FTSE climbs to new all-time high

The FTSE 100 closed at record-high and broke through the 8,600 level, boosted by some positive results, a stronger dollar and the gold price, which also recorded a new all-time high this week. Miners benefited from rising precious metals prices and the substantial number of companies with earnings in the US currency also rose. Positive earnings reports from the likes of Shell and St James’s Place also boosted the index.

In the US it was a different story. Equities fell, with the losses led by technology groups after Chinese company DeepSeek unveiled a new artificial intelligence (AI) system that it is claimed is as powerful as those developed in the West, but at a fraction of the cost.

The FTSE 100 was 2.1% ahead over the week by mid-session on Friday, with the more UK-focused FTSE 250 trading up 2.0%.

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Market Moves

Market Moves provides a round-up of market movements from the last seven days, week-ending 31st January.

DeepSeek shock

Chinese artificial intelligence (AI) group DeepSeek disrupted the fledgeling industry after it unveiled its low-cost, open-source AI assistants, in a challenge to US technology giants. DeepSeek’s AI assistant, a competitor to ChatGPT, became the number one downloaded free app on Apple’s iPhone store. It is claimed to match the performance of leading models from OpenAI, Anthropic and Meta Platforms – but at a fraction of the cost. This promoted questions over the level of investment needed in AI infrastructure – and concerns of being undercut by the Chinese prompted a significant sell-off in the US technology sector. This is a significant achievement by Deepseek, given restrictions placed on semiconductor exports to China by Washington over the last few years.

There have been accusations of foul play made against Deepseek. Both Microsoft and OpenAI are probing whether a group linked to DeepSeek accessed OpenAI's data without authorisation, according to Bloomberg. A Financial Times source at OpenAI reportedly said that the company had evidence of data theft by the Chinese group.

Nvidia set a dubious Wall Street record after the DeepSeek announcement. The chip group lost $589bn in market capitalisation in one day, which is by far the single greatest one-day value loss of any company in history. The sell-off slide dethroned the chip group from its position as the world’s most valuable company, sending its valuation to less than that of Apple and Microsoft.

Meta Platforms chief executive Mark Zuckerberg dismissed the notion that the company’s overall AI spending will now fall. He thinks this investment will be “a strategic advantage over time”. The company also agreed a $25m payout to President Trump over suspended accounts. The settlement seen as a big victory for the US president.

Reports suggested that Japanese technology investor SoftBank is in discussion over an investment of between $15bn and $25bn in OpenAI, potentially making it the startup's top backer.

Economics

UK Chancellor Rachel Reeves has defended her tax-hiking Budget, saying that without the changes to national insurance, the government would have lost control of the economy. She vowed to fight for economic growth and unveiled a suite of policies the Treasury said would “kickstart” economic growth, including an “action plan” intended to instil a pro-growth approach to regulation. The Chancellor laid out a series of “supply-side” changes, aimed at improving the UK economy’s potential to grow, including by tackling what she called “chronic underinvestment”. She also made changes to pensions regulation, in the hope of unlocking part of the surpluses of defined benefit funds, to be invested in pro-growth projects. Ms Reeves vowed to build "Europe's Silicon Valley" between Oxford and Cambridge, with policies aimed at boosting the region's growth, saying they would add £78bn to the UK economy in the next 10 years. Ms Reeves also announced the government will be hosting a range of trade trips. Business Secretary Jonathan Reynolds is heading to India next month for trade talk while the UK resets "the relationship" with the EU. Will UK growth accelerate?

UK mortgage approvals beat expectations significantly in December. According to the latest money and credit report from the Bank of England, net mortgage approvals for house purchases ticked up to 66,526 from 66,061 in November. Most analysts had expected a fall, to an average of 65,400.

President Donald Trump was not best pleased with the US Federal Reserve (Fed) and its Chair Jerome Powell after policymakers left interest rates unchanged. “Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing,” Mr Trump wrote on his Truth Social platform. Fed officials struck a more cautious tone on inflation. They removed part of a line in their previous release saying inflation “has made progress toward” a goal of 2%, noting in Wednesday’s statement only that it “remains somewhat elevated.”

