European Stocks Outperform S&P 500 Amid AI-Driven China Rally

The pan-European STOXX 600 closed at a record high, gaining 8% year-to-date, outperforming the S&P 500's 3% rise, while Germany’s DAX and France’s CAC 40 surged 10%. Hong Kong’s Hang Seng jumped to a three-month high, driven by AI enthusiasm around China’s DeepSeek, despite ongoing trade tensions between the US and China. Investors are now awaiting US nonfarm payrolls data, expected to show 170,000 new jobs in January, which may impact Federal Reserve rate cut expectations.

Equities

The FTSE 100 rose 1.2% to close at a record high, lifted by AstraZeneca and a weaker pound following the Bank of England’s 25-basis-point interest rate cut. The FTSE 250 gained 1%. The Bank of England halved its 2025 growth outlook and raised its inflation forecast, weighing on the pound and UK gilt yields.

AstraZeneca shares jumped 6.6%, marking their strongest day in over four years. The drugmaker reassured investors that a potential fine in China would have minimal impact and posted better-than-expected fourth-quarter earnings. Anglo American shares climbed 5% following its production report, helping drive gains in the mining sector.

In the US, the S&P 500 rose 0.36% and the Nasdaq gained 0.51%, while the Dow Jones slipped 0.28% in choppy trading. Investors focused on earnings and awaited US jobs data. Amazon shares edged up 1.1% before results, which showed strong overall revenue but weaker-than-expected cloud sales. Nvidia rose 3.1%, extending recent gains linked to AI momentum. Philip Morris International climbed 10.9% after posting strong quarterly results and a confident 2025 profit forecast. Tapestry, the parent company of Coach and Kate Spade, surged 12% on an improved sales and profit outlook.

Honeywell fell 5.6% after announcing plans to split into three companies and issuing cautious 2025 guidance. Skyworks Solutions, an Apple supplier, dropped 24.7% following a weak revenue forecast. Qualcomm slid 3.7%, with executives warning that its patent-licensing business would not grow this year after its Huawei agreement ended.

Forex & Commodities

The Japanese yen strengthened, reaching a nine-week high as traders increased bets on further Bank of Japan rate hikes. The dollar/yen pair briefly dropped below 151 before recovering slightly to 151.67. Bank of Japan board member Naoki Tamura suggested rates could rise to at least 1% in late 2025, reinforcing expectations of further tightening. The US dollar index edged up 0.14% to 107.81, but remained well below Monday’s 109.88 high, as traders awaited US nonfarm payroll data. The British pound slipped 0.14% to $1.242, continuing to weaken after the Bank of England’s rate cut and downgraded growth forecast.

Gold rose 0.3% to $2,864.11 per ounce, extending its weekly gain to over 2%, with spot prices hovering near record levels after reaching $2,882.16 on Wednesday. US gold futures gained 0.4% to $2,887.50. Goldman Sachs maintained a $3,000 target, citing risks from US policy uncertainty and investor hedging demand. Silver and platinum also rose, while palladium was set for a weekly decline.

Oil prices edged higher in Asian trade, with Brent crude rising 52 cents to $74.81 per barrel, though it remained down 2.5% for the week. West Texas Intermediate crude added 44 cents to $71.05, but was set for a 2% weekly decline. Concerns over US trade tariffs on China and increased OPEC+ and US production kept pressure on prices. The US Treasury imposed new sanctions on individuals and tankers transporting Iranian oil to China, but traders remained focused on demand risks and rising US crude stockpiles.

Economic Calendar

• German December industrial and trade data release
• UK housing price data for January
• US nonfarm payrolls data for January
• Potential updates on US-China trade negotiations
• Market reaction to AI-driven tech rallies in China