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Monthly Market Wrap: February 2025
US stocks down as Chinese market surges
Key points
United States: Tariff tactics rattle markets.
UK/Europe: BoE cut rates/Conservatives won German election.
Asia: China – improved sentiment.
South Africa: Budget speech postponed.
United States
US unemployment declined to 4.0% in January, while CPI increased to push annual inflation to 3.0%.
The S&P 500 Index lost 1.3% in February over the frenzy around AI profit margin concerns, ongoing tariff threats and a decline in consumer sentiment.
February’s bond-market rally, on fears about US growth, resulted in the biggest monthly declines for long-dated Treasury yields in more than a year. The 10-year yield dropped 33.8 basis points to 4.2%. The Bloomberg Aggregate Bond Index was up 1.4% in February.
UK/Europe
The Bank of England cut interest rates by 25bps to 4.5%, a response to a troubling mix of stuttering economic growth, stubborn inflation and tariff threats.
Germany’s Christian Democratic Union (CDU) and its sister party, the Christian Social Union (CSU), won the national election, but Friedrich Merz’s path to forming a new government is tricky. Markets are predicting the end of an era for constrained fiscal policy.
Asia
Japan’s inflation reached 4% in January, raising the odds of another rate hike. The Nikkei 225 Index was down 6%, impacted by plunging prices for shares in technology companies.
After years of underperformance, Chinese stocks are attempting another rebound. The MSCI China Index was up almost 12% in dollar terms. The government is becoming more business-friendly, and rapid advances are being made in leading-edge technologies.
Chinese regulators also announced that state-owned insurers would be encouraged to invest 30% of annual premiums earned from new policies into China’s domestic stock market. Meanwhile, mutual funds will be required to raise their holdings of domestic equities by at least 10% annually for the next three years.
South Africa
Headline CPI lifted to 3.2% y/y in January and the unemployment rate declined to 31.9% in Q4 2024.
The budget speech delay was a clear message that the GNU is prepared to stop the process despite the risk of an international outcry. The delay appears to centre on discussions regarding a potential VAT rate increase from 15% to 17%.
The JSE All Share Index was flat, with resources being the major drag, down 7.1%. The main contribution came from big index and rand hedge shares such as Naspers/Prosus (+12%) and AB Inbev (+21%).
