Last week, the international financial landscape underwent a significant transformation as the Bank of Japan raised interest rates by 25 basis points, marking the highest level since 2008. This decision was met with varied responses across different markets, reflecting the intricacies of global economic conditions.
In the American markets, all major indices experienced gainsThe Dow Jones Industrial Average climbed 2.15%, the Nasdaq Composite rose 1.65%, and the S&P 500 index increased by 1.74% over the weekHowever, European markets displayed a mixed picture: London's FTSE 100 saw a slight decline of 0.03%, while Germany's DAX 30 jumped by 2.35%, and France's CAC 40 experienced an even larger increase of 2.83%. This contrast exemplifies the varied economic recovery trajectories within these regions.
This week promises to be eventful, with key meetings scheduled for the Federal Reserve, the European Central Bank (ECB), and the Bank of Canada
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Analysts predict divergent policy paths, particularly as numerous economic indicators from the U.S., such as GDP and personal consumption expenditures (PCE) inflation, are closely monitoredInvestors will also keep a keen eye on any remarks from the U.Sregarding tariffs as the earnings season heats up with prominent tech companies, including Apple and Microsoft, set to release their financial results.
As for the Federal Reserve, it appears poised to maintain its current stance without further easingThe enduring resilience of the U.Seconomy, coupled with persistent price pressures, leaves little room for additional stimulus at this timeThe Federal Open Market Committee (FOMC) is expected to announce its interest rate decision on January 29, placing significant emphasis on any hints regarding potential future rate cutsCurrent projections suggest that the market anticipates two rate cuts within the year, with the first possibly occurring around June.
Notably, on January 30, the initial estimate of the U.S
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GDP for the fourth quarter of 2024 will be released, with expectations set for an annual growth rate of 2.6%, down from 3.1% in the previous quarterOne of the critical metrics for the Fed, the PCE inflation rate, is also slated for announcementAccording to Cleveland Fed's Nowcast model, the expected year-on-year PCE inflation rate for December remained steady at 2.8%, continuing to exceed the Fed's mid-term target of 2%.
Other significant data releases include new home sales, orders for durable goods, the Conference Board's Consumer Confidence Index for January, and the Chicago Purchasing Managers' Index.
As earnings reports flood the market, noteworthy firms such as Apple, Microsoft, Meta Platforms, Tesla, Mastercard, and ExxonMobil will be in the spotlight, providing insights into their performance and future outlooks.
Turning to commodities, international oil prices experienced a decline for the first time in nearly five weeks
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This drop can be attributed to pressure from the United States on major oil producers to increase outputThe West Texas Intermediate (WTI) crude oil futures fell by 3.53%, settling at $74.66 per barrel, while Brent crude oil futures decreased by 2.83%, ending the week at $78.50 per barrel.
According to Hodges, the Director of Energy Market Strategy at StoneX, there are calls for OPEC members, including Saudi Arabia, to ramp up productionThe U.S.'s relationship with Saudi Arabia is likely to facilitate further engagement with OPEC+, encouraging the organization to utilize its reserve capacity of 5.5 million barrels per day to help stabilize and lower oil prices.
Meanwhile, gold prices approached historical highs last week, driven in part by a weakening dollarMalik, the head of commodity strategy at TD Securities, noted, "A major factor contributing to the dollar's decline relates to discussions surrounding tariffs
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I believe the gold market could experience heightened inflation and perhaps an outlook for looser monetary policy." Standard Chartered Bank indicated that the focus has shifted to expected tariff or trade policy announcements set for February 1, resulting in less attention on the Federal Reserve's upcoming meeting on January 29. The bank previously suggested that tariffs on Mexico, Canada, and the EU could be announced at that timeIt was also noted that a short-covering rebound has lifted spot prices, although ETF flows remain unstable ahead of the Fed meeting.
The ECB is expected to hold its first meeting of the year next week amid expectations for a 25 basis points rate cut due to the sluggish recovery of the Eurozone economyInvestors will be keenly watching ECB President Christine Lagarde's remarks and any guidance on the pace of future rate cuts during the subsequent press conference.
Since June 2024, the ECB has been gradually cutting rates, and the market generally anticipates a continuation of this trend into 2025. Lagarde reiterated this gradual approach in her speech at the recent Davos Forum
Current market pricing hints at a potential reduction of 25 basis points each quarterHowever, with service sector inflation in the Eurozone lingering around 4% and wage growth hitting a more than three-decade peak in the third quarter of last year, a more aggressive stance seems improbable.
On the data front, Germany, France, and the Eurozone will release preliminary estimates of their Q4 GDP on January 30. Consumer surveys from Germany, France, and Italy will also provide critical insights into the current state of the Eurozone economy.
In the UK, upcoming government bond auctions are likely to garner increased attention, especially following significant jumps in long-term bond yields earlier this month that raised concerns over public financesEconomic data releases are expected to be relatively light, but notable figures will include mortgage and credit data from the Bank of England for December, as well as the Nationwide house price index for January.