Executive Summary

Global financial markets began 2025 with generally positive returns, despite considerable uncertainty surrounding interest rates, trade policy and the rapid development of artificial intelligence. European equities outperformed most other regions, while US markets advanced more moderately and experienced a sharp technology-sector disruption near the end of the month.

Donald Trump returned to the White House on 20 January and immediately began outlining a programme focused on tariffs, immigration restrictions, deregulation, domestic energy production and tax reform. Investors initially welcomed the prospect of a business-friendly regulatory environment but remained concerned that tariffs and fiscal expansion could increase inflation.

The Federal Reserve maintained its target range at 4.25%–4.50% after delivering three consecutive reductions during the final months of 2024. Policymakers described the economy as continuing to expand at a solid pace and removed earlier language suggesting that inflation had made further progress.

The European Central Bank reduced its three key policy rates by 25 basis points. The deposit facility rate fell to 2.75%, reflecting weak regional growth and greater confidence that inflation was moving sustainably towards target.

The Bank of Japan raised its short-term policy rate to approximately 0.5%, the highest level since 2008. The decision reflected stronger wage growth, persistent inflation and increased confidence that Japan was moving beyond its long period of deflation.

US equities advanced overall, but technology markets experienced a sudden correction after Chinese artificial-intelligence developer DeepSeek released a reasoning model reportedly developed with significantly fewer computing resources than leading Western systems. The announcement challenged assumptions about the amount of semiconductor and data-centre investment required to develop competitive AI.

Nvidia suffered the largest single-day market-capitalisation loss recorded by a listed company, while semiconductor, networking and electricity-related businesses also declined. Other sectors proved more resilient, allowing the S&P 500 and Dow Jones Industrial Average to complete January with gains.

European equities delivered strong returns as lower interest rates, attractive valuations and improving investor sentiment supported banks, industrial companies and consumer businesses. The FTSE 100, DAX and STOXX Europe 600 reached record levels.

Gold rose sharply and ended the month at record highs in several currencies. Tariff uncertainty, lower European yields, central-bank demand and geopolitical risk supported the metal.

Key Themes During January

• The Federal Reserve paused after three consecutive interest-rate cuts.
• The ECB reduced its deposit rate to 2.75%.
• The Bank of Japan raised its policy rate to approximately 0.5%.
• Donald Trump began his second presidential term.
• Tariff uncertainty became a major market consideration.
• European equities substantially outperformed US shares.
• DeepSeek disrupted assumptions surrounding AI infrastructure spending.
• Nvidia experienced a record one-day loss in market value.
• Gold gained strongly and reached new records.
• Private-market investors anticipated greater deal activity but remained cautious about financing costs.

Global Economic Overview

The global economy entered 2025 with falling inflation but substantial differences in regional momentum. The United States remained comparatively strong, Europe continued to struggle with weak growth and China relied upon policy support to offset property and consumer weakness.

United States

US economic activity remained resilient. Consumer spending, employment and service-sector surveys suggested that the economy continued to expand despite the cumulative effect of high borrowing costs.

The labour market remained broadly healthy, although job vacancies and hiring rates had moderated from their post-pandemic peaks. Wage growth continued to support household demand.

Federal Reserve

The Federal Reserve left its target range unchanged at 4.25%–4.50%. The pause followed reductions totalling one percentage point between September and December 2024.

Chair Jerome Powell stated that policymakers did not need to hurry to adjust rates further. The strength of the economy allowed the central bank to evaluate incoming inflation, employment and fiscal-policy developments.

Uncertainty surrounding tariffs, immigration and taxation complicated the inflation outlook. The Federal Reserve indicated that it would respond to actual economic effects rather than speculative policy assumptions.

US Inflation

Inflation remained above the Federal Reserve's 2% objective. Housing, insurance and labour-intensive services continued to provide persistent pressure, while goods inflation remained comparatively contained.

Markets reduced expectations for rapid easing during 2025. Investors increasingly anticipated that the next reduction could be delayed until later in the year.

Eurozone

The eurozone economy remained weak, with limited growth and continuing manufacturing contraction. Germany and France both faced political and structural challenges.

The ECB reduced the deposit facility rate to 2.75%, the main refinancing rate to 2.90% and the marginal lending rate to 3.15%.

President Christine Lagarde indicated that monetary policy remained restrictive despite the reductions already delivered. Further easing was expected if inflation continued to move towards target.

Germany

Germany approached a February federal election against a backdrop of industrial weakness, high energy costs and restructuring within the automotive sector.

Political parties proposed differing approaches to fiscal rules, investment and economic reform. Investors considered whether a new government could increase infrastructure and defence spending.

