Week of JANUARY 13

The initial full trading week of the year witnessed Euro Area inflation matching expectations, a more hawkish stance of the Fed following the release of the FOMC minutes, and an unexpected surge in UK government bonds, which weakened the pound.

Next week will see a ramp up of key releases, including US and UK inflation as well as GDP data for Britain and China.​

Week in Review

The primary focus centred on central banks and the data needed to decide on rate policies before the first meeting cycle of the year.

Euro Area inflation rose as expected, with prices increasing faster in Germany but slower in France. This affirmed the impression that consumer prices are behaving according to ECB projections, allowing for further easing soon. Early gains in EURUSD recoiled by the week's close, bringing the euro to 1.0300 ahead of the NFP.

The minutes of the last FOMC meeting revealed that some officials considered keeping rates steady, though ultimately deciding to cut. Almost all officials stated that the risk of inflation overshooting had increased and that the policy rate was significantly closer to neutral. A series of Fed speakers later in the week emphasised a "cautious" approach to easing, though they affirmed that rates were on a downward trajectory, with the speed of easing depending on the data. Nonetheless, gold still rose on economic and geopolitical concerns, clearing the 20-week average of $2650 per ounce.

Following a 30-year debt auction, UK yields spiked throughout the week due to concerns about potential stagflation, with Treasury officials making public statements about there being no need for no intervention to calm markets, as Chancellor Rachel Reeves will be in China over the weekend.

Meanwhile, the PBOC temporarily suspended bond buying, citing a lack of supply and excessive demand.

BOJ Governor Kazuo Ueda affirmed that rates would increase if economic improvements continue.

A series of wildfires affecting the Los Angeles area remained uncontrolled going into the weekend, with considerable concern over the extent of insurance claims affecting utilities and reinsurers.

In geopolitical developments, Canadian Prime Minister Justin Trudeau announced his resignation while the Liberal Party chooses a new leader, proroguing Parliament until April 24 for the leadership contest.

The US market was closed on Thursday for a national day of mourning for former president Jimmy Carter.​

Biggest Market Movers

• The British pound tumbled against the US dollar over concerns about the UK's economic growth prospects, reaching its lowest level since late 2023.
• Precious metals like gold and copper increased throughout the week, driven by expectations that Chinese authorities will implement further measures to stimulate demand and ease economic conditions.
• Crude oil gained for the third week as the outgoing Biden Administration imposed further restrictions on Russia, while the incoming Trump Administration is anticipated to target Iran.​

Top Events in the Week Ahead

The forthcoming week will witness an increase in the release of data points, with the Chinese trade balance figures being published over the weekend. Exports from China, the world's second-largest economy, are expected to accelerate, while imports are expected to remain negative once again. Subsequently, attention will shift to Wednesday, when key inflation metrics from the US and Britain will be released.

US and UK CPI in Focus

Headline inflation in the US is projected to rise to 2.9% from 2.7% previously, driven by higher energy costs after the average cost of gasoline surpassed $3.00 per gallon. Meanwhile, the core rate is expected to remain unchanged at 3.3%, affirming the cautious views expressed by Fed officials. However, the monthly core figure is expected to drop to -0.1%. Given the rise in gilt yields due to concerns about stagflation, the UK CPI figures will be closely monitored this time around, with the headline inflation rate expected to remain steady at 2.6%. The core rate, however, is expected to drop to 3% from 3.5% as investors ponder when and if the BOE can resume easing measures soon.​ As Fed speakers turn more hawkish, if inflation rises above expectations, the odds of the Fed cutting rates in 2025 will likely reduce, sending GBPUSD towards or below 1.22.

Economic Growth Indicators

The UK is expected to release November's monthly GDP figures, showing an increase to 0.1% from the previously reported -0.1%. This would boost the rolling three-month growth rate to 0.2% from 0.1%, easing concerns of a recession for the final quarter of the year. Conversely, a downbeat figure could exacerbate the gilt yield situation should it remain unresolved by then. The Footsie trades stably above the 200-day moving average of 8220, with the next resistance sitting at 8400.

In Asia, China will be the first major country to report Q4 figures, with an expectation of expanding at 1.6% from 0.9% in the third quarter, meeting its growth target of 5.0% for the year. Europe's 50 index could accelerate its distance from the 5000 support should GDP exceed or match expectations.

Other Events, Earnings

On Monday, Australia will release Westpac consumer confidence figures. Tuesday brings US PPI data. Wednesday includes Euro Area industrial production statistics and the US Empire State manufacturing index. Thursday features Australia's unemployment rate and US retail sales figures. For Friday, Chinese house price data and UK retail sales numbers are scheduled.

This week marks the unofficial start of the fourth quarter corporate earnings season, with major US banks reporting on Wednesday. Key companies providing updates to investors this week include JP Morgan, Wells Fargo, BlackRock, Citigroup, UnitedHealth, Bank of America, Truist, SLB, Persimmon, Antofagasta, Currys and Fastenal.​