Growth in the US economy is slowing. It grew at an annualised rate of 2.3% in the fourth quarter, a weaker than expected end to a year dominated by the resilience of American consumers. This compares with the 2.6% expected by economists and 3.1% in the third quarter.

The European Central Bank cut its benchmark interest rate by a quarter-point to 2.75% in response to the Eurozone’s weak growth and falling inflation rates. The cut came hours after Eurostat reported that the Eurozone economy had not grown at all in the fourth quarter of 2024. Eurozone GDP growth came in at 0% compared with the previous quarter’s growth of 0.4%, the European Commission stats agency said. Economists had expected growth of 0.1%. The many problems facing the EU.

Geopolitics

A federal judge temporarily blocked a push from President Donald Trump to pause federal funding while his administration conducts an across-the-board ideological review to uproot progressive initiatives. Uncertainty over a crucial financial lifeline caused confusion among states, schools and organisations that rely on trillions of dollars from Washington.

Donald Trump made major announcements about immigration and deportation policies, including plans to send undocumented immigrants to Guantanamo Bay. He also signed the Laken Riley Act into law, granting federal authorities greater power to deport undocumented immigrants accused of crimes.

Will Elon Musk and the Department of Government Efficiency be able to cut US government spending by $2 trillion? Elon Musk, Doge and the large US deficit.

Gold hit a record high as investors fretted over potential US tariffs and as a growing bullion stockpile in New York created a shortage in London. The benchmark price rose to $2,798 per troy ounce, surpassing its October record and taking its gains to about 7% this year.

Companies

The initial reaction to Microsoft’s second-quarter results was negative. Share-price falls were caused by underwhelming growth at its Azure cloud business in the second quarter and disappointing guidance for the current quarter. Nevertheless, revenues, operating profit and earnings per share all exceeded consensus expectations, but growth that was not related to artificial intelligence was below management’s expectations.

Apple’s quarterly profits and revenue beat Wall Street expectations, despite lower iPhone sales as competition increased in China. iPhone sales of $69.1bn were, however, down slightly and below forecasts of about $71bn. Revenue for the China region, where Apple has come under increasing competitive pressure from local smartphone makers such as Huawei and Xiaomi, dropped about 11%. Management said it expected low-to-mid-single-digit revenue growth for the current quarter, despite an expected negative impact of about 2.5 percentage points from foreign exchange headwinds.

Tesla’s management promised a return to growth in 2025 after its fourth quarter results disappointed. Full-year revenues rose just 1% while profits fell sharply from a year ago. Costs associated with artificial intelligence and other R&D projects hit its income, as well as lower average selling prices for its current vehicles. The company reiterated that plans for new vehicles, including "more affordable models," were on track to start production in the first of 2025. Tesla also said its purpose-built robotaxi, the Cybercab, was still scheduled for volume production in 2026.

Oil major Shell reported a weak set of fourth-quarter earnings, but this was mostly expected following its trading update earlier in the year. Gas prices and production were better than the results seen in the oil business. Although refining margins continued to be weak, it stabilised quarter on quarter, and the retail fuels business result beat consensus expectation. Cost targets have been achieved earlier than expected. The dividend was raised, but net debt rose.

Shares in Smiths Group surged after the engineering business said it was selling its electronic connectors unit and would demerge or offload the detection operation as part of a strategic review that includes extending its share buyback to £500m. The breakup of the group is part of a plan to "unlock significant value and enhance returns to shareholders" after US activist investor Engine Capital argued that the company should explore a split.

Lift and elevator group Otis Worldwide posted fourth-quarter earnings below Wall Street expectations and provided disappointing guidance for the current quarter. Service revenues and profits continue to be a source of relative defensiveness within the industrial sector, with sales and margins rising. On the negative side, new equipment revenues and profits continue to be weak, with sales in China down 20%.

The market had expected a rights issue to support Pennon’s investment plans, but the amount of £490m was greater than expected. In addition, the market had not expected a dividend cut of the magnitude that was announced by the water company. Management explained that the rights issue and new dividend policy was a more prudent balance of financing of its significant investment increase.