France

France continued to face a fragmented parliament and difficult budget negotiations. Fiscal consolidation remained challenging because of political resistance to spending reductions and tax increases.

United Kingdom

The Bank of England did not hold a policy meeting during January. Bank Rate remained at 4.75%, while markets anticipated a possible reduction in February.

UK growth indicators were weak and business confidence had declined following tax increases announced in the October Budget. Inflation nevertheless remained above target and was expected to rise further during 2025.

Japan

The Bank of Japan raised its policy rate to approximately 0.5%. The decision was supported by stronger wage negotiations, underlying inflation and a relatively stable market environment.

Governor Kazuo Ueda indicated that further increases remained possible if economic conditions developed in line with the Bank's projections.

China

China continued to experience weak property investment and cautious household spending. Authorities maintained support for local governments, financial markets and residential demand.

Manufacturing exports remained comparatively strong, but the possibility of higher US tariffs represented an important threat to growth.

Global Outlook

The outlook remained broadly constructive but increasingly dependent upon policy. Lower European rates could support regional demand, while US tariffs and fiscal measures had the potential to alter global trade and inflation.

Equity Markets

Global equities advanced during January, with Europe delivering the strongest regional performance. US markets gained more moderately and experienced significant technology-sector volatility.

United States

The S&P 500 gained approximately 2.7%, while the Dow Jones Industrial Average produced a stronger return. The Nasdaq advanced more modestly because of the late-month semiconductor sell-off.

Financials, healthcare, industrials and communication services contributed positively. Utilities and data-centre-related businesses became more volatile after DeepSeek challenged assumptions about future electricity and computing demand.

DeepSeek and Artificial Intelligence

DeepSeek released a reasoning model that appeared capable of competing with established Western systems while using fewer advanced processors and lower development expenditure.

The announcement raised questions about whether AI model development would require the extraordinary level of capital spending projected by semiconductor manufacturers, cloud providers and data-centre developers.

Nvidia declined sharply on 27 January, while Broadcom, networking suppliers, semiconductor-equipment companies and selected power providers also experienced substantial losses.

The broader interpretation remained uncertain. Lower development costs could reduce demand for individual computing workloads, but could also make AI more accessible and increase total usage.

Financials

US financial shares benefited from expectations of deregulation, stronger merger activity and a comparatively healthy economy. Banks also reported improving capital-markets revenue.

Europe

European equities strongly outperformed. The STOXX Europe 600, DAX and several national indices reached record levels.

Banks benefited from resilient profitability and strong capital returns, while industrial and consumer businesses attracted investors seeking lower valuations than those available in the United States.

Expectations of additional ECB cuts supported property and domestically sensitive companies.

United Kingdom

The FTSE 100 gained strongly and reached record highs. Banks, healthcare, defence and internationally diversified companies contributed to performance.

Sterling weakness against the dollar increased the translated value of overseas earnings for multinational constituents.

Japan

Japanese equities produced mixed returns. Banks benefited from the Bank of Japan's rate increase, while exporters faced pressure from periods of yen appreciation.

China and Hong Kong

Chinese equities generally weakened as property concerns and tariff uncertainty offset policy support. Hong Kong performed somewhat more resiliently because of technology and financial shares.

Emerging Markets

Emerging-market returns were mixed. Dollar strength and US tariff risk affected several Asian and Latin American markets.

Indicative January Performance

Fixed Income Markets

Global bonds produced positive returns during January as European yields declined and investors sought defensive assets during periods of technology-market volatility.

US Treasuries

US Treasury yields initially rose as investors considered tariffs, deficits and resilient economic growth. Yields subsequently declined as the DeepSeek sell-off increased demand for defensive assets.

The Federal Reserve's pause reinforced expectations that policy would remain stable for several months.

European Government Bonds

German Bunds advanced as the ECB reduced rates and regional growth remained weak. Investors anticipated further cuts during the first half of 2025.

UK Gilts

UK gilts recovered after experiencing pressure early in the month. Weak growth increased expectations of a February Bank of England reduction.

Fiscal borrowing and rising inflation expectations limited the scale of the rally.

Japanese Government Bonds

Japanese yields rose after the Bank of Japan increased rates. The move remained orderly because the decision had been widely anticipated.

Corporate Credit

Investment-grade and high-yield bonds remained supported by stable corporate fundamentals. Credit spreads stayed tight, limiting compensation for future deterioration.

Private Credit

Private-credit activity remained strong. Borrowers continued to seek customised refinancing and acquisition finance, while investors remained attracted to floating-rate income.

The Federal Reserve's pause slowed the expected reduction in borrower interest costs. Conservative leverage and cash-interest coverage remained essential.

