Hey everyone. As we round out the month of January markets appear to be on a bullish path but with expectations very high for earnings performance and inflation to remain below a targeted base line we can see more volatility and choppy price action with all economic or earnings data that suggest otherwise. Next week will be a very important one with a number of MAG 7 stocks presenting their earnings along with the FEDs interest rate policy announcement. Get me take in this week’s market round-up.
MARKET SOUND BITES:
Markets finished the US holiday-shortened week higher with the S&P Index notching a new record high on Thursday before dipping modestly lower on Friday. Headlines were largely dominated by political developments after Trump assumed office on Monday. He did not impose a new round of tariffs on day one—as markets had feared—and instead, called on federal agencies to conduct a review of U.S. trade policies to determine the impact of potential future tariffs, although he did pledge to impose 25% tariffs on Canada and Mexico as soon as February. Later in the week, Trump also stated that he would “rather not have to use” tariffs on China, which helped fuel optimism for a potential trade deal between the world’s two largest economies. The developments seemed to be generally well received by investors and helped drive positive sentiment early in the week. Trump also announced a new joint venture between Softbank, OpenAI, Oracle, and investment firm MGX called Stargate, which will reportedly provide up to USD 500 billion toward the construction of data centers and other artificial intelligence (AI)-related infrastructure in the U.S. over the next several years.
In economic news, S&P Global released its first estimate of January economic activity on Friday morning. According to the report, growth in business activity slowed month over month in January but remained in expansion territory, supported by a return to growth in the manufacturing sector for the first time in six months. The University of Michigan’s Index of Consumer Sentiment fell in January for the first time in six months to 71.1, from 74.0 in December, largely due to rising inflation expectations and concerns about unemployment.
U.S. Treasuries generated marginally negative returns heading into Friday as yields increased slightly across most maturities.
Business activity in the eurozone rose marginally in January, although demand continued to be weak, according to PMI surveys compiled by S&P Global. An early reading of the composite output index registered 50.2, up from 49.6. Comments from ECB policymakers reinforced the view that the central bank is likely to lower borrowing costs for a fifth time on January 30.
In Japan, the BoJ raised its policy rate for the third time in a year. The 0.25 BPS increase put the policy rate at around 0.50 BPS, its highest level since the 2008 global financial crisis. The yield on the 10-year Japanese government bond rose to 1.23% from the prior week’s 1.20%. The BoJ’s widely expected rate hike was accompanied by an upward revision to the central bank’s inflation expectations for the 2025 fiscal year, with all measures above the 2% target and risks to the upside. This gave some room for the BoJ to hike rates again in 2025, with many investors expecting this in the second half of the year.
Chinese equities rose amid news that President Trump may be taking a softer stance on China tariffs. Chinese banks left their one- and five-year loan prime rates unchanged at 3.1% and 3.6%, respectively, for the third straight month. Analysts anticipate that the central bank will continue easing monetary policy this year, including potentially cutting the reserve requirement ratio and interest rates, as Beijing steps up efforts to combat the market uncertainty ushered in by a second Trump presidency.
Enjoy this weeks round-up.
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