The Davy Digest - 27th January 2025

Last Monday’s inauguration provided plenty of headlines in the US, as Trump signed a record 26 executive orders on his first day in office. As expected, immigration, tariffs, deregulation, and cheaper energy all featured in Trump’s opening salvo, along with announcements around artificial intelligence funding. Due to Martin Luther King Day, equity markets didn’t open until Tuesday in the US, however we still saw the S&P 500 hit new all-time highs, primarily led by large-cap outperformance. Purchasing Manager Index surveys in Europe and the UK both surprised on the upside, driven by improvements in the manufacturing component. Elsewhere, in Japan, interest rates were raised to 0.5% - their highest level since 2008. Despite Bank of Japan Governor Kazuo Ueda increasing their inflation forecasts for 2025, the timing of future hikes remains uncertain.

Last week's highlights

	Trump Inauguration (20/01) Manufacturing PMI (24/01) – Preliminary January figure above consensus at 50.1, moving back into expansionary territory. Services PMI (24/01) – Decreased to 52.8 for January (vs 56.8 expected).
	German Producer Price Index (20/01) – Below consensus at 0.8% YoY. Eurozone HCOB Composite PMI (24/01) – Above consensus at 50.2, back into expansionary territory.
	UK Composite PMI (24/01) – Increased to 50.9 in January, driven by improved manufacturing output.
	Bank of Japan Meeting (24/01) – Raised rates to 0.5%, as expected, reaching highest level since 2008.

This week is headlined by central bank meetings in Europe and the United States. The Federal Reserve are likely to leave rates unchanged on Wednesday, while the European Central Bank are currently predicted to deliver another 25 basis point cut on Thursday. Additionally, we will get preliminary figures for Q4 Gross Domestic Product in the Eurozone as well as a Personal Consumption Expenditure print in the US. Earnings season remains in full swing, with Apple, Microsoft, Meta, and Tesla all reporting this week. The European Union’s Competitiveness Compass will be unveiled on Wednesday, aiming to tackle the EU’s innovation gap with global rivals, ensure the bloc’s economic security and make progress on decarbonizing EU industry.

What's on the radar

	Federal Reserve Meeting (29/01) Personal Consumption Expenditures (31/01)
	IFO Surveys (27/01) Eurozone Preliminary Q4 GDP (30/01) European Central Bank Meeting (30/01)
	China NBS Manufacturing PMI (27/01) Tokyo CPI Inflation (30/01)

Chart of the moment

Understanding sentiment

Source: University of Michigan, 24/01/2025

• The University of Michigan’s monthly Survey of Consumers aims to measure current sentiment and future expectations around the US economy.
• It is a widely observed macroeconomic indicator summarising public concerns around growth, unemployment, and inflation.
• However, when participants are split out by political affiliation, we can see complete reversals in the sentiment of Republicans and Democrats around elections.
• Although this shift is unsurprising, its effects on the overall figure are unclear, highlighting one of the challenges with soft data.