FTSE Set to Finnish Week on a High – BoE Rate Cut and Earnings Beat Drive Rally

UK stocks shake off the rout from the DeepSeek fallout on Monday, boosted by monetary policy optimism despite reduction in economic forecast.

ftse rally fueled by boe rate cut

  • BoE cuts rates to 4.50% from 4.75%
  • Economic forecast for 2025 halved
  • AstraZeneca earnings beat – Anglo American production upgrade

The [[FTSE]] posted a new all-time high yesterday of 8,767 before the BoE MPC meeting. Today’s session is set to leave the index on a 1-week gain of over 2%. Save any surprises from NFP data due later this afternoon.

BoE Monetary Policy Driving FTSE Higher

The MPC voted in favor of cutting rates by 25 basis points yesterday as the market expected. The dovish BoE policy, more than enough to drive the FTSE to new all-time highs.

All nine members of the committee voted in favor of a rate cut, with 2 of the members voting for a bumper 50 basis cut.

The market expects at least two more cuts for the rest of the year. The unanimous vote helps the optimism of that view.

At the post-meeting press conference, the governor of the BoE said that inflation would primarily be due to energy prices rather than underlying price pressure on goods and services.

The comment further cements the perception that the central bank may continue to ease monetary policy.

FTSE Live Chart

[[FTSE-graph]]

 

BoE Slashes Growth Forecast

The central bank’s previous forecast for 2025 GDP growth was 1.5%. At yesterday’s meeting the committee revised the forecast down by 50%, indicating they expect the economy to grow by 0.75%.

Usually, such negative news for the general economy leads to pressure on stock prices. But in the modern environment stock investors are more concerned about interest rate projections than economic facts.

Lower interest rates could send the pound lower, the [[GBP/USD]] has already lost over 6% during the past 3 months. A weak exchange rate will mean foreign investors see FTSE stocks as cheaper in the domestic currency.

The markets expects the BoE to stay on track with rate cuts given the weakening growth outlook.

AstraZeneca Beat Earnings

AstraZeneca beat both forecast revenue and earnings yesterday propelling the stock higher by nearly 6% and helping the FTSE achieve the new high.

Revenue increased in 2024 by 21% to $54.1 billion and earnings grew by 19%. The CEO, Pascal Soriot, reconfirmed the company’s target for revenue in 2025 of $80 billion.

Joining AstraZeneca among the top performers of the FTSE was Anglo American, which saw the stock jump 5%.

The mining company updated its production forecast on higher growth from various copper prospects.

FTSE Hits New All-Time High as Market Expects Rate Cut Today

The UK Stock market shakes off trade tariff risks and sluggish economy on hopes of dovish BoE policy.

FTSE hits new all time high

  • Investors expect BoE to cut rates by 25 basis points
  • Two more cuts forecast for 2025
  • Focus pivots to clues from central bank on policy outlook

The [[FTSE]] hit a new all-time high today of 8,714, up 0.74% on the day. The UK index is outperforming its European peers such as the [[DAX]] and [[CAC]] both up around 0.50%.

From the start of this week the FTSE gained nearly 2%, while the DAX and the CAC have gained close to 1.5%.

Investors Bet on Rate Cut at Today’s MPC Meeting

The market sees the BoE cutting rates by 0.25% today, from 4.75% to 4.50%. The UK’s central bank has the highest interest rates of the G7.

The BoE has only cut rates twice so far since the start of the pandemic in 2020. The central bank has had to juggle a stubborn inflation rate and a sluggish economy.

Investor focus has turned to what signs the MPC may give on their policy plans for 2025. I would say the market is betting for rate cuts to happen in H1, to keep this current rally alive.

FTSE Live Chart

[[FTSE-graph]]

 

Sluggish Economy & Inflation; Concerns for BoE

Economists see growing signs of stagnation, as Britain’s economy barley posted GDP growth in 2024. At the same time, inflation remains stubbornly above the BoE 2% target.

The central bank’s economic projections are likely to show that growth will be weaker in the near term, while inflation is forecast higher than at its meeting 3 months ago.

The BoE will publish its economic projections today at 12:00 GMT, 30 minutes before the governor Bailey and senior officials hold a press conference.

The market is pricing 3 interest rate cuts for 2025, while a Reuters poll predicts 4 cuts as the most likely outcome.

