Take Two: Fed holds rates; ECB cuts and tech sector endures bout of volatility
- 03 February 2025 (3 min read)
What do you need to know?
The Federal Reserve (Fed) held interest rates at 4.25%-4.50%, its first pause since it began easing in September, saying there was no need “to be in a hurry” to cut further. We no longer expect any cuts in 2025 but forecast four next year. The US economy expanded 2.3% on an annual basis in the fourth quarter (Q4), down from 3.1% in Q3, and missing forecasts of 2.6%. Elsewhere the European Central Bank cut its benchmark rate by 25 basis points (bp) to 2.75% and kept the door open to further easing. The Eurozone economy stalled in Q4, with no growth despite expectations of a 0.1% expansion.
Around the world
Following a period of extraordinary growth, the technology sector endured a heavy bout of market volatility early last week after Chinese start-up, DeepSeek, launched a rival to the popular chatbot ChatGPT, which cast doubts over the US’s artificial intelligence sector dominance. DeepSeek can reportedly match ChatGPT’s performance but allegedly at a much cheaper cost and with the need for fewer expensive microchips. Over the week to Thursday’s close, the S&P 500 index was down 1% while the technology-heavy Nasdaq lost 2%1 . Elsewhere, however the UK’s blue-chip FTSE 100 index hit a fresh high on the back of encouraging company updates.
Figure in focus: Nine billion
A record nine billion domestic trips are expected to be made in China during the period around Lunar New Year, which this year fell on 29 January, up from 8.4 billion in 2024. The 40-day spring festival, or Chunyun, sees workers travel back home to their families as well as holidaymakers enjoying the eight-day public holiday, providing a boost to China’s beleaguered economy. The country is undergoing a slowdown in consumer spending as well as a property market crisis and is facing the threat of trade tariffs from the new US administration.
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Words of wisdom
Sustainable Aviation Fuel: A biofuel which has similar chemical properties to conventional aviation fuel but with potentially significantly less greenhouse gas emissions. Sustainable aviation fuel (SAF) is made from renewable resources such as cooking oil, municipal waste or woody biomass, but is more expensive than traditional jet fuel. Last week, the UK government announced it supported the expansion of London’s Heathrow airport while pledging to transition to greener aviation. The UK intends to reach 22% of jet fuel demand being met by SAFs by 2040, up from a target of 2% this year.
What's coming up?
On Monday the Eurozone reports flash inflation data for January, while a spate of final manufacturing Purchasing Managers’ Indices (PMI) are published, covering the US, Eurozone, China and Japan. The services and composite PMIs follow on Wednesday. On Thursday, the Bank of England meets to set monetary policy - at its last meeting, policymakers held rates steady at 4.75%. The US and Canada report their latest employment data on Friday.
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