Foreign Exchange

Currency markets were driven by central-bank divergence and tariff expectations. The dollar remained strong, although it surrendered part of its gain near month-end.

US Dollar

The dollar benefited from resilient US growth and expectations that the Federal Reserve would cut rates more slowly than the ECB and Bank of England.

Euro

The euro remained weak as the ECB continued easing and regional growth disappointed.

Sterling

Sterling faced pressure from weak UK activity and expectations of a February rate cut. It remained supported relative to the euro by the higher level of UK rates.

Japanese Yen

The yen strengthened around the Bank of Japan's policy decision. Further appreciation was limited by the continued gap between Japanese and US yields.

Chinese Renminbi

The renminbi remained under pressure from domestic easing and the risk of US tariffs. Authorities continued to discourage rapid depreciation.

Commodities

Precious metals were January's strongest major commodity group, while energy and industrial materials produced more mixed returns.

Gold

Gold gained almost 8% and reached record highs in multiple currencies. Tariff concerns, geopolitical uncertainty, lower European yields and central-bank demand supported the market.

Oil and Energy

Oil prices rose during the first half of January as cold weather, sanctions and supply concerns supported demand. Prices later moderated as investors considered the outlook for global growth and US energy policy.

Copper and Industrial Metals

Copper produced mixed performance. Long-term demand remained connected to electricity networks and digital infrastructure, while immediate Chinese demand remained uncertain.

Iron Ore

Iron ore remained sensitive to Chinese property policy and steel production. Residential construction remained an important weakness.

Agricultural Commodities

Coffee and cocoa remained elevated because of adverse weather and limited inventories. Grain markets reflected regional production and export conditions.

Digital Assets

Digital assets experienced considerable volatility around the US presidential inauguration and the introduction of new policy initiatives.

Bitcoin

Bitcoin reached a new record above $100,000 before retreating. Investors anticipated a more supportive federal regulatory environment and continued to allocate through spot ETFs.

US Policy

The new administration issued an executive order intended to support digital-asset innovation and examine the creation of a national digital-asset stockpile.

Markets distinguished between a stockpile based upon existing government holdings and direct future purchases, which would have different implications for demand.

Ethereum

Ether produced mixed performance and continued to lag Bitcoin. Investors awaited clearer policy regarding staking, decentralised finance and token classification.

Risk Considerations

• Prices remained highly sensitive to policy headlines.
• ETF inflows could change rapidly.
• Government stockpile proposals remained uncertain.
• Leverage amplified short-term movements.
• Regulation remained fragmented internationally.

Private Equity

Private-equity markets entered 2025 with improving confidence but continued pressure to generate exits and distributions.

Deal Activity

Healthcare, software, financial services, infrastructure and specialist industrial businesses remained active. Sponsors anticipated that US deregulation could support merger activity.

Financing

Debt markets remained open for high-quality borrowers, while competition between banks and private lenders improved terms for selected transactions.

Financing costs remained substantially above the pre-2022 period. Sponsors continued using more equity and relying less upon leverage-driven returns.

Technology Investments

DeepSeek's emergence encouraged investors to reassess AI businesses. Companies providing efficient software, specialised models and lower-cost infrastructure could benefit, while projections based solely upon unlimited processor demand required greater caution.

Exits

Strong public markets supported IPO preparation. However, technology volatility reinforced the importance of trade-sale and secondary alternatives.

Fundraising and Secondaries

Fundraising remained concentrated among established managers. Secondary transactions continued to provide liquidity for institutions and older funds.

CE Global Private Equity Observations

• Deal confidence continued to improve.
• Financing remained available but comparatively expensive.
• AI investments required renewed cost and demand analysis.
• Exits and distributions remained essential to fundraising.
• Secondaries continued to offer mature exposure and liquidity.

Artificial Intelligence & Technology

Artificial intelligence remained the principal technology theme, but January introduced a major debate about model efficiency and infrastructure demand.

DeepSeek

DeepSeek demonstrated that competitive reasoning models might be developed using fewer advanced processors and lower expenditure than investors had previously assumed.

The announcement challenged the belief that continued AI improvement required unlimited growth in computing resources.

Semiconductors

Advanced processors remained essential for training and operating major models, but semiconductor valuations became more sensitive to potential efficiency improvements.

Demand could remain strong if lower costs encouraged wider AI adoption. The central question shifted from computing requirements per model to total industry usage.

Cloud Computing

Cloud providers continued investing heavily in data centres and proprietary processors. Greater model efficiency could improve service margins but reduce the amount of infrastructure required for individual applications.

Open and Lower-Cost Models

Open-weight and lower-cost models increased competitive pressure on proprietary providers. Enterprises gained additional options for running AI within private or locally controlled environments.

