, 3.00% and 2.25%, respectively, this week.


The FOMC is unlikely to adjust rates at its meeting on Wednesday. The chair of the Federal Reserve has received legal advice that the president can neither change interest rates nor force him to be removed. PCE inflation and Q4 GDP follow later in the week.


Also, on Wednesday, the ABS will publish quarterly CPI figures. Economists expect trimmed mean inflation, excluding the impact of electricity subsidies, to drop from +3.5% yoy in September to +3.3% yoy. The market expects a February rate cut to follow. However, there is scope for disappointment if the RBA forecasts do not see inflation returning to the target range within a reasonable timeframe, as conditions in the labour market remain tight.


More than one hundred S&P500 earnings reports this week include updates from Microsoft, Apple, Tesla, General Motors, Blackstone and ResMed.


Follow the link below for an update of US reporting season so far. According to Factset, the blended net profit margin for the S&P500 for Q4 2024 is 12.1%, below the previous quarter, but above a year-ago and above the 5-year average of 11.6%.


Source: Factset
Source: Factset
Source: S&P Global, JPMorgan, Jibun, HCOB, CIPS, CFLP, Judo Bank, 25th January 2024
Source: S&P Global, JPMorgan, Jibun, HCOB, CIPS, CFLP, Judo Bank, 25th January 2024
Source: Bloomberg, S&P Dow Jones, MSCI, FTSE Russell, 25th January 2024
Source: Bloomberg, S&P Dow Jones, MSCI, FTSE Russell, 25th January 2024

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