FTSE 100 falls flat on New Year fears about trade, Trump and rates

The FTSE 100 got off to a tentative start in 2025 with concerns about global trade and uncertainty about the pace of interest rate cuts keeping a lid on any new year’s optimism.

In early trade London’s premier index was trading roughly flat at 8,176.51 while the FTSE 250 lost 0.21 per cent to hit 20,576.26, although rivals across Europe climbed into the green.

“The FTSE 100 initially climbed higher…but the mood has turned flat with little to push sentiment dramatically higher,” Susannah Streeter, head of money and markets at Hargreaves Lansdown said.

The shaky start comes amid widespread uncertainty about the path for the global economy in the new year.

Jim Reid, head of research at Deutsche Bank, said that a “big question” for markets this year will be Donald Trump’s approach to imposing tariffs on trading partners.

“We’ve already seen markets react in response to Trump’s social media posts, having discussed new tariffs on China, Canada and Mexico. But it’s still an open question as to whether various deals might be reached with other countries to avoid higher tariffs,” he said.

“There’s the potential for a significant shift in global trade patterns, and we know from Trump’s first term that markets can be very reactive to any tariff news,” Reid added.

Economic data out from China on Thursday morning showed that the prospect of tariffs was already proving harmful for the world’s second largest economy.

The manufacturing purchasing managers index (PMI) slipped to 50.5, much lower than the 51.7 expected by economists.

“Exports dragged on demand amid mounting uncertainties stemming from the overseas economic environment and global trade,” Wang Zhe, senior economist at Caixin Insight Group, said.

Exchanges in Asia ended the year’s first day of trading lower following the data, with Hong Kong’s Hang Seng finishing 2.2 per cent lower and the Shanghai Stock Exchange down 2.7 per cent.

Another question for investors will be the pace of interest rate cuts in 2025, particularly in the US.

The Fed’s latest projections suggest that there will be just two rate cuts this year, reflecting the strength of the economy and the potential pressures resulting from a Trump presidency.

Markets expect a slightly faster pace of rate cuts, but Reid noted that market expectations had been “too dovish” for the past three years running. “It’s going to be interesting to see if we do get the additional rate cuts that markets are pricing in,” he said.