Technology Risks

• Efficiency improvements could alter semiconductor demand forecasts.
• High valuations remained sensitive to changing assumptions.
• Open models could reduce software pricing power.
• Export controls could accelerate development of alternative supply chains.
• Security and data-governance risks remained significant.

Sector Spotlight

Efficient Artificial-Intelligence Infrastructure

January's sector spotlight examines the shift towards more efficient AI infrastructure following the market reaction to DeepSeek.

Model Efficiency

AI developers increasingly focused on mixture-of-experts architectures, model compression, quantisation and improved training methods. These techniques could reduce processing and memory requirements.

Inference Demand

Even where model training became more efficient, widespread commercial use could create substantial demand for inference computing. Lower costs could encourage more businesses and consumers to use AI services.

Edge Computing

Smaller models could operate on personal computers, smartphones, vehicles and industrial equipment. This created opportunities for lower-power processors and specialised hardware.

Data Centres

Data-centre demand remained strong but became more dependent upon utilisation, customer contracts and electricity economics. Projects based upon speculative future demand faced greater scrutiny.

Private-Market Opportunities

• Model optimisation software
• Inference processors
• Edge-computing hardware
• Data-centre efficiency systems
• Advanced cooling and power management
• Enterprise AI deployment services

Investment Perspective

Greater efficiency did not eliminate the AI infrastructure opportunity, but changed its composition. Investors increasingly favoured flexible, cost-efficient platforms capable of supporting multiple models and changing workloads.

Regulatory Update

January introduced substantial changes in the US regulatory and trade-policy outlook, while international businesses continued preparing for European artificial-intelligence requirements.

US Regulatory Transition

The new administration began reviewing federal rules affecting energy, finance, digital assets, artificial intelligence and environmental policy.

Tariffs

Businesses prepared for potential tariffs on imports from Canada, Mexico, China and other trading partners. Contract pricing, inventory management and supply-chain location became immediate priorities.

Digital Assets

Federal policy became more supportive of digital-asset innovation. Agencies were expected to reconsider enforcement positions, custody restrictions and token classification.

Artificial Intelligence

The administration revoked the previous federal AI executive order and began developing a less restrictive policy framework. European and sector-specific requirements remained applicable to international businesses.

Private Markets

Private-fund managers continued to face valuation, conflict and disclosure obligations despite expectations of broader US deregulation.

Compliance Priorities

• Model multiple tariff scenarios.
• Review supply-chain and contractual cost exposure.
• Monitor changes in US financial and digital-asset regulation.
• Continue EU AI Act preparation.
• Reassess technology investments following DeepSeek.
• Maintain independent private-asset valuation governance.

Looking Ahead

Markets entered February focused on the implementation of US tariffs, the Bank of England's next decision, European political developments and the implications of lower-cost artificial-intelligence models.

US Trade Policy

Investors would assess whether proposed tariffs were implemented, delayed or used as negotiating tools. The response of trading partners would determine the risk of retaliation.

Federal Reserve

The Federal Reserve was expected to remain on hold while evaluating inflation, employment and the effect of new government policies.

Bank of England

The Bank of England was widely expected to reduce Bank Rate in February. Updated forecasts would provide information about weak growth and rising near-term inflation.

European Central Bank

Weak regional activity supported further ECB easing. German elections and French budget developments would remain important.

Artificial Intelligence

Technology companies would need to explain how DeepSeek and other efficient models affected demand for processors, cloud services and data-centre expenditure.

Corporate Earnings

Fourth-quarter results would provide evidence concerning consumer demand, tariff preparation and AI capital expenditure.

China

China was expected to respond to trade pressure with additional economic support. Investors would focus on consumption, property and currency policy.

Private Markets

Improving transaction confidence could support deal activity. Sponsors would need to incorporate tariffs, technology disruption and high financing costs into underwriting.

CE Global Private Equity Perspective

January demonstrated the importance of diversification. European equities outperformed while the most widely owned US semiconductor companies experienced a sudden disruption.

DeepSeek did not invalidate the long-term artificial-intelligence opportunity, but it challenged assumptions about the cost and infrastructure intensity required to participate.

CE Global Private Equity believes that opportunities remain across efficient AI infrastructure, cybersecurity, financial services, healthcare and industrial technology. Businesses offering measurable productivity at lower cost could become increasingly valuable.

Tariff and regulatory uncertainty require disciplined scenario analysis. Conservative leverage, flexible supply chains and multiple exit options remain important protections.

This market review is provided for general information and discussion purposes only. It does not constitute investment, legal, tax or other professional advice, nor an offer or solicitation to purchase or sell any security, financial instrument or investment product. Market values can rise or fall, and past performance is not a reliable indicator of future results.