As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.

U.S. stock markets surged to record highs, driven by trade policy optimism and a major boost in artificial intelligence (AI) investments. The S&P 500 Index hit an all-time high Thursday before a minor pullback Friday. Growth stocks outperformed value stocks for the first time this year, with large-cap stocks leading the rally.

A key driver was President Donald Trump’s decision to delay new tariffs, easing investor concerns. While he reaffirmed potential 25% tariffs on Canadian and Mexican goods starting in February, his softer stance on China reassured markets.

Adding to enthusiasm was the announcement of "Stargate," an AI-focused joint venture by SoftBank, OpenAI, Oracle, and MGX, with plans to invest up to $500 billion in AI infrastructure. This fueled gains in AI-related stocks as investors anticipated increased capital spending.

On the economic front, U.S. manufacturing expanded for the first time in six months, and the services sector maintained positive momentum. Existing home sales saw an unexpected rise in December, but annual figures remained at their lowest in nearly 30 years due to high mortgage rates. Consumer sentiment dipped in January due to rising inflation concerns.

Bond markets remained stable, with municipal bonds outperforming U.S. Treasuries. Investment-grade corporate bonds saw strong demand, while high-yield bonds gained traction in a low-supply environment.

European markets rose, with the STOXX Europe 600 up 1.23%. France’s CAC 40 and Germany’s DAX gained 2.83% and 2.35%, respectively, while Italy’s FTSE MIB dipped 0.18%. The UK’s FTSE 100 remained flat.

Optimism was fueled by the European Central Bank’s (ECB) dovish stance, increasing expectations of continued interest rate cuts. ECB President Christine Lagarde suggested further easing depends on economic data, reinforcing the likelihood of a fifth consecutive rate cut. Other officials pointed to declining inflation as support for additional cuts.

Economic data showed mixed signals. The eurozone’s private sector saw slight growth in January after months of contraction. While the services sector expanded modestly, manufacturing remained weak. In the UK, wage growth hit a six-month high at 6.0%, but unemployment edged up to 4.4%, and payroll numbers saw their sharpest decline since 2020.

Japanese stock markets surged, with the Nikkei 225 up 3.85% and the TOPIX Index rising 2.67%. Gains were supported by Trump’s tariff delay, benefiting Japanese exporters, though a strengthening yen limited upside potential.

The Bank of Japan (BoJ) raised its policy rate for the third time in a year to 0.5%, its highest since 2008. The decision was backed by rising inflation expectations, now exceeding the BoJ’s 2% target. Analysts predict further rate hikes in 2025 as Japan moves toward policy normalization. Japan’s inflation data reinforced this trend, with core consumer prices rising 3.0% year-over-year in December, suggesting persistent inflationary pressures and further BoJ tightening.

Chinese equities saw moderate gains, with the Shanghai Composite up 0.33% and the CSI 300 rising 0.54%. Hong Kong’s Hang Seng Index outperformed, climbing 2.46%. Markets reacted positively to indications that Trump may ease tariffs on China, reducing trade uncertainty. Meanwhile, China’s central bank kept its key lending rates unchanged for the third straight month, reflecting a cautious policy stance.

Youth unemployment in China improved for the fourth consecutive month, with the jobless rate for individuals aged 16 to 24 (excluding students) dropping to 15.7% in December from 16.1%. However, overall unemployment inched up to 5.1%, reflecting broader labor market challenges.

Global markets showed resilience amid key policy developments and economic data releases. In the U.S., AI-driven optimism and easing trade tensions fueled record highs. Europe experienced cautious growth alongside expectations of further ECB rate cuts. Meanwhile, Japan and China saw measured gains as central banks adjusted policies. Investors will continue to watch these trends as the year progresses, assessing their impact on global financial markets.