After reading headlines throughout February, you might be expecting a gloomy investment outlook. Yet, despite threats of trade wars and uncertainty around the world, there were market highs. Read on to find out more about some of the factors that influenced investment markets.
As investment markets are experiencing volatility, it’s perhaps unsurprising that some investors sought the “safe haven” of gold. On 10 February, the price of gold hit a record high of $2,900 (£2,288) an ounce.
While you might be tempted to follow suit and change your investment strategy, remember to focus on long-term performance. While returns cannot be guaranteed, volatility is part of investing and, historically, markets have delivered returns over long-term time frames.
UK
The Bank of England (BoE) started the month by cutting the base interest rate from 4.75% to 4.5%, which may provide some relief to borrowers. However, higher than expected inflation could mean the Bank is less likely to make a further cut in March.
Office for National Statistics (ONS) data shows UK inflation was 3% in the 12 months to January 2025 – an increase of 0.5% when compared to a month earlier.
Additional data from the ONS was a mixed bag.
The chancellor will no doubt welcome news that the UK returned to growth in the final quarter of 2024 after the economy grew by 0.1% between October and December. However, GDP per head fell for the second quarter running and the manufacturing sector shrank for the fifth consecutive quarter.
The BoE also slashed its growth forecast. It halved its prediction made in November 2024, and now expects GDP to increase by just 0.75% in 2025.
In addition, a report from S&P suggests businesses are shedding jobs at the fastest pace in the last 15 years (excluding the pandemic). The trend was linked to higher payroll costs following increases to minimum wage and employer National Insurance contributions unveiled in the Autumn Budget.
Markets in the UK were rocky at the start of February. On 3 February, the FTSE 100 fell 1.25% when markets opened following talks of trade tariffs from the US and almost every share on the index was down.
Yet, just days later, on 6 February, the FTSE 100 hit a new closing high on the back of the BoE cutting interest rates. Then, on 10 February, the index hit another high, this time led by BP, which saw a 7% increase after activist investor Elliott Investment Management took a stake in the company.
Amid growing geopolitical tensions, on 25 February, prime minister Keir Starmer announced the government will increase defence spending to 2.5% of GDP by 2027. The news led to UK defence stocks rising, including BAE Systems, which lifted 4.2%.
Europe
Official figures from Eurostat show the eurozone narrowly avoided stagnation at the end of 2024 after posting growth of 0.1% in the final quarter. Growth varied across the bloc, both France and Germany contracted, while Spain grew 0.8%.
Figures from S&P Global’s Purchasing Managers’ Index (PMI) indicate the eurozone may have turned a corner. Indeed, the output index was above 50, which indicates growth, for the first time since August 2024. Spain was the main growth engine, but Germany, the largest economy in the bloc, posted its best monthly performance since May 2024.
Goldman Sachs warned the eurozone faced a “sizeable” hit from trade tensions.
Indeed, tariff threats are already affecting the business decisions of some companies. Beauty firm Estee Lauder announced plans to cut 7,000 jobs as it significantly expanded its restructuring programme to allow it to manage “external volatility, such as potential tariff increases globally”.
Similar to the UK, European markets opened in the red on 3 February. Germany’s Dax (-2%), France’s CAC 40 (-1.9%), Spain’s IBEX (-1.7%) and Italy’s FTSE MIB (-1.4%) were all affected by investor anxiety about the effect tariffs will have.
Again, the market didn’t experience a downturn for long.
European shares hit a record high on 12 February. The pan-European Stoxx 600 increased by 0.2% led by Amsterdam-based brewer Heineken, which saw a 12% jump after it revealed better than expected profits.
Following the US side-lining Ukraine during peace talks with Russia, investors anticipated a rise in military spending. On 17 February, more than €18 billion (£14.9 billion) was added to the value of European defensive stocks.
US
The headline figure for inflation was 3% in the 12 months to January 2025 after a slight increase when compared to a month earlier. The data may mean the Federal Reserve holds off cutting interest rates in the coming months.
Since taking office in January, President Donald Trump has implemented several trade tariffs and made threats to impose more. Trump has said tariffs will protect the US economy, but early signs might indicate it’s backfired.
The US trade deficit widened by around $19.5 billion (£15.3 billion) to $98.4 billion (£77.5 billion) as imports increased at the end of 2024. The jump may be driven by US companies trying to beat potential tariffs by shipping goods in larger quantities.
In contrast to initial speculation suggesting the Trump administration would boost US businesses, JP Morgan analysts said it was now leaning towards a “business unfriendly stance” due to tariffs.
Trump has also spoken about plans to cut immigration and deport those who are not authorised to live in the US. Global investment bank Goldman Sachs has warned these policies could harm economic growth. Indeed, the bank said in a baseline scenario, lowering immigration would result in losing 0.1% of GDP every quarter.
The report also noted that deportation could severely disrupt some industries. In the US, unauthorised immigrants account for around 4–5% of the workforce, but in some sectors, it is as high as 15–20%. The bank added losing these workers may lead to higher inflation.
The market volatility experienced in Europe on 3 February, affected the US too. Indeed, the Dow Jones – an index of 30 prominent companies listed on stock exchanges in the US – was down 1.26% at the start of trading. The broader S&P 500 index also fell by more than 1.6%.
After an initial post-election bounce, Elon Musk’s Tesla saw stocks tumble by 1.5% on 25 February after data showed European sales were plunging.
Asia
Markets in Asia started poorly in February as concerns about sweeping tariffs from the US weighed on exports across the region. Indeed, on 3 February, Japanese and South Korean automakers saw dips, including Honda, which fell by around 7%, and Toyota and Nissan, both of which slipped by more than 5%.
When China’s market reopened on 5 February following Lunar New Year celebrations, the CSI 300 index fell by 0.6% on opening.
The threat of tariffs is expected to affect economic performance too.
South Korean think tank Korea Development Institute now projects the country will grow by 1.6% in 2025 – 0.4 percentage points lower than it estimated in November 2024. The organisation said the lower pace of growth was due to a “deterioration of the trade environment”.
However, it wasn’t all negative.
In fact, Chinese technology stocks continued to perform well after receiving a boost in January following the launch of the AI app DeepSeek. The Hang Seng TECH index in Hong Kong was up 2.7% on 12 February and had increased by around 25% in the month to mid-February.
Among the companies that benefited from the boost was internet giant Alibaba and carmaker BYD, which boasted gains of 25% and 30% respectively for the month to mid-February.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
