Weak sentiment data in the US saw the S&P 500 deliver its worst day of the year on Friday, as the index declined 1.7%. In sterling terms, with S&P 500 ended the week down -1.8%, with the tech-heavy NASDAQ Composite falling -2.65%. The Flash Services PMI, a survey of business activity and sentiment, showed growth in the sector stalling as it came in at 49.7, below the no-change reading of 50.0, and well below the previous reading of 52.9. The University of Michigan Consumer Sentiment survey also displayed a deterioration, with the reading falling from 67.8 to 64.7, its lowest reading since November 2023. With the impact of tariffs remaining a significant unknown, investor skittishness is unsurprising, with this latest data following on from disappointing inflation and sales data last week and seemingly reinforcing the narrative that US economic strength is more fragile than many had believed.

Market performance elsewhere was mixed, with the Japanese Nikkei 225 rising 061% and the Shanghai Composite up 0.96% in sterling terms, while the European market, as represented by the MSCI Europe ex UK index, declined a moderate -0.29% over the week. Europe remains a top performing market this year, as global investors have diversified away from the highly valued US market. Commitments to increase defence spending, prospects of a resolution to the Russia-Ukraine war and relatively low valuations have all attracted investors into the region. German elections over the weekend saw the centre-right CDU party take the most seats, with the far-right AFD coming in second with their highest ever proportion of votes. A coalition between the two parties has been ruled out by CDU leader Friedrich Merz, and it is looking most likely that he will form a government with the support of the centre-left SPD party. Crucially, these two parties alone do not have a combined two-thirds required to overturn the constitutionally enshrined debt brake that has left the government with very little fiscal space; Merz will need to win the support of the populist fringe far-left and far-right parties that now account for over a third of seats.

Week Ahead

Source: Workspace DataStream, 24/02/25

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