Week of JANUARY 27

Last week, despite a relatively busy calendar showing a rise in UK unemployment, a hike by the BOJ and better-than-expected flash PMIs in Europe, geopolitics took centre stage, with a focus on measures from the new Trump White House.

Next week is set to be more intense, with central bank rate decisions expected from the Fed, ECB and BOC, alongside EU and US GDP figures likely to capture headlines.

Week in Review

Although the US market was closed on Monday for a holiday, the inauguration of President Donald Trump, followed by a flurry of executive orders and statements, set the tone for the week. Confirmation that tariffs would not be implemented immediately initially weakened the dollar on Monday and supported global equities throughout the week. However, Trump signalled that tariffs would likely be imposed on Mexico and Canada starting next month, which tempered some of the initial optimism. The US index still ended the week shy of 2% lower, with support at the 50-day moving average of 107.25. Trump also announced a $500 billion "Stargate AI" initiative to invest in artificial intelligence, boosting stocks. The S&P 500 extended to new records, while the Nasdaq jumped near the 22000 handle.

In policy-setting, the BOJ delivered its widely expected 25 basis-point rate hike, with Governor Kazuo Ueda emphasising that there was no preset path for future rate moves. USDJPY saw weakness ahead of the event as investors priced in the rate hike, though the 50-day moving average at 155.00 triggered an initial rejection. Meanwhile, ECB President Christine Lagarde spoke multiple times at the World Economic Forum in Davos, reiterating her stance that inflation was coming under control but warning of economic headwinds.

Neighbouring UK saw labour data painting a mixed picture, with the unemployment rate ticking up to 4.4% from 4.3% prior, but average earnings also rising to 5.6% from 5.2% prior. Footsie spiked to new records several times throughout the week, eventually settling a tad higher despite earlier gains. In Canada, inflation fell by a decimal point as expected, confirming the perception that more easing from the BOC is on the way. Loonie faced a volatile week, flipping around 1.43 and 1.4, but sided with the support as the week drew to an end. Finally, Flash European PMIs came in better than expected, though still in contraction by a wide margin. It still boosted the euro to a 5-week high against the dollar.

In geopolitics, Russian President Vladimir Putin and Chinese President Xi Jinping held a telephone conference focused on boosting trade. Trump warned of more sanctions and tariffs on Russia if there wasn't a deal on Ukraine soon and issued an executive order pausing foreign aid for all countries except Ukraine and Israel.

Biggest Market Movers

• The FTSE 100 reached a new all-time high on a relief rally that the new Trump Administration wouldn't immediately implement global sanctions.
• Gold gained around 3% in the week, supported by Trump's hesitancy at Davos to implement tariffs on China and his demands towards the Fed to lower interest rates.
• The New Zealand dollar was among the top-performing currencies after inflation came in hotter than expected and a rally in Chinese equities.
• The EURUSD retested 1.05 late in the week after flash PMIs were stronger than anticipated.
• Crude oil declined four out of five sessions for a weekly loss of around 4% after Trupp signed executive orders pertaining to more oil production and urged OPEC to lower prices.

Top Events in the Week Ahead

The focus for the coming week will be rate decisions from the world's two largest central banks. 

Central Bank Decisions

First up is the Fed on Wednesday, which is widely expected to "pause" its easing cycle, with investors focusing on the commentary from Fed Chair Jerome Powell now that he has an answer as to what Trump will do in terms of policy. He will also likely be asked about Trump's "demand" for lower interest rates. The Fed will be meeting just two days before the release of its preferred inflation measure, the core PCE price index, which is expected to show that inflation has been steady at 2.8% in the last month. Weaker data could set the stage for new records in gold, opening the door to $2850 and $2900 per ounce.

The next day, it is the ECB's turn. The bank is widely expected to cut rates by another 25 basis points after a series of members, including both hawks and doves, commented last week on how inflation is coming into line, with a focus on whether there will be any signals about either a pause or another cut at the next meeting. Futures are pricing in a pause for the March meeting, with Lagarde seen sticking to the data dependency rhetoric. If Lagarde turns dovish, the recovery in the euro may stall.

Finally, the BOC is expected to slow down its easing pace to just a 25 basis point cut on Wednesday compared to the 50 basis points in the prior meeting, as it continues to face inflation below target, sluggish economic growth, and the potential of tariffs being applied at the end of the week.

Diverging Economic Growth

On Thursday, the Euro Zone will also release its first GDP figures, with Germany expected to reverse its trend and post 0.3% quarterly growth, as opposed to the -0.3% seen in the third quarter. This would imply that the largest economy would escape a technical recession. However, other countries in the bloc are expected to weigh on the collective figure, with the Euro Area forecast to see its quarterly growth rate decelerate to 0.3% from 0.4%.

A couple of hours later, across the Atlantic, the US is expected to report that its GDP growth rate in Q4 moderated slightly to an annual rate of 3% from 3.1% previously.

Within the context of economic growth indicators, China is expected to bookend its Lunar New Year holiday next week with PMI releases on Monday and Friday, with both the official and private Manufacturing measures expected to remain modestly in expansion territory.

Other Events, Earnings

Monday marks the release of the German Ifo business climate indicator. Australia's NAB business confidence data will be published alongside US durable goods figures on Tuesday. Australia will release its quarterly inflation rate on Wednesday. Thursday includes Euro Area unemployment figures. Friday features UK Nationwide housing prices as well as flash French CPI figures.

Earnings season is anticipated to intensify towards its peak, with numerous prominent companies expected to report, including AT&T, SAP, RTX, Boeing, Imperial Brands, BT, Shell, Microsoft, Meta, Tesla, Apple, Visa, ExxonMobil, AbbVie, and Chevron.​