Market Matters- Cooling inflation, broadening leadership, and a reminder that this cycle is still alive!

Equity leadership broadened beyond the US:

Japan led the week (up 4%+), with EM and Asia ex-Japan also delivering mid-single-digit gains; China was positive, UK added just over 1%, Europe was modestly higher, and the S&P 500 was slightly down — a rotation/broadening dynamic rather than a meaningful regime shift.

Rates were a stabiliser, not a tailwind:

global bonds were flat to slightly weaker, UK gilts slipped modestly, and US Treasury yields edged higher as markets recalibrated expectations for the near-term pace of Fed easing (not a “bond revolt,” more a good-growth and slow-cuts re-pricing).

US inflation data reinforced the disinflation trend:

December core CPI +0.2% m/m (below expectations) and 2.6% y/y (matching the lowest in four years). Core goods were flat and tariff pass-through remained muted; shelter firmed (+0.4% m/m), but core ex-shelter was ~+0.1% and “supercore” services is described as running around 2.7%, materially lower than a year ago.

Inflation and economic outlook implies further Fed patience, not urgency:

with jobless claims cited as the lowest since November and real wages rising, the Fed is framed as likely to hold at the next meeting after three cuts into end-2025; the market debate is shifting from whether rates fall further to how fast, consistent with our soft-landing base case.

Earnings and AI:

expectations remain high: banks were mixed and some fell even after beating numbers; tech steadied after TSMC helped confidence in AI capex, but investors are focusing on the AI “infrastructure” winners.