Equities

January marked a turning point for equity markets, with European stocks leading the charge. The MSCI Europe ex-UK Index surged 7.1%, outperforming US equities, which returned 2.8%. The Eurozone’s strong performance was fueled by financials and consumer discretionary stocks, benefiting from improving economic data, including a composite PMI reading of 50.2 and five consecutive months of retail sales growth. The UK market also fared well, with the FTSE All-Share rising 5.5%, aided by the sharp depreciation of the pound, which bolstered earnings for internationally exposed companies. Swiss equities outperformed, with the SMI posting its strongest January performance on record with +8.59%.

The US equity market, while positive, faced turbulence late in the month as concerns over AI competition weighed on technology stocks. Nvidia experienced an unprecedented $600 billion loss in market capitalization after DeepSeek’s disruptive AI model challenged the company’s pricing power. However, the financial sector provided support, with banks and asset managers benefiting from higher yields and increased market volatility. Consumer discretionary stocks also performed well, buoyed by strong holiday spending and resilient labor market conditions.

Emerging markets delivered mixed results. Chinese equities edged up modestly, supported by improving domestic economic data and government stimulus measures aimed at stabilizing markets. However, India continued to struggle, with its stock market declining for the fourth consecutive month, as valuation concerns and weaker-than-expected earnings dampened investor sentiment. The MSCI EM Index posted a 1.8% gain, with financials in China and Brazil showing resilience, while industrial and technology stocks in India remained under pressure.

Japanese equities were the laggard, with the TOPIX rising only 0.1%. The Bank of Japan’s decision to raise interest rates by 25 basis points added strength to the yen, creating headwinds for export-oriented industries. However, domestic banks and insurers benefited from the rate hike, helping to mitigate broader market weakness.

Fixed Income

Bond markets experienced significant volatility as investors adjusted to shifting monetary policy expectations. The US 10-year Treasury yield rose by 20 basis points to almost 4.8% early in the month, driven by concerns that Trump’s proposed tax cuts and tariffs would fuel inflation. However, yields retreated following a softer-than-expected inflation print and renewed demand for safe-haven assets amid the late-month tech selloff. The Bloomberg Global Aggregate Bond Index ended January with a 0.6% gain, while US Treasuries returned 0.5%.

European bonds also exhibited mixed performance. German Bunds fell 0.4%, reflecting concerns over potential fiscal expansion in the wake of Germany’s upcoming elections. Italian and Spanish bonds were more stable, with investors remaining cautiously optimistic about the European Central Bank’s policy path. In the UK, gilt yields spiked to their highest levels since 2008 before moderating, as concerns over economic stagnation gave way to expectations of policy support.

Credit markets performed well, with spreads tightening across both investment-grade and high-yield bonds. US HY bonds returned 1.4%, outpacing their European counterparts at 0.6%. Financial sector bonds were among the best performers, benefiting from rising rate expectations and strong bank balance sheets. Meanwhile, emerging market debt gained 1.2%, aided by a weaker US dollar and renewed capital inflows into select high-yielding economies.

Commodities and Currencies

The commodities market was another bright spot in January, with the Bloomberg Commodity Index rising 4.0%. Gold emerged as the top performer, gaining 6.6% as investors sought protection against geopolitical uncertainty and inflationary risks. The Trump administration’s trade policies, including new tariffs on Canada and Mexico, heightened concerns over supply chain disruptions, further driving demand for safe-haven assets.

Oil markets saw heightened volatility, with prices initially surging to six-month highs due to strong heating fuel demand and intensified US sanctions on Russia. However, prices reversed course after President Trump announced a national energy emergency aimed at boosting domestic production, leading to concerns of oversupply. Meanwhile, industrial metals posted solid gains as global manufacturing activity showed signs of stabilization, and agricultural commodities benefited from renewed supply constraints.

In the currency markets, the US dollar exhibited strength early in the month before weakening as investors priced in potential Federal Reserve rate cuts later in the year. The British pound depreciated significantly, providing a boost to UK equities with large international revenue exposure. The euro remained relatively stable, supported by improving European economic data, while the Japanese yen appreciated following the Bank of Japan’s rate hike, pressuring export-driven industries.

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