Given the challenges faced in 2024, an in-line, full-year trading update from Rentokil Initial can be viewed as a further step in stabilising the business. The Terminix integration is said to be continuing to plan. The pest-control business has announced the departure of its North American chief executive and said trading matched expectations last year. Brad Paulsen will step down in April and be replaced by chief commercial officer​​ Alain Moffroid on an interim basis.

BT Group posted a fall in third-quarter revenues as phone sales weakened. BT added that its cost transformation programme remained “on track, delivering efficiencies across all units, with energy usage in its networks down 3% in the year-to-date and total labour resource down 3% year-on-year. Management reiterating its financial guidance for this year after reducing sales expectations in November.

Shares in St James’s Place rallied after it said net inflows and strong investment returns for clients had driven funds under management to a record at the end of December 2024. The wealth group said gross inflows from customers jumped by a fifth in 2024 to £18.4bn, while positive returns on investments helped boost total assets under management.

Software group Sage made a strong start to its new financial year with revenues rising by a tenth in the first quarter, following further uptake of cloud products. The firm's Sage Business Cloud platform, which includes accounting, payroll, payments and time tracking tools, grew revenue by 13% to £502m on the back of new and existing customers. Management reiterated its guidance for its full- year results.

Mining and commodities giant Glencore met its targets for 2024 production volumes on the back of stronger second-half performances from its key commodities. Management plans to update its guidance for the 2025-2028 period at its full-year results presentation on 19 February.

Fourth-quarter revenue exceeded expectations at Dutch chip equipment maker ASML. Quarterly bookings significantly beat expectations, marking a strong recovery from the prior quarter. Given its lumpy nature, ASML will no longer disclose quarterly bookings from 2026 onwards and will instead focus on backlog. The semiconductor industry continues to be driven by AI, with ASML noting that AI-related demand is creating both opportunities and risks. While logic and memory are expected to “grow” and “remain strong” in 2025, respectively, the broader recovery in consumer markets (PCs, smartphones) remains slower than expected.

In the final quarter of the year, LVMH beat market expectations, mirroring the strong performance of peers Burberry and Richemont. In the three months to Christmas, LVMH’s organic sales rose by 1% to €23. bn compared with the same period in 2023. Analysts had predicted a 1.25% fall. Chief Financial Officer Jean-Jacques Guiony said the October to December quarter had been “objectively better” in Europe and the US than the rest of the year.

It was an impressive end to 2024 for Thermo Fisher Scientific as its fourth quarter results beat market expectations, with robust demand for its therapy tools and services. All segments, apart from Speciality Diagnostics, beat expectations for organic revenue growth. The company launched several innovative products in 2024, including the Iliad Electron Microscope and Stellar mass spectrometer.

For Starbucks, expectations heading into its first-quarter results were low. However, while sales fell annually, they did not decline by as much as consensus had expected. Its operating margin contracted due to investments in marketing. Nevertheless, transactions are still falling, with global same-store sales down 4% in the quarter. Analysts had expected a 4.6% fall. New Chief Executive Brian Niccol has said Starbucks needs to “fundamentally change” its strategy. Changes have included the rollout of a simpler menu, ceramic cups, refills and condiment bars, and a drive to reduce wait times to under four minutes.

A sharp rise in full-year sales at Swiss pharmaceutical group Roche were partly driven by high demand for newer medicines. This is encouraging, as Roche is relying on its portfolio of newer medicines to drive growth through the end of the decade. There are 71 new molecular entities and a total of 122 projects in Roche's pharmaceutical pipeline. The core Diagnostics Division (ex-Covid revenue) was led by the increased demand for immunodiagnostic products and higher sales of clinical chemistry tests. However, a drop in demand for Covid-19 related products halved growth at the division level. From 2025 onwards, Covid will not adversely impact results. The 2025 guidance was in line with consensus expectations.

Canadian Pacific Kansas City, the operator of a railway that links Canada the US and Mexico, issued a strong set of earnings for the fourth quarter. Despite some labour disruption the company met revenue expectations, helped by synergies from the merger in 2021. These cost savings now reached over C$800m and management expects total synergies above the original target. On the topical subject of Trump administration tariffs, management stressed that its unique network and the new routes that it has created provide compelling value for its customers. The company will adapt to whatever the outcome, it said.