Dovish monetary policy would be good news for the Prime Minister and Chancellor of the Exchequer. The UK cabinet is under pressure after their budget is expected to require more taxation to meet higher spending goals.

However, some economists see inflation rising going into 2025, due to a reversal of energy prices and increase in labor costs.

Some forecast see inflation rising to 3% to 3.5% by April, making further interest rate cuts a difficult task for the BoE.

DAX Continues Unsteady Path on Trade War Concerns – Infineon Gives Some Uplift

German stocks had there worse single day drop since November 2024 after Trump confirmed tariffs on neighbors and China.

DAX down, gets help from Infineon earnings beat

  • DAX posted the largest 1-day drop since November 12
  • Infineon jumps on better than forecast earnings report
  • Auto and Telecos drag on index

The [[DAX]] posted a 1-day loss of 1.07% yesterday and today’s open sees the index losing 0.38% from the open. The confirmation of US tariffs on Canada, Mexico, and China shock the stock market as inflationary fears ignited.

Some Reprieve Seen from Counter Offers

Mexico and Canada have cut a deal to postpone tariffs for 1 month as Mexico commits to sending troops to the boarder. Both governments have pledged to fight illegal crossings.

The deal highlights the possibility of concessions on tariffs for the Eurozone. Something Trump has spoken openly about is EU military spending. Raising expenditure for their armed forces may be a path to avoiding tariffs in Europe.

DAX Live Chart

[[DAX-graph]]

 

Auto and Teleco Sectors Weigh on DAX

The automobile sector lost 1% as the outlook for a turnaround in weak sales fails to arrive. The Teleco sector lost 0.8% as Vodafone dropped 6% after reporting another deterioration in Q3 in the German market.

The earnings report showed that Q3 earnings in Germany dropped 6.4%, an increase in the decline in Q2 of 6.2%. The company attributed the fall in revenue to the impact of a change in pay-tv laws.

Paring the decline of the DAX is the German chip-maker Infineon’s earnings report, stocks jumped as higher as 11%. The report showed a revised higher outlook for 2025 and beat quarterly revenue.

The revenue for fiscal Q1 (which runs from September) rose 8% to $3.5 billion from the previous company forecast of $3.25 billion.

The company also expects Q2 fiscal quarter revenue to rise to $3.7 billion, up from the previous forecast of $3.5 billion.

DAX: Stock Market Hits Wall of Reality on Trump Trade Tariffs

Global stocks opened lower on Monday as trump kept hi promise on tariffs for China, Mexico, and Canada.

dax tumbles after trade tariffs

  • Mexico and Canada hit with 25% tariffs
  • ECB warns of risks of possible trade war
  • HCOB Manufacturing PMI higher than forecasts

The [[DAX]] opened lower today and fell 2.44% from Friday’s close before recovering some ground. Global stock markets all felt the harsh reality of US trade tariffs, the [[NAS100]] is down 1.8% and the [[FTSE]] is down 1.00%.

Trade Tariff Take Effect Tuesday 4

Trump signed an executive order that takes effect Tuesday, imposing 25% tariffs on all goods from Mexico and Canada. China has also been handed a 10% tariff on imports.

Mexico and Canada have both responded that they will also react with retaliatory tariffs. China has shown a more pragmatic approach, pledging to curb fentanyl precursor exports and invest in the USA.

The trade surplus of these countries means that the tariffs will hit the bottom line of these countries harder than it would the US. Cananda has a monthly trade surplus of $63.9 billion and Mexico a surplus of $71.8 billion.

At the same time, the USA has an abundance of resources and could be completely or almost independent. I believe tariffs may initially create some disruption for the US but will hurt these countries for longer.

DAX Live Chart

[[DAX-graph]]

 

ECB Policy Hopes & Fears

The monetary loosening cycle of the ECB is keeping the DAX alive despite bout after bout of poor economic data from Germany.

The economy contracted for a second year in a row in 2024, various top manufacturers are closing plants and shedding thousands of jobs.

Exports to what once used to be its largest trading partner, China, are down and now the country is facing tariffs to its new number 1 export country, the USA.

The ECB has reiterated multiple times its intention to bring the main interest rate down to 2% in 2025. This seems to be the only factor keeping stock valuation of DAX companies at current levels.

