US inflation data and key economic data will have markets on tenterhooks through the week ahead. We also have a number of US banks reporting earnings this week. Later today we will have updates from the ECB’s Lane and Rehn. On Tuesday US PPI will command market attention, and we will hear from the Fed’s Williams and Schmidt, and the ECB’s Holzmann, Vujcic and Matolcsy. Eurozone industrial production, UK CPI, and US CPI and Empire manufacturing are due on Wednesday. The Fed’s Williams, Barkin and Goolsbee all speak at separate events. US retail sales and jobless claims will hit the screens on Thursday and we have the ECB minutes from the December meeting. A busy Friday kicks-off with China GDP, property prices, retail sales and industrial production data. US housing starts and industrial production will be of interest later in the day.
Last week “tarrified” markets witnessed all manner of highs and lows as the uncertain messaging regarding US tariffs hit the newswires on Monday. Later we had some mixed rhetoric from the Fed, though the broader message was one of caution amid upside inflation risks resulting from potential policies enacted by the Trump Administration. US economic data through the week proved broadly strong, with jobs and services surprising to the upside
Following the robust US ISM services survey print, coupled with the upbeat JOLTS jobs data, US Treasury yields soared, sending ripples through global markets. The resurgence of the risk premium amid fiscal policy and interest rate concerns, rose to levels last seen in 2014. At that point, we witnessed a further drive higher in yields, particularly at the shorter-end following the stronger-than-expected US employment report. Non farm payroll added +256 jobs (exp. 165k) in December, and unemployment strengthened to 4.1% (from 4.2%). Average hourly earnings did, however, marginally ease to 0.3%mom and 3.9%yoy. So, a January pause in interest rate cuts is all but guaranteed. In fact, currently, the Fed funds are pricing the next cut as far out as June (at only a 69% chance).
The yield on the 2-year rose 10bps to 4.38%, 10-year UST yield was up 16bps, to 4.76%, while the 30-year closed at 4.95%, 14bps higher. Equity markets were mixed through the week, the S&P Index closed ~2% lower. The dollar, a clear beneficiary, rose, the DXY Index closed 0.64% once again hitting fresh highs. Oil also enjoyed a rally, Brent crude closed 4.25% higher at $79.76pb buoyed by fresh US sanctions on Russian oil.
Elsewhere, eurozone inflation increased to 2.4% in December, the third consecutive monthly rise, tempering expectations for a significant interest rate cut by the ECB. While the ECB is still expected to reduce its benchmark deposit rate by 25bps at its January 30 meeting, the higher inflation figure has diminished the likelihood of a larger 50bps reduction.
This morning’s trade data for China surprised to the upside with exports rising 10.7% in December, and imports returned to positive growth for the first time since July. The nation’s trade surplus neared a record USD 1tn as manufacturers adjusted to changing market conditions ahead of the arrival of the Trump administration. While Chinese authorities maintained currency stability through careful management of the USDCNY fixing and offshore liquidity, persistent deflationary pressures remained evident with 27 consecutive months of PPI decline through December 2024. In response, China’s government outlined a more proactive fiscal approach for 2025.
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