Global Asset Allocation Team Market Update – February 2025

Global equity markets edged higher in January, with the MSCI All Country World gaining 3.3%. The S&P 500 rose 2.7%, while the S&P/TSX advanced 3.3% towards a fresh record high. Elsewhere, the MSCI EAFE jumped 5.2% driven by solid earnings results in Europe, while emerging market stocks (+1.7%) underperformed their developed market peers on the back of subdued performance in China (+0.6%).

Fixed income markets also generated positive results. Treasury yields slipped across the curve following data showing that inflation in the United States is cooling. Government of Canada bond yields also pushed lower – albeit to a larger extent after the Bank of Canada cut its policy rate by 25 basis points to 3.0% in an effort to soak up excess supply in the economy. For the month, the Bloomberg US Aggregate Bond Index rose 0.5%, while the FTSE Canada Bond Universe gained 1.2%.

The US dollar (-0.1%) inched modestly lower as traders brought forward their wagers for a Federal Reserve rate cut to July following data showing that inflation surprisingly cooled in December. By contrast, the yen (+1.3%) strengthened after the Bank of Japan hiked its policy rate by 25 basis points to 0.5% – which was accompanied with forward guidance suggesting more tightening ahead. The Canadian dollar (-1.1%) hit its lowest level since 2003 even against a broadly weaker greenback amid mounting speculation around a trade war with the United States.

Finally, oil (+1.1%) eked out a modest gain in January. While initially rising following US sanctions on Russia, prices reverted lower as traders contemplated the prosect for US tariffs on oil imports from Canada and Mexico that would threaten to disrupt flows across North America’s tightly integrated energy market. Gold (+6.5%) also jumped to a new record high, with fears of a full-blown trade war that could sap economic growth spurring demand for safe haven assets. The decline in both treasury yields and the US dollar also buttressed bullion prices last month.

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