Even the ECB has shown concern for the imminent trade war. Frenche central bank chief, Villeroy said that Trump’s decision to impose tariffs will increase economic uncertainty.

HCOB Manufacturing PMI Higher than Forecast

The above sounds like a positive headline, partially it is. The forecasts were for a number at 44, while the release showed the index improved to 45 from last month’s figure of 42.5.

However, a number below 50 shows a contraction in economic activity. And today’s number is way off the 50 mark, and it may take more than just lowering interest rates to spur economic activity.

NIKKEI225 Ponders Further Action from BoJ as Tokyo Inflation Continues to Expand

Today’s data from Japan’s capital showed inflation quickened at fastest pace in 2 years, raising expectations of further hikes.

nikkei225 remains steady after rise in CPI

  • Core Tokyo CPI 2.5%
  • Analysts’ forecasts see inflation reaching 3%
  • BoJ under pressure to apply more hikes

The [[NIKKEI225]] gained 0.22% during the London trading session, bringing the index to recover almost half of the drop sustained on Monday of 3.36%.

The [[USDJPY]] although lower than recent peaks remains stubbornly high. Raising another concern for the BoJ as it seeks to bolster a weak yen and shield from imported inflation.

Tokyo CPI Data Fails to Rattle NIKKEI225

Today’s Tokyo CPI YoY data printed as forecast at 2.5% but showed a small increase from last month at 2.4%.

Core CPI YoY showed a larger increase from 3% to 3.4% this month. The increase in inflation data will have the BoJ pondering further hikes as it attempts to keep inflation at its 2% target.

This month’s data is a third consecutive rise in inflation in Japan’s capital, which acts as a leading indicator for national inflation.

The NIKKEI225 dropped 200 points at one point after the news, or 0.50%, but quickly recovered the lost ground.

NIKKEI225 Live Chart

[[Nikkei225-graph]]

 

Analysts Expect the BoJ to Continue Raising Rates

While the NIKKEI225 is lagging way behind its global peers the market has showed considerable stability.

Signs of rising inflation are creating a greater perception that the central bank will act again soon. Some analysts are predicting inflation will reach 3%.

A weak yen and rising energy and food prices are the main contributors to the rise in prices. The weak yen is a particular concern that analysts see will be addressed by the central bank with rate hikes.

The BoJ target is at 2% and the central bank raise its 2025 forecast for inflation from 1.9% to 2.4%. Its main concerns were imported inflation and rising food costs.

Analysts expect the BoJ to raise at least another 2 times through H1 2025, to bring the main interest rate to 1% from 0.50%.

DAX: German GDP Shows Larger than Expected Contraction – Stocks Hold on to Gains

German GDP contracts for sixth consecutive quarter, ECB policy keep market’s bullish momentum alive.

DAX holds onto gains despite poor gdp data

  • GDP YoY contracts more than expected
  • Fears of Europe’s largest economy heading for recession
  • DAX sets new all-time during morning session

The [[DAX]] posted a new all-time high today of 21,722 before retreating after poor GDP data. ECB policy expectations now sole driver of bullish momentum.

GDP Data Stall DAX Rally

GDP data sent the DAX slightly lower from today’s highs. But what would usually have created a large bout of volatility has been subdued to say the least.

GDP YoY for Q4 2024 showed the economy contracted by 0.2%, for 6 consecutive contractions. The forecasts had been for the YoY data to print at 0.0% after last month’s contraction of 0.3%.

The government cut its GDP forecast for 2025 to 0.3% from 1.1%, citing trade tensions and political uncertainty.

Today’s data confirms that the German economy contracted for a second year in a row in 2024. Foreign competition, especially EV, high energy costs have taken their toll.

Various of the country’s top manufacturers have announced job cuts and plant shutdowns. With Volkswagen’s announcement of the closure of two plants, an unprecedented event in the company’s history.

DAX Live Chart

[[DAX-graph]]

 

The DAX Maintains its Footing

Looking at market activity after another release of poor economic data, we see the market sold off slightly but recovered ground quickly.

Considering the outlook of so many of the companies that make up the DAX index and the dire state of the economy, there can only be one reason the DAX is posting new ATHs.

I would incline to that reason being ECB policy and the fact it will lead to a weaker euro. The market expects the ECB to cut rates at least 4 times this year. The first cut is expected today, which would take the main rate from 3.15% to 2.9%.

