Market snapshot: tariffs, rate policy and fresh highs for FTSE 100

US markets ended higher after a turbulent session, with gains being tempered by the latest Trump tariff tirade and a disappointing update from Microsoft.

The new President’s announcement that he intended to implement 25% goods tariffs on both Canada and Mexico strengthened the dollar, but also led to higher Treasury yields and a brief trip into negative territory for the equity markets.

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While the intentions for China are not yet known, the general direction of travel is that tariffs are to become a feature of the new administration, adding further grist to the mill to the Federal Reserve’s decision to hold fire on interest rate cuts until the inflationary impacts can be gauged.

Also playing into Fed thinking will be any signs of a weakening economy, and the latest data is somewhat mixed. GDP for the final quarter of last year came in at 2.3%, lower than both the expected 2.6% and the 3.1% seen in the previous three months. Positive for the economy but also lessening the likelihood of rate cuts in the immediate future, core consumer spending and wage growth both continued apace and fed into an increasing likelihood that no moves will be made by the central bank until June.

Meanwhile, the Personal Consumption Expenditures report later will provide further colour, with core inflation expected to have risen by 2.5% in the fourth quarter, up from 2.2% in the previous, and representing a gain of 2.8% year on year.

Elsewhere, company earnings were in sharp focus, especially after the AI shock from the beginning of the week which emanated from DeepSeek of China. Investors were disappointed by a Microsoft update which missed quarterly revenue forecast estimates, with the growth slowdown in its cloud computing business which is responsible for much of its AI efforts leading to a drop of over 6% in the share price.

More positively for the “Magnificent Seven”, Meta Platforms Inc Class A (NASDAQ:META) and Tesla Inc (NASDAQ:TSLA) added 1.6% and 2.9% respectively after edging past estimates, while after the bell Apple Inc (NASDAQ:AAPL) shares rose by more than 3% after posting a 10% increase in earnings and a 4% hike in sales.

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The reporting season is now in full flow and next week updates from the likes of Google owner Alphabet Inc Class A (NASDAQ:GOOGL) and Amazon.com Inc (NASDAQ:AMZN) will be closely monitored for any chinks in the Mag Seven armoury. In the meantime, as the first full month of the year draws to a close, each of the main indices have posted gains, with the Dow Jones ahead by 5.5%, the S&P500 by 3.2% and the Nasdaq by 1.9%.

Asian markets remain quieter with ongoing holidays in Hong Kong and Shanghai. In Japan, the Nikkei edged higher following some strong economic newsflow, with the unemployment rate decreasing from 2.5% to 2.4% and with inflation rising to 2.5%, increasing the likelihood of a further interest rate hike from the central bank which in turn strengthened the yen.

The UK’s premier index scaled new heady highs at the open, with the FTSE100 now up by 6% so far this year and continuing to set fresh records. Factors playing into the new year bonanza have varied from the weakness of sterling, strength in the dominant banking, mining and oil sectors, some potential Merger & Acquisition froth, with the index also being seen as something of a haven destination amid volatility elsewhere.

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The positive mood was boosted by an announcement from Smiths Group (LSE:SMIN) which sent its shares higher by more than 16% at the open. The engineering firm announced that it would be looking to spin off its Detection business in a move which investors saw clearly as unlocking significant value, in addition to which a return of up to £850 million to shareholders could ensue.

Share price moves elsewhere were more restrained and partly driven by broker notes, where some weakness in Sainsbury (J) (LSE:SBRY) and Segro (LSE:SGRO) shares was more than offset by strength in Next, The more recent bounce in sentiment has also nudged the second line FTSE250 into positive territory for January, albeit by a more measured 0.8%.