European markets strongly outperformed US markets in January as newly inaugurated president Trump threatened tariffs on United States' closest allies and China's Deepseek rattled AI-related stocks.

Trump threatened to impose 25% tariffs on Mexican and Canadian goods, to go into effect on February 1. Last day phone calls with Canada's outgoing Prime Minister Justin Trudeau and Mexican president Claudia Sheinbaum resulted in agreement to delay the tariffs for a month. Should  these tariffs be implemented, they will undoubtedly push the already elevated US inflation further up again and could mark the end of the Federal Reserve's series of interest rate cuts, resulting in slower economic growth and potentially even a contraction. As a result the FED kept the interest rate unchanged in January and stated that it sees no hurry to cut again.

In addition the US will also impose 10% tariffs on Chinese goods and is considering tariffs on European goods also. Trump also signed executive orders to abandon the Paris Climate Agreement and World Health Organization (WHO), expressed his desire to make Canada the 51st state, threatened to take control of the Panama Canal and suggested to impose tariffs on Denmark if they wouldn't sell Greenland, among other things. And don't even get me started on Elon Musk and his DOGE (»Department of Government Efficiency«). Let's just say the circus is in town and the clowns aren't funny.

In other news, China announced Deepseek, a Chinese startup whose AI platform appears to rival the likes of OpenAI's ChatGPT at a fraction of the investment and a sliver of the energy consumption. Suddenly, a rally fueled largely on US AI dominance turned into a question of whether the hundreds of billions in AI investments would ever lead to profits large enough to justify the rich valuations of AI companies. Upon Deepseek's announcement, heavy-weight Nvidia lead the drop of AI stocks, losing almost 600 Billion dollars worth of valuation in a single day, a record drop.

US indices still managed to close January in positive territory with the Dow Jones gaining 4,70%, the S&P500 adding 2,70% and tech-heavy Nasdaq 1,64%.

As a result of uncertainties surrounding the Trump administration, especially regarding tariffs, investors are shifting their investment from growth stocks towards value stocks and precious metals. Gold gained 7,35% to 2835 dollars per ounce, approaching its all-time-high, and silver gained 10,34% over the month.

European stocks on the other hand fared much better. The German DAX gained 9,16%, France's CAC gained 7,72% and Eurostoxx50 gained 7,98%. Also United Kingdom's FTSE index added 6,13%. The SBITOP however truly shined, adding 15,29% to close the month at 1925. Also shares of European semiconductor equipment makers experienced volatility in the wake of the DeepSeek news but still advanced for the month overall.

As the Eurozone economy stagnated in Q4 2024, the European Central Bank (ECB) cut interest rates as expected by a quarter of a percentage point. ECB president Christine Lagarde warned that economic risks are tilted to the downside given rising trade frictions and weak consumer confidence. Further interest rate cuts are expected to drive economic growth in the region.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - January 2025