Analysts and investors expect the other 3 rate cuts to bring the main rate to 2%. This level is what many ECB officials have stated as the neutral rate.

DAX Impervious to AI Selloff and Weak Consumer Confidence

Germany’s main stock index hits a new all-time high, shaking off DeepSeek’s disruption and weak consumer confidence data.

dax hits new all time high despite ai selloff

  • GfK NIM Consumer Confidence drops more than expected
  • DeekpSeek’s disruption of the AI fueled rally overcome in one day

The [[DAX]] opened higher this morning, touching a new ATH at 21,555 before retreating. Siemens Energy, which was hit hard by the DeepSeek revelation, has gained another 3% this morning after dropping nearly 20% on Monday.

Consumer Confidence Continues to Wane

The DAX showed little reaction to the weak consumer confidence data as it manages to stay in the green.

GfK and NIM data showed a larger drop in consumer confidence from -21.6 last month to -22.4 today.

The main causes of concern were job prospects and rising inflation, both weighing heavily on consumer sentiment.

The market consensus for today’s number forecast a slight improvement to -20. The adds to significant weak economic data that we have been receiving throughout 2024.

Breakdown of Consumer Confidence Data

Consumer climate -22.4 -21.4 -29.6
Consumer climate components Jan 2025 Dec 2024 Jan 2024
– willingness to buy -8.4 -5.4 -14.8
– income expectations -1.1 1.4 -20.0
– business cycle expectations -1.6 0.3 -6.6

 

2024 showed that Germany’s economy contracted for a second year in a row. The decline in activity cemented Europe’s largest economy as a laggard compared to its peers.

In recent months some of Germany’s largest companies have announced jobs cuts, including Bayer, Volkswagen, and ThyssenKrupp.

A number above zero indicates an expansion in private consumption in the following month. While a number below zero indicates contraction compared to the same period in the previous year.

The willingness to buy component is assessed from the question “Do you think now is a good time to buy major items?”.

The income expectations index indicates household expectations on incomes. Both sub-indexes show a deterioration in consumer’s outlook for February compared to January.

DAX Live Chart

[[DAX-graph]]

DeepSeek Sparks Market Rethink of the AI Fueled Rally – NVDA Posts Record 1-Day Loss

DeepSeeks performance as a generative AI model has raised questions over assumptions of AI driven price action.

nasdaq declines led by rout in Nvidia stock

  • DeepSeek popularity surges, beats ChatGPT
  • NVDA loses $593 billion in market cap
  • Opportunity to exit or enter?

European markets managed to maintain their ground today after yesterday’s selloff in AI tech stocks. The [[FTSE]] gained 0.21% and the [[DAX]] gained 0.10% at one point this morning.

DeepSeek Questions AI Rally

Global stock investors lost confidence in the AI tech rally after the low-cost and low power Chinese AI model’s performance emerged.

On Monday the Chinese startup’s free app powered past ChatGPT for downloads on the App store.

The new AI app showed that the same performance of the ChatGPT model could be achieved at a fraction of the cost in terms of data and power.

The news sparked a market rout in tech stocks, leading the [[NAS100]] to close down 3.1% after being down nearly 4% during the day.

NVDA Live Chart

[[NVDA/USD-graph]]

 

Wall Street’s Record 1-Day Loss from NVDA

Yesterday’s session saw [[NVDA/USD]] lose $593 in market capitalization. The drop is equal to a decline in stock price of 16.97% from the previous day’s close.

The performance is Wall Street’s largest 1-day loss in market capitalization for any company. Other stocks were also hit hard, Broadcom Inc., Nasdaq’s second largest chip maker, lost 17.4% on the day.

Yesterday’s loss in market cap was more than double the previous 1-day loss for any stock on Wall Street.

Opportunity or Start of a Demise

Some analysts are marking this moment as a revelation that the AI rally has been overvalued. With many projections of growth based on overestimates of the number, power and infrastructure needed.

The AI model from DeepSeek shows that less powerful and smaller numbers of chips are needed. Also raising the notion that there will be less need for infrastructure from data centers.

On the other hand, some analysts have the view that the sharp drop in tech stocks may be a moment to enter the AI sector at a discount.

This assumption may be food for thought, as NVDA has lost over 20% in stock price in just 2 days.

