Take Two: European shares hit record high; Japan’s economy expands for third straight quarter
- 24 February 2025 (3 min read)
What do you need to know?
European stocks rose to a record high last week after hopes that a peace deal might be brokered to end the Russia-Ukraine conflict. Expectations that Europe could increase defence spending helped boost stocks, while yields on Eurozone government bonds edged up as investors reflected that higher spending could potentially mean higher levels of government borrowing. However, European markets then eased back later in the week on fears that proposed US tariffs could prompt a trade war. The Euro Stoxx 600 index was flat over the week but was up 10% year to date as at Thursday’s close.1 Elsewhere, the S&P 500 also hit a fresh high.
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Around the world
Federal Reserve (Fed) officials indicated they expect to hold interest rates until they see “further progress on inflation”, minutes from the bank’s January meeting showed. Policymakers noted risks to the inflation outlook, due to the potential impact of trade tariffs and immigration policy. But they asserted they were well positioned to “assess the evolving outlook for economic activity”. At its January meeting the Fed held interest rates at 4.25%-4.50%. We expect it to keep rates on hold in 2025, before cutting by 100 basis points (bp) by the end of 2026. Elsewhere, the Reserve Bank of Australia cut rates by 25bp to 4.1% in its February meeting, its first cut since 2020.
Figure in focus: 4%
Japan’s headline inflation rate rose to a two-year high of 4% in January, from 3.6% in December, adding to expectations that the Bank of Japan (BoJ) could raise interest rates further. Core inflation, excluding fresh food, increased to 3.2% from 3% while the BoJ’s closely watched ‘core core’ rate, excluding fresh food and energy, edged up to 2.5% from 2.4%. Meanwhile, Japan's economy grew 2.8% on an annualised basis in the fourth quarter (Q4), beating market expectations, up from 1.7% in Q3. The increase, which marks the third consecutive quarter of expansion, reflects an uptick in business spending and consumption and a fall in imports, improving net trade.
Words of wisdom
Tipping point: The Intergovernmental Panel on Climate Change defines so-called tipping points as “critical thresholds in a system that, when exceeded, can lead to a significant change in the state of the system, often with an understanding that the change is irreversible”. To date at least 16 tipping points have been identified by scientists. Recently the UK’s Advanced Research and Invention Agency awarded £81m to 27 teams looking to develop an early warning system able to forecast impending climate catastrophes. The project is to focus on two tipping points – the collapse of both the Greenland ice sheet and crucial ocean currents.
What's coming up?
On Monday, Germany's closely watched Ifo Business Climate indicator and the Eurozone’s final inflation figures for January are reported. On Tuesday the latest S&P/Case-Shiller Home Price index for the US is published while a second estimate of Q4 US GDP growth is issued on Thursday. The US economy expanded by 3.1% in Q3, but an earlier Q4 flash estimate revealed a smaller expansion of 2.3%. Canada follows with its own GDP growth update on Friday.
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