United States: Growth Revised Higher Amid Market Volatility
U.S. equity markets ended a shortened and volatile trading week slightly lower as investors reacted to shifting
trade headlines and mixed economic signals. All major indexes declined modestly, with mid-cap stocks leading
the losses. Markets were closed on Monday for Martin Luther King Jr. Day, compressing the week’s activity into four sessions.
Early in the week, stocks fell sharply after renewed concerns about a potential global trade conflict. Investor
sentiment weakened following comments from President Donald Trump about imposing tariffs on certain European nations in connection with negotiations over Greenland. However, midweek optimism returned
when the president signalled a softer stance and postponed the planned tariffs. This reversal helped markets recover part of their earlier losses.
On the economic front, revised data showed the U.S. economy performed better than previously expected in
the third quarter. Gross domestic product growth was adjusted upward to an annual rate of 4.4%, supported by stronger exports and business investment. Inflation, however, remains elevated. The Federal Reserve’s
preferred measure showed prices rising 2.8% year over year, still above the central bank’s long-term target. Labour market conditions remained stable, with jobless claims near their lowest levels in two years, suggesting
layoffs remain limited. Consumer sentiment improved modestly in January, though confidence remains significantly lower than a year ago as households continue to feel pressure from high prices and concerns
about future employment.
Europe: Trade Uncertainty Weighs on Markets, Confidence Improves
European equity markets declined over the week as renewed geopolitical and trade concerns unsettled
investors. Major indexes across the region posted losses, with Italy and Germany among the weakest performers. Lingering uncertainty around global trade policy and political developments continued to influence sentiment.
Despite softer markets, business activity data offered some encouraging signs. Surveys showed modest expansion across the eurozone in January, supported by a rise in new orders. Business confidence reached its
highest level in nearly two years, reflecting cautious optimism about the outlook for growth. In the United Kingdom, activity strengthened further, suggesting the potential for improved economic momentum in the
coming quarter. The UK labour market, however, showed signs of strain. Unemployment remained at a five-year high, with job
losses concentrated in retail and hospitality. Wage growth continued to slow, easing some inflation pressures but raising concerns about household income growth. Inflation unexpectedly ticked higher in December due to
rising airfare and tobacco costs, although the Bank of England still expects inflation to fall back toward its target by spring.
Elsewhere, Norway’s central bank kept interest rates unchanged, signalling that rate cuts may begin later this year. Trade policy remained a key focus after the European Parliament delayed approval of the EU’s proposed agreement with South America’s Mercosur bloc, adding another layer of uncertainty to the region’s economic outlook.