DAX: US Futures and China AI Model Shake Global Markets

US futures drop sharply on advances from cheap Chinese AI model and the spinoff leads the DAX lower.

dax tumbles on new china ai deepseek

  • NAS100 drops 3.73%
  • China AI model DeepSeek shows lower demand for power and chips
  • DAX follows suits as ECB rate cuts discounted

 

The [[DAX]] opened down 1.12% this morning following the selloff in US stock futures, where the hardest hit is the [[NAS100]] losing 3.73% today.

 

DeepSeek Surpasses Downloads of ChatGPT on the Apple App Store

China unleashed a new generative AI called DeepSeek, which uses less power and lower cost chips. The whole scenario puts into doubt the current levels and projections of demand for chips.

The use of low-cost technology that can perform at the same levels as the most sophisticated AI has cast doubts on the whole sector. The need for chips and infrastructure may have been overestimated.

DAX Live Chart

[[DAX-graph]]

 

DAX Takes a Tumble

The DAX opened lower again today and the bear trend seems to have taken control after 8 positive trading sessions. Friday’s close was down 0.59% but was seen as profit taking after a very bullish week.

The AI hardware infrastructure company Siemens Energy tumbled 17.7% this morning. While the [[CAC]] Shneider Electric lost 8.1%. The DAX has had a very bullish run posting new all-time highs and outperforming its peers.

The pressure is now on as the market needs to find reasons to continue supporting high valuations.

The ECB Meeting Already Priced In

The ECB meeting is widely expected to lead to another rate cut of 0.25%. More importantly, the market has already been priced in 4 rate cuts for 2025. The forecast is for the main ECB rate to fall as low as 2%.

Various ECB officials have already stated that they see the market view on interest rate cuts as correct.

But the dilemma is whether it will be enough to turn the economy around. The German economy has been showing signs of weakness. Yet the DAX has continued to plunge to new highs.

Across the pond US stocks have been less bullish as the market ponders the risks going into 2025.

FTSE Falls After PMI Data Showed Largest Decline in New Jobs Since the Pandemic

Preliminary PMI data showed a greater than forecast rise but indicated a sharp loss of job creation.

Ftse declines on weak jobs data

  • Preliminary Composite PMI up at 50.9
  • Jobs slashed at fast rate since 2021
  • Fears of Stagflation on the horizon

The [[FTSE]] dropped 0.35% this morning after PMI data showed a small uptick in activity. But also gave insights into the speed of new job losses.

PMI Data: Good But Not So Good

Preliminary PMI for manufacturing, services, and composite all posted greater than forecast gains.

January 2025 Previous Forecast Actual
S&P Composite PMI 50.4 50 50.9
S&P Services PMI 51.1 50.9 51.2
S&P Manufacturing PMI 47 47 48.2

 

All three indexes beat forecasts and the previous month’s data. Services showed an expanding economy, while manufacturing continued to remain in contraction.

The positive data was not met with the usual upward momentum by the FTSE. The PMI survey showed employers were cutting back on recruitment at the fastest pace since the pandemic.

The main reason for concern for employers is the budget announced in October 2024. One of the main provisions was the implementation of higher social security taxes for employers and higher minimum wages.

The budget includes a hike on social security payments to 15% on all salaries above 5,000 pounds, from 13.8% on salaries above 9,100 pounds.

The sharp loss of jobs in the January PMI survey comes days after UK retail grocer J Sainsbury said it was slashing 3,000 jobs and reducing senior management by 20%.

FTSE Live Chart

[[FTSE-graph]]

 

BoE Conundrum

Inflation figures have not been friendly over the past months and have made the BoE place interest rate cuts on pause. December data showed a small decline to 2.5% but November data was at 2.6%.

The 3 months on inflation data have printed well above the 2% target of the central bank. At the same time, economic activity is showing signs of weakness.

Quarterly GDP Growth YoY has failed to break above 1% since the last quarter of 2022. While Retail Sales contracted for the third time in 4 months.

Yesterday’s CBI Business Confidence fell to -47 from -24 last month. Indicating just how UK companies are feeling about the economic future in 2025.

The higher than desired inflation and a stagnant economy are leading to real fears of stagflation. The BoE is now troubled with the conundrum of lower interest rates to improve the economy and the risk of even higher inflation.