Highlights
Major U.S. equity indexes ended a volatile, shortened trading week in negative territory. The S&P 500 edged lower by 0.35% while the Russel 2000 ended the week 0.32% lower. The Nasdaq Composite managed to eke out a 0.3% gain for the week. U.S. markets were closed on Monday in observance of Martin Luther King Jr. Day. Stocks sold off sharply on Tuesday, with the S&P 500 recording its largest one-day decline since October. The drop was triggered by renewed fears of a global trade conflict after President Donald Trump announced plans to impose tariffs on European countries opposing U.S. efforts to purchase or gain control of Greenland. Market sentiment improved on Wednesday after Trump appeared to soften his position. In a social media post, he said he had reached a preliminary framework for a future agreement with NATO Secretary General Mark Rutte regarding Greenland and confirmed that the proposed tariffs scheduled for February 1 would no longer be implemented. The announcement sparked a rally that helped major indexes recover from earlier losses by week’s end. Revised data from the Bureau of Economic Analysis indicated that the U.S. economy expanded more rapidly than previously estimated in the third quarter. Meanwhile, Inflation pressures remained elevated. The core personal consumption expenditures price index—the Federal Reserve’s preferred inflation measure—rose 0.2% in November, matching October’s increase. Employment data suggested that layoffs remain limited despite signs of cooling in the labour market whereas consumer sentiment showed improvement in January. However, sentiment remained significantly lower than a year earlier, reflecting continued pressure on household purchasing power due to high prices and concerns about labour market conditions. Separately, European equities declined over the week as renewed trade tensions and geopolitical concerns weighed on sentiment. The pan-European Euro STOXX 600 Index fell 1.15%, while major national indexes in France, Germany, Italy, and the UK also posted losses. Business activity in the eurozone continued to expand modestly in January, supported by stronger new orders. Surveys showed business optimism reaching its highest level in nearly two years. In the UK, business activity accelerated to a 21-month high, signalling solid quarterly economic growth. Norway’s central bank kept interest rates unchanged, maintaining its guidance that rate cuts are likely later in the year. Japanese markets also saw heightened volatility in the week as the yield on Japan’s 10-year government bond rose to its highest level since 1997, reflecting concerns about fiscal sustainability. Longer-term bond yields also spiked sharply after discussions of unfunded tax cuts heightened worries about Japan’s already high debt levels. Meanwhile, the Bank of Japan left interest rates unchanged at 0.75% and reiterated that further rate increases are possible if economic conditions align with forecasts. The yen traded erratically with the USDJPY ending the week 1.53% lower, influenced by comments from BoJ Governor Kazuo Ueda about yield volatility and potential market intervention.
Data Highlights
USD PCE Price Index YoY (Oct) fell from 2.8% to 2.7%, as expected. USD PCE Price Index YoY (Nov) rose back from 2.7% to 2.8%, as expected. CAD Inflation YoY (Dec) rose 20bp to 2.4%, from 2.2%; beating expectations of staying at 2.2%. CAD Core Inflation Rate YoY (Dec) fell in line with expectations, from 2.9% to 2.8%. CAD CPI Median YoY (Dec) fell 30bp, from 2.8% to 2.5%, below expectations of a 2.7% landing. GBP Unemployment Rate (Nov) stayed still at the 5.1% level, while consensus had priced a 10bp drop. GBP Inflation Rate YoY (Dec) rose 20bp, from 3.2% to 3.4%, 10bp more than the consensus of 3.3%. The JPY BoJ Interest Rate Decision stayed still at 0.75%, in line with expectations. JPY Inflation Rate YoY (Dec)fell far beyond the expected 2.7%, to 2.1%. China GDP Growth Rate YoY (Q4) fell 30bp to 4.5% while the market expected a drop to 4.4%. AUD Unemployment Rate (Dec) surprisingly fell 20bp to 4.1% from 4.3%, the market had actually expected it to rise 10bp to 4.4%.
Week Ahead
AUD Inflation Rate YoY (Dec), AUD CPI (Dec), CAD BoC Interest Rate Decision, USD Fed Interest Rate Decision – Wednesday | JPY Unemployment Rate (Dec), Germany Unemployment Rate (Jan), EUR Unemployment Rate (Dec), Germany Inflation Rate YoY (Jan) – Friday
