Weekly market recap

Your weekly global financial market newsletter

  • Donald Trump has been influencing financial markets since the beginning of his term. While stocks have reacted positively to his announcements, oil prices, on the other hand, have struggled.

Indices

U.S. equities continued to rise during the past shortened week. Investors reacted positively to President-elect Donald Trump’s announcement that he would prefer not to impose new tariffs on China to avoid increasing input inflation and, ultimately, refrained from imposing tariffs on Europe as well. The S&P 500 index hit new highs; however, the rally stalled on Friday as investors weighed Trump’s potential restrictions on other trading partners and the Fed’s likely decision to hold rates steady this week.

Trump’s hesitation to impose tariffs on Europe, along with the possibility of another rate cut from the ECB this week, helped boost stocks on the old continent. The pan-European STOXX Europe 600 ended the week 1.23% higher, France’s CAC 40 Index climbed 2.83%, Germany’s DAX gained 2.35%, and the UK’s FTSE 100 Index remained largely unchanged (-0.03%).

US30
+2.15%
US100
+1.55%
US500
+1.74%
GER30
+2.35%

Commodities

Unlike stocks, commodities were not significantly boosted by Trump last week. The price of crude oil rose slightly on Friday, but after a six-day losing streak, it ended with its first weekly decline of the new year. This decline is attributed to Donald Trump’s plans to significantly increase production while urging OPEC countries to agree to lower oil prices. Trump believes this measure could have a very negative impact on Russia, which funds its war efforts through oil sales, and a significant reduction in oil prices could pose a major challenge for the country.

Gold
+2.56%
Silver
+0.80%
BRENT
-2.88%
NATGAS
+1.57%

Forex

One of the winners of the past week was the European currency, which gained over 2% against the U.S. dollar. The euro had been weakening against the USD since autumn, when markets began betting on Donald Trump’s election victory and his protectionist policies. However, over the past two weeks, the situation has started to shift as markets are showing signs of reassessment. Expectations of a rapid implementation of tariffs have not materialized, and it now seems more likely that a gradual approach will be taken. As a result, the dollar may appear overbought against the euro, at least temporarily.

The British pound also delivered a very strong performance against the USD, supported by positive macroeconomic data showing that the British economy performed better than expected in January. While the Bank of England is likely to cut interest rates in February, the data suggests it is unlikely to accelerate monetary easing.

EUR/USD
+2.21%
USD/JPY
-0.20%
GBP/USD
+2.61%
USD/CAD
-0.87%

Macro

The main news of the week, not just in the U.S., was the inauguration of the U.S. President and his somewhat surprisingly cautious approach to implementing tariffs. In addition to wanting to review U.S. trade policy and assess the potential impact of any future tariffs, he made it clear that he does not intend to impose tariffs on China, as this could lead to increased inflation.

In the UK, labor market data released on Tuesday showed the unemployment rate unexpectedly rising to 4.4%. However, wage growth excluding bonuses accelerated to a six-month high of 6.0% in the three months through November, in line with expectations. Meanwhile, Germany’s ZEW index continued to reflect an assessment of the current situation near pandemic lows, and the expectations component fell short of expectations.

On Thursday, data from the U.S. showed that the labor market remains relatively strong, with initial jobless claims holding at a relatively low level, albeit slightly above expectations.

In Japan, inflation rose to 3.6% year-over-year in December, with a 0.6% month-on-month increase. In line with estimates, the Bank of Japan raised its key interest rate by 25 basis points to 0.5%, the highest level since the financial crisis in 2008. The vote for the hike was 8 to 1.

On Friday, S&P Global released preliminary PMI data for the manufacturing and services sectors. European and German manufacturing PMIs exceeded market expectations and surprised positively, though both remain deep in contraction territory. In the UK, the Services PMI rose slightly, and the Manufacturing PMI also improved, both surpassing forecasts. However, concerns persist. In the U.S., services activity growth softened in January, while manufacturing activity unexpectedly rebounded, returning to growth for the first time in six months.

Existing home sales rose 2.2% during the month to a seasonally adjusted annual rate of 4.24 million, the highest reading in 10 months. However, despite the upside surprise to end the year, the report noted that existing home sales for the full year fell to the lowest level in nearly 30 years amid elevated mortgage rates and record-high home prices.

 

What to watch out for this week

  • The last week of January brings meetings of key central banks and the continuation of earnings season. Attention will also likely focus on Donald Trump and his potential next moves regarding trade or security policy.
  • On Wednesday, the Fed is expected to leave the key interest rate unchanged and reiterate a cautious outlook dependent on recent economic data. Significant monetary easing in the U.S. is unlikely this year, which could lead to a renewed rise in market rates and a somewhat more cautious approach by investors toward risky assets. As always, Jerome Powell's comments at the press conference will be closely watched.
  • The European Central Bank, on the other hand, is expected to continue cutting rates and confirm this trend in its forward guidance. Christine Lagarde's comments at the post-meeting press conference will be key in assessing the ECB's dovish stance. Additionally, the Bank of Canada will also decide on interest rates.
  • On Tuesday, U.S. Durable Goods Orders, the S&P/Case-Shiller House Price Index, and Consumer Confidence data will be reported. On Wednesday, German consumer confidence data from GfK will be released. On Thursday, in addition to the weekly U.S. Unemployment data, GDP figures for the EU—including its largest economies—as well as for the U.S. and Canada will be released. Finally, on Friday, the PCE Price Index, the Fed's preferred inflation gauge, will be published.

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