World shares struggled to gain traction on Thursday as global markets opened the New Year on a cautious note.
The dollar weakened, and investor sentiment remained fragile amid looming uncertainty over the return of Donald Trump to the White House and a more hawkish Federal Reserve outlook.
After a strong annual gain of nearly 16% in 2024, the start of 2025 painted a less optimistic picture for equities. The MSCI World Index recorded a 2% loss in December and edged 0.05% lower after the European market opened on Thursday. A jittery close to the previous year set the stage for a challenging start, with market participants bracing for potential shifts in U.S. policies under President Trump’s new administration.
European Markets Open Lower
European stocks dipped during their first trading session of 2025. The pan-European STOXX 600 index was down 0.25%, reflecting broader market unease. France’s CAC 40 faced the steepest decline among major European indices, shedding 0.9%, while other markets hovered around the unchanged mark.
Certain sectors in Europe performed better than others. Oil and gas stocks were supported by rising crude prices after Russian energy giant Gazprom halted gas exports via Ukrainian pipelines. The disruption followed Kyiv’s decision not to renew a critical transit agreement, adding geopolitical tension to the market landscape. Conversely, autos and luxury goods sectors underperformed, reflecting a lack of investor confidence in cyclical and high-end consumer stocks.
Mixed Signals from U.S. Futures
U.S. stock futures provided a glimmer of optimism, with the S&P 500 futures climbing 0.6% and Nasdaq futures advancing 0.8%. However, analysts cautioned against overinterpreting these gains, citing the broader backdrop of uncertainty surrounding U.S. monetary and fiscal policies.
The Federal Reserve’s hawkish stance remains a critical factor shaping investor sentiment. With inflationary pressures persisting, market participants are closely watching the Fed’s signals for potential interest rate hikes, which could weigh on equities.
China’s Disappointing Start
China’s stock markets recorded their weakest New Year start since 2016, weighed down by disappointing factory data and investor concerns over the lack of policy support. The blue-chip CSI 300 Index closed down 2.9%, while the Shanghai Composite Index dropped 2.7%. Hong Kong’s Hang Seng Index also fell by 2.2%.
The weak performance underscores the challenges facing China’s economy as it grapples with slowing growth and subdued demand. Investors are now looking for clearer policy signals from Beijing to reinvigorate economic activity.
Market Perspectives
Global markets are entering 2025 with a sharp focus on key economic and inflation indicators. Bruno Schneller, managing director at Erlen Capital Management in Zurich, noted that the uncertainty surrounding U.S. policies and geopolitical tensions is likely to dominate market rhetoric in the near term.
“Investors are in wait-and-see mode,” said Schneller. “The combination of a changing political landscape in the U.S., ongoing inflationary concerns, and geopolitical disruptions like the halt of Russian gas exports is creating a challenging environment for equities.”
Outlook for the Year
While the initial trading sessions of 2025 reflect caution, analysts believe that the coming months will offer more clarity on market direction. Key factors to watch include U.S. economic data, Federal Reserve policy decisions, and China’s ability to implement effective stimulus measures.
The strength of the dollar will also remain a critical barometer for global markets. A weaker dollar could support emerging markets and commodities, while a stronger greenback might weigh on these segments.
For now, global equities appear to be entering the New Year with hesitancy, as market participants assess the interplay of economic, political, and geopolitical forces shaping the financial landscape.
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Main Image: By Tobias Deml – Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=116639775
