8 min readWeekly Recap
Global stocks pushed higher last week as Trump came to power and adopted a less hostile-than-expected approach to trade tariffs. There were no immediate universal tariffs, causing the market to breathe a sigh of relief, and the new US President announced a $500 billion investment in AI infrastructure.
US stocks jumped higher, with the S&P 500 reaching a fresh record high, while the Dow Jones and the Nasdaq booked solid gains of 2.2% and 1.7%, respectively.
US economic data was in short supply, meaning that Trump news drove the market. While Trump floated the prospect of 25% trade tariffs on Canada and Mexico, he suggested that China may be able to negotiate its way out of tariffs, helping to boost risk sentiment and pull the USD lower.
Oil prices fell sharply after Trump announced plans to increase oil and gas output amid his “drill baby drill” agenda and said that OPEC should lower oil prices. Oil tumbled over 4%.
Trump trade tariffs
Heading into the new week, Trump’s comments will likely remain a key focus as the market waits to see if Trump implements trade tariffs on the February 1st deadline. Furthermore, with the news of China’s low-cost AI revival to OpenAI’s Chat GPT circulating, the market is nervous that Trump could apply more aggressive trade tariffs than was expected only last week. Trump has been vocal in his disdain for China undercutting US technology. This late development could cause Trump to turn more aggressive, hurting risk appetite and demand for US stocks.
The Nasdaq has fallen sharply at the start of the week.
Earnings season
Earnings season ramps up with results coming in from five of the Magnificent 7: Apple, Microsoft, Amazon, Meta, and Tesla, along with other giants such as Visa, Exxon, and Chevron.
The average share price gains of the Magnificent 7 rallied 60% last year and given their outsized market caps, these stocks greatly influence the market cap-weighted Nasdaq 100 and S&P 500.
China PMIs (Monday)
China sees the start of the Lunar New Year holiday period this week, and as a result, most key releases are set for Monday. Among the major data releases will be the January PMI figures, which economists expect to see a slight increase in manufacturing PMI to 50.3, up from 50.1 in December—meanwhile, the official services PMI is set to move higher. The data will have been collected before Trump’s latest comments, in which he suggested that he was prepared to make a deal with China rather than apply trade tariffs.
The Hang Seng has recovered from the 2025 low of 16670, but the recovery stalled above 20k.
Fed rate decision (Wednesday)
The Fed is not expected to move on interest rates at the meeting this week, with the market pricing at a 99% probability that rates will remain unchanged at the current level of 4.25% to 4.5%. However, a March rate cut remains possible.
Recent data shows that the labour market remains solid. The unemployment rate is relatively low, and wages are growing faster than inflation. Job market strength lessens any urgency for the Fed to cut rates. Meanwhile, underlying inflation unexpectedly cooled to 3.2% in December, which supports the view that the Fed will cut rates in 2025.
A hold allows the Fed to consider the policies of the new Trump administration. Markets will be watching closely for comments regarding the outlook for inflation in light of Trump’s less hostile-than-expected approach to trade tariffs so far. The market had fretted that Trump would apply aggressive universal trade tariffs immediately, which would have added inflationary pressures to the US economy. However, it is still early days.
The market is pricing in a 28% chance of a rate cut in March, with the first-rate cut more likely to come in July. A less hawkish stance from the Fed could see the USD fall and Gold and stock markets rise. Gold trades around 2750 at the start of the week, close to its record high of 2790.
ECB rate decision (Thursday)
The ECB is expected to cut rates by 25 basis points in its first meeting of 2025. Policymakers in Davos have signaled that the rate cuts will continue. ECB president Christine Lagarde suggested that a 25 basis point reduction at next week’s meeting was a no-brainer.
Minutes from the December meeting pointed to a growing easing bias within the central bank amid doubts over growth forecasts and the growing risk of inflation undershooting.
There has been little new hard data since the December meeting, and the euro area appears to be facing a mild version of stagflation amid slowing growth and slightly higher inflation. However, the ECB seems to be looking past this temporary increase in CPI. Even the Hawks in the ECB sound dovish
Rate cuts are expected to continue beyond next week’s meeting, with the market pricing in around 100 basis points of cuts this year.
EUR/USD has recovered from its 2025 low below 1.02, rising towards 1.05. However, a dovish-sounding ECB could limit the upside.
BoC rate decision(Wednesday)
The Bank of Canada is expected to cut interest rates by 25 basis points at its meeting this week; however, a pause may not be that far off.
The central bank is expected to cut rates by 25 basis points to 3%. This comes after it lowered its interest rate from 5% to 3.25% in 2024, leading the way in central bank rate reductions. The market is pricing in a 17% chance that the Bank of Canada wholly rates on hold compared to an 83% chance for a 25 basis point cut.
The meeting comes as the domestic economy has barely grown, inflation remains contained, and the loonie looks weak.
However, the strong jobs report in December raises some questions over a potential growth pick-up. There were also some concerns over the substantial policy diversion by the Fed, which has resulted in a weakness in the Canadian dollar.
At the same time, the threat of Trump trade tariffs on Canadian exports also looms and is key to the interest rate outlook. Aggressive tariffs of 25% could result in rapid disinflation, forcing the Bank of Canada to cut rates further.
US Core PCE & GDP (Thursday & Friday)
US core PCE ticked higher to 2.8%in November. However, the December CPI reading for underlying inflation unexpectedly cooled. The market will be keen to see whether this trend will also reflected in core PCE, the Federal Reserve’s preferred gauge for inflation.
The market is already cautious about how many times the Fed will be able to cut rates this year, given the US economy’s ongoing exceptionalism. Trump’s recent announcements have been less hostile than expected, easing some worries over inflationary pressures.
The fourth quarter’s US GDP is expected to show that the US economy remains solid heading into 2025. The US GDP rose 3.1% annualised in the third quarter of the year. Recent PMI data has continued to show solid growth, particularly in the dominant service sector in the US economy. Strong growth could raise concerns over the Fed’s ability to cut interest rates.
Sticky inflation and strong GDP data could lift the USD, which fell last week. USD/JPY trades around a monthly low ahead of the releases.
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