The main highlights this week include Trump’s inauguration (Mon) and subsequent executive actions, the Davos World Economic Forum (Mon-Fri), and a host of key corporate earnings. US markets are shut today in celebration of Martin Luther King Jr. Elsewhere, we will hear from the ECB’s Vujcic and Holzmann. Germany ZEW survey and UK employment data will feature on Tuesday, and we have Netflix earnings. The US conference board leading index is due on Wednesday, ahead of which the ECB’s Lagarde, Galhau and Knot speak in Davos. Eurozone consumer confidence, and US jobless claims readings are out on Thursday. Several PMI prints for key economies follow on Friday, and in the US the Uni. of Michigan consumer sentiment and existing home sales prints will garner market attention. Away from data the BoJ will likely raise interest rates, and the central bank releases its economic outlook. Markets will also scrutinise any comments from Davos, with the ECB’s Lagarde and Cipollone and Blackrock’s Fink all due to speak.
Last week markets took the “buy the rumour, sell the fact” literally, with further whipsawing actions amid any rhetoric or data point. The week began with a global bond sell-off amid US inflation, fiscal and Fed rate cut concerns. Following the downside surprise on the US PPI and CPI prints, and dovish comments from the Fed’s Waller, yields rallied and the 10-year closed 13bps lower at 4.63%. Following a bumpy start, the S&P Index rebounded 2.91% over the week. The DXY Index fell off its 26-month highs following the inflation surprise, paring some of the losses on Friday following upside data surprises (stronger US housing starts, building permits, and industrial and manufacturing production prints), closing 0.28% lower on the week. Brent crude enjoyed a rally through $80pb.
US inflation data came in softer than expected in December, with core CPI rising just 0.2%mom, down from 0.3%. While decreases in hotel accommodation costs and slower growth in medical care services helped moderate inflation, energy costs remained problematic, accounting for over 40% of the headline CPI’s 0.4% monthly increase. The Fed’s Beige Book, meanwhile, reported modest economic growth across its 12 districts, noting strong holiday sales but declining manufacturing activity, along with easing wage pressures.
Elsewhere, the Chinese economy showcased a remarkable V-shaped recovery in Q4 2024, with GDP growth accelerating to 5.4%yoy (from 4.6% in Q3), driven by improvements in retail sales and industrial production. Looking ahead, while China maintains its commitment to economic reflation and a growth target around 5%, the property market’s trajectory remains crucial. The sustainability of recovery hinges on improving income expectations and job creation in new productive sectors, with the market awaiting detailed policy targets from the upcoming National People’s Congress in March.
Earlier in the week, the People’s Bank of China ramped up efforts to stabilise the renminbi near record lows, implementing stronger reference rates and capital controls while balancing growth needs against currency stability. Major monetary easing is expected later in 2025, likely after Trump clarifies the trade outlook. This morning the PBoC kept one and five-year loan prime rates unchanged.
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