Global equity and fixed income markets experienced mixed performance in February, shaped by shifting economic data, monetary policy expectations, and geopolitical developments. Investor sentiment remained volatile as US fiscal policies and trade tensions took centre stage, while European stock markets outperformed amid improved macroeconomic conditions. Emerging markets faced continued pressures, driven by currency fluctuations and economic uncertainties. Commodities exhibited resilience, benefiting from supply constraints and seasonal demand trends.
US equities saw increased volatility, as initial optimism gave way to concerns over policy uncertainty and global trade tensions including the imposition of tariffs with key trading partners and continuous economic threats. In spite of this the S&P 500 remained near record levels, supported by strength in technology stocks, particularly in AI and software sectors. However, Nvidia faced a significant market disruption threat due to the emergence of competition from Chinese AI firm DeepSeek, triggering a sell-off in semiconductor stocks.
European equities extended their strong start to the year, leading the global markets. Financials and consumer sectors led the rally as economic indicators pointed to steady growth. The Eurozone composite PMI maintained its positive momentum, signalling an improving business climate. Investor optimism was further buoyed by hopes for a potential ceasefire in Ukraine and the relaxation of German fiscal debt restrictions, opening funding for both defence and infrastructure and increasing growth forecast for the economy. Meanwhile, UK equities delivered solid returns, with the FTSE 100 reaching record highs, boosted by a weaker sterling that enhanced earnings prospects for internationally exposed firms.
Emerging markets posted mixed results, reflecting ongoing headwinds from geopolitical risks and economic imbalances. The MSCI Emerging Markets Index edged higher, driven by gains in Chinese technology stocks and a weaker US dollar. However, broader concerns over China’s property market and trade tensions with the US weighed on investor confidence. Mexico faced immediate challenges from new US tariffs, while Indian equities underperformed amid softer-than-expected corporate earnings and growth concerns.
Developed market central banks maintained a cautious stance on monetary policy. The U.S. Federal Reserve kept interest rates steady at 4.25%-4.5%, with market expectations for 2025 rate cuts moderating amid lingering inflation risks. In the UK, the Bank of England signalled potential rate reductions in the coming months, despite persistent inflationary pressures. The European Central Bank adopted a flexible approach, with policy decisions expected to be influenced heavily by economic data.
Fixed income markets experienced notable fluctuations, as shifting monetary policy expectations and geopolitical uncertainty influenced bond yields. US Treasury yields initially rose on inflation concerns but later reduced for a short period of time following softer economic data and equity market volatility. European bonds saw mixed returns, with German Bunds and other European bonds declining as their yields rose on the anticipation of the relaxing of debt rules, while UK Gilts experienced brief yield spikes before easing, ending the month with moderate gains.
The escalating trade conflict between the US and its key trading partners remains a significant market risk. President Trump’s proposed tariffs on imports from Canada, Mexico, and China added to global uncertainty, leading to volatility across equities and commodities. Canada and Mexico took immediate steps to negotiate security measures, while China responded with countermeasures targeting US exports. Prolonged trade tensions could increase inflation and hinder global growth, leaving investors cautious about future developments.
As the spring of 2025 approaches, key themes continue to revolve around economic resilience, fiscal policy shifts, and technological innovation. US equities remain supported by strong corporate fundamentals, despite valuation concerns. European and UK markets made gains, though geopolitical risks persist. Emerging markets face ongoing external pressures, while fixed income and commodities provide diversification opportunities in an environment influenced by central bank policy decisions and trade dynamics.
Market Performance | 2025 Year to Date |
FTSE All-Share | +6.91% |
FTSE World ex-UK | +1.96% |
FTSE Actuaries UK Conventional Gilts All Stocks | +1.57% |
FTSE Actuaries UK Index-Linked All Stocks | +0.74% |
Total returns in GBP to 28/02/2025
Key Rates | |
Bank of England Base Rate | 4.50% |
Inflation (Retail Price Index/Consumer Price Index)* | 3.60%/3.00% |